PA Environment Digest Blog: Guest Essay: Paying The Price For Natural Gas And A.I. Data Centers

By John Quigley, Senior Fellow, Kleinman Center for Energy Policy

These remarks were made during a July 31, 2025 Ohio River Valley Institute webinar on Data Centers & LNG Gas Replace Petrochemicals & Hydrogen As The Latest Natural Gas Shiny Objects That Are Destined To Disappoint.

The situation that we're facing is that a combination of PJM Interconnection’s dependence on natural gas and pro-gas, anti-renewable policies are hurting the economy, consumers, communities, and the environment.

And A.I., frankly can make things worse.

So, I want to look at these four areas: the overall electricity situation in PJM; market forces; policy forces; and A.I.

PJM Overview

Electricity prices in PJM, which serves all or parts of 13 states and the District of Columbia, are rising dramatically due to a failure to transition to clean energy.

Last July's capacity auction resulted in about $12.3 billion in additional costs.

Capacity costs represent about 25% of electricity bills. So, consumer electricity bills rose by as much as 29% this June in the PJM region.

PJM says that the higher costs were driven by three factors-- coal-fired power plants retiring because they couldn't compete with gas; growth in electricity demand, primarily driven by data centers; and the implementation of Federal Energy Regulatory Commission-approved market reforms that better reflect the reliability risks posed by extreme weather, and particularly— I’ll note this importantly—because of the unreliability of gas plants in extreme weather.

That unreliability of gas plants was a big driver in the cost increases.

The cost increases in this year's capacity auction are about 9.5% from a year ago, to $16 billion— now more than seven times the $2.2 billion capacity cost of two years ago.

PJM expects the latest auction results to raise consumer electricity bills starting next June by up to another 5%, or more than an additional $100 in annual household costs on top of the increase that we hit this June.

And it would've been worse if Governor Shapiro hadn't sued PJM and succeeded in getting a price cap imposed on this auction.

Lack Of Clean Energy Transition

The fundamental reason behind the price spike is the lack of a clean energy transition in PJM.

The latest auction resulted in this generation mix—with 67% of the generation in PJM being from fossil fuels, with gas being the largest source.

That’s despite the fact that renewables and storage comprise over 97% of proposed new generation projects in the PJM queue.

In fact, 83% of the generation languishing in the PJM queue is comprised of solar and storage— which can be built twice as fast as gas plants—while having comparable reliability values.

Yet PJM has allowed gas plants to jump to the head of the line in the interconnection queue to meet load growth.

It takes an average of more than five years for a generation project in PJM to plug into the grid.

PJM’s interconnection process was so flawed that FERC ordered reforms, and while developing them, PJM stopped processing interconnection requests for two years; restarting the process just last summer.

And just last week, FERC ordered PJM to rework its “conceptual proposals” that FERC said fail to meet federally mandated deadlines for implementing interconnection reforms.

Those reforms can speed the deployment of clean energy and save money for consumers and businesses.

An April 2025 study from the research firm Synapse Energy Economics found that comprehensive interconnection reforms at PJM could save electricity customers an average of $505 per year and cut commercial and industrial electricity costs by 23% through 2040.

These reforms are urgently needed.

Market Forces

Now let's look at market forces. PJM's dependency on natural gas is particularly problematic because market forces are driving up natural gas prices, making the region dependent on an increasingly expensive fuel source.

The cost of new gas plants has tripled since 2022. There's a backlog on turbines and power transformers that stretch into the 2030s.

The US Department of Energy in the previous administration found, in a report issued in December of last year, that unrestricted LNG exports will raise domestic natural gas prices by at least 31% by 2050, further increasing electricity costs.

And based on the latest US Energy Information Administration analysis that actually came out yesterday—that Appalachia will supply increased amounts of gas to support LNG exports—that may drive up prices in the region as well and make our power situation even more expensive.

Policy Forces

Policy forces are an extremely backward force in this conversation.

The federal budget reconciliation bill and its repeal of clean energy tax credits will increase US power bills by slowing the construction of solar, wind, and battery projects, which made up over 90% of the new electricity connected to the grid last year.

The law is going to reduce economic growth, and in Pennsylvania, Ohio and West Virginia combined, it will wipe out about 45,000 jobs by 2030 and over 57,000 jobs by 2035, according to one analysis.

It will also wipe out about 30 gigawatts of planned generation capacity in those three states, and risk a power supply shortfall.

According to an analysis that was commissioned by the Clean Energy Buyers Association, the federal budget law is going to raise the cost of electricity over the next four years in Ohio by 5.4%, in West Virginia by 6.4%, and in Pennsylvania by 8.1%.

Plus, tariffs on steel and copper are going to make gas plant construction and equipment even more expensive.

The budget bill is also going to increase greenhouse gas emissions and that's where federal policies may be the most damaging.

On Tuesday, US Environmental Protection Agency proposed to rescind the 2009 endangerment finding that increasing greenhouse gas emissions threaten the public health and the welfare of current and future generations.

This comes on top of federal actions to prop up expensive coal plants; plans to eliminate greenhouse gas emission limits for power plants and allow increased emissions of mercury and other toxins; and relax regulation of coal ash.

So besides ceding the clean energy future to other nations, we are paying for fossil foolishness with more than money—with our health and with our safety.

And our children— and theirs—will pay an even higher price.

A.I. Data Centers

So now we come to A.I. The July Summit in Pittsburgh featured the announcement of about six new gas power plants that will increase greenhouse gas emissions.

They also announced a Google power purchase agreement from two Pennsylvania hydroelectric plants that will effectively reduce the amount of clean energy on the grid.

Now, history shows us that what's announced is not necessarily what gets built. But still, the reality is that, absent significant policy interventions, data center energy demand is going to increase costs for all consumers for at least two reasons.

First, a large amount of new generation and substations and transmission will need to be built that wouldn't otherwise be built, and that creates fixed costs that utilities are going to need to recover.

Secondly, any difficulty in supplying energy to keep pace with growing data center demand will likely increase energy prices for all consumers.

Classic supply and demand.

Data centers are also going to hurt state taxpayers, at least in Pennsylvania. While data center projects may result in increases in local property taxes-- if no local property tax abatements or other incentives are offered-- Pennsylvania offers a sales tax exemption for data center equipment that could cost the Commonwealth hundreds of millions of dollars in tax revenue.

There was also a lot of hype at the A.I. summit for a proposed energy siting board that includes unaccountable private sector board members and that would take away approval powers from local governments.

And that's already generated some opposition.

Legislators are jumping on the A.I. bandwagon in a deregulatory frenzy.

Legislation has been proposed in Pennsylvania to direct state agencies to identify suitable sites for gas generation projects and to provide low interest loans and grants to finance their “construction, maintenance, modernization and operation.”

And the day before the summit, legislators announced a proposal to make Pennsylvania a "regulatory sandbox" for A.I. data centers and other so-called “emerging technologies.”

That joins bills to expedite permitting, create a special authority to streamline permitting, and create an A.I. development tax credit and examine other regulatory barriers.

And I'll just say that as the American linguist George Lakoff has observed, “regulations are protections against harm done by corporations seeking to maximize profit at the cost of harm to the public.”

Our lawmakers ignore that observation at our peril.

Another unacknowledged issue is that data centers can require millions of gallons of water a day for cooling.

Data centers could surpass the oil and gas industry's consumptive use of water in Pennsylvania very quickly.

And the potential impacts to groundwater, surface water, ecosystems, and 3.5 million Pennsylvanians who rely on private water wells has not been discussed or planned for.

Data centers certainly can create construction jobs, but they simply don't create many permanent jobs.

One example is in Lancaster County. The A.I. company CoreWeave announced plans to invest $6 billion in a 450,000 square foot, 100 megawatt data center in phase one of a project.

The facility will be cooled by air, not water, and it will contain lithium-ion battery backups, but it will also have 72 diesel generators for emergencies.

I'm not sure I'd like to be anywhere nearby breathing when they fire up.

And while developers claim that the project will generate 600 construction jobs, the facility is expected to have just 50 employees after the first phase.

And that gets back to what Sean (O’Leary) talked about in terms of capital intensive, low employing industries.

I will end here.

Without announcing anything publicly, Pennsylvania Department of Environmental Protection recently fined Coterra Energy $299,000 for contaminating 13 private water supplies in Lenox Township, Susquehanna County in 2021.

Lenox Township is just a few miles from Dimock.

In December 2022, Coterra pleaded no contest to criminal charges filed by the Office of Attorney General and paid a penalty of $444,000 for contaminating 21 water supplies in Dimock in 2002.

As Mark Twain said, history never repeats itself, but it rhymes.

This conversation about natural gas and A.I. is not just about prices and jobs and investment and policies.

It's about people and the impacts of development on them.

And I'll stop here.

Thank you very much.

Click Here for a copy of Quigley’s presentation slides.

Click Here for a copy of Sean O’Leary’s presentation slides, Ohio River Valley Institute.

Click Here for a recording of the webinar.

John Quigley, Senior Fellow, Kleinman Center for Energy Policy is the former Secretary of the Pennsylvania Department of Environmental Protection and the Department of Conservation and Natural Resources.

(Chart: Patrick Cicero, Former PA Consumer Advocate and Counsel to the Pennsylvania Utility Law Project. Read more here.)

Resource Links - PA Electric Grid:

-- PJM Electric Auction Impacts: 1 In 5 PA Households Report Problems Now Paying Energy Bills; Electric Utility Shutoffs Up 38.1% So Far This Year [PaEN]

-- PJM Electricity Auction: PJM Lost 2.8 Gigawatts Of Power Due To Reduced Reliability Rating Of Natural Gas Power Plants; Could Gain 12.2 Gigawatts By Increasing Reliability From Less Than 75% Now To An Achievable 90% [PaEN]

-- 30 Stakeholder Comments Received By PUC On Adequacy Of Electricity Supplies In Pennsylvania; Increasing Natural Gas Power Plant Reliability To 90-95% Would Mean No Imminent Capacity Problem [PaEN]

-- PUC Invites Stakeholder Comments On The Issue Of The Adequacy Of Electricity Supplies In Pennsylvania [Background On Issue] [PaEN]

-- Guest Essay: Rewriting The Energy Story — Together - By Stephen M. DeFrank, Chairman, Pennsylvania Public Utility Commission [PaEN]

-- PUC: Brace For Higher Electric Bills As A Result Of Soaring Power Use; Consumers Should Review Energy Options [PaEN]

-- Guest Essay: Three Proposals To Protect Consumers From A.I. Price Increases: Bring Your Own Generation; Data Centers Must Pay Their Fair Share; An 'All Of The Above' Energy Future, Including Renewables - By Kevin Walker, CEO, Duquesne Light [PaEN]

-- Spotlight PA: Why Pennsylvanians May See Higher Electric Bills This Summer And Next [PJM Auction, A.I. Data Center Power Demands]

-- House Committee Told PA Needs An Energy Policy, Doing Nothing Means We Are Going To Run Out Of Power; Overreliance On One Fuel-- Gas-- Is Raising Electricity Prices [PaEN]

-- PA Elected Officials, Consumer, Clean Energy Advocates Demand Electric Grid Operator PJM Act To Hold Down Electricity Costs [PaEN]