PA Environment Digest Blog: Senate PUC Budget Hearing: PUC Chair Says PJM Market Auction Not Designed For Data Center Demands; PA Needs Diversify Fuels Used To Generate Electricity; Bring Your Own Power Critical

On March 3, the Senate Appropriations Committee held its first hearing on the budget for the Public Utility Commission in at least five years focusing questions on A.I. data centers and energy affordability.

Click Here for the PUC’s written budget testimony.

Here is a summary of some of the key issues raised during the hearing.

-- PJM Market Auctions Not Designed For Data Center Demands: Sen. Trący Pennycuick (R-Berks) expressed a concern about needing more electric generation to meet expected power demands for all ratepayers and asked why electric generators were not responding to the price signals in the PJM capacity auction market to provide more generation.

PUC Chair Stephen DeFrank responded by saying-- “Just my personal view is I don't think the construct of the market was ever designed for these types of challenges.

“This market was designed for a 1% to 3% slow and steady load growth year in and year out. The challenge with that data centers, it's threefold.

“It's the size of the load, it's the speed of interconnection, the speed of the load, and there's not an end in sight. This is going on indefinitely forward.

“So those three things, those three aspects have made it very challenging for this capacity market to work.

“And in fact, we've seen the capacity market even before we've gotten into large loads, as we've seen increased electrification, we've seen the market [trends] go vertical.

“And what I mean by that is we want a flat market. We want a horizontal market.

“We don't want a vertical market because when we have a vertical market, small changes in load, in demand, results in huge changes in price.

“And so you want a flatter curve where you can absorb those differences in load and it not impact prices drastically as it has been in this current construct.”

-- Data Centers - Bring Your Own Power: Sen. Rosemary Brown (R-Lackawanna) asked-- “Can you give me your position if you think we are ready for the energy that is needed for data centers based on the questions of the supply and the demand for in-state and out-of-state? We have energy, we send it away, but we need it, but yet we're going to have these data centers.

Chairman DeFrank responded-- "I think that we are ready for it and we're ready for it right now-- and that's with bring your own generation.

“Again, if you would've asked me this question a year ago, I would've said, "We're ready for it now, and you don't have to bring your own generation."

“But again, this market has not responded. We've gone three auctions now and the market has not responded.

“The last auction was six gigawatts short of the reserve margin. So again, we're likely going to be short again.

“Those large users have to bring their own power.

“That's the answer to that because I don't know that this current market is going to be able to provide the supply that's going to be needed for large loads.

“So large loads interconnect with their supply, I think we're ready to go.”

-- We Need To Diversify Our Fuels For Generating Electricity: Sen. Sharif Street (D-Philadelphia) asked, "How important do you think it is that the General Assembly takes action on actually reauthorizing the Alternative Energy Portfolio Standards and give some real legislative directional clean energy?” [Read more here.]

Chairman DeFrank responded by saying-- "I think what the more important thing is, is to address energy in a comprehensive fashion.

“I mean, that's what we've seen. When we address energy issues piecemeal through budget amendments, that's what's been increasing costs.

“Between the net metering solar issue, and tier two waste coal and AEPS, those two costs are close to a billion dollars, are going to be a billion dollars.

“And that's because we've done them piecemeal and we haven't done them in a comprehensive fashion.

“I think that's the biggest thing, is when you try to put an energy plan out, you put a comprehensive plan out, and you look to see how the different pieces of this plan are going to fit together, because that's what we haven't been doing, and that's what I think has been increasing the cost.

“When you talk about updating AEPS, there's going to be a cost of that. There's no question about it. There's a cost to our current AEPS plan.

“But there's also a cost of not having resource diversity.

“And as we're throwing everything into one bucket, we are going to be held to the whims of the market of that bucket, and we got to be cognizant of that.

“Our last gas reliability report in Pennsylvania, 63% of gas used in Pennsylvania is used to generate electricity with. [Read more here.]

“The PJM footprint, nearly 50% of PJM's generation is generated with natural gas.

“Now, I'm the NARUC [National Association of Regulatory Utility Commissioners] gas chairman, so I'm not saying gas is bad.

“Gas has been a great source for us. It's been an affordable source for us.

“But you have to understand, as you're going to throw more and more eggs into that basket, you're going to be tied to those Henry Hub prices, and when gas spikes up to 50 or 60 bucks, you've got to understand that that's going to ripple into the electric sector. [Read more here.]

“And then when it ripples into the electric sector, because water systems use so much electricity to pump water out into the system, it's then going to trickle into the water system.

“That's what's happening. We're interconnecting these sectors, so closely, that when you have a price impact in one sector, it ripples through all three.”

-- Increase In Utility Cyber Attack Threat: Sen. Sharif Street (D-Philadelphia) also expressed a concern about how the President's attack on Iran will impact the price of natural gas and oil increasing costs for consumers in Pennsylvania.

Chairman DeFrank answered by saying-- "What I think is anytime when you limit supply, you're going to put greater stress on energy systems.

“So, if the supply is limited by that 20% number that you cited there, then yes, there is going to be greater stress on it.

“But in the short term, and what we're about to put out a Secretarial letter to our utilities [about], is that the increase of cyber attacks is now a threat.

“And we're making sure our utilities are prepared for those threats, because we have a hostile actor now that may be looking to strike infrastructure assets here in our country, and making sure we're prepared to meet those challenges.”

-- Use Power Generated In Pennsylvania First: Several Senators express concerns about the fact Pennsylvania is the third largest producer of electricity in the US, but exports at least 26% of the power we generate to other states.

Sen. Kristin Phillips-Hill (R-York) commented-- “We generate a ton of power. In Southeastern York County. We have the Peach Bottom atomic energy plant. We have Calpine 1 and 2 [natural gas power plants]. We have two hydroelectric plants.

“But you know where all that power goes? All of that power goes south, to Maryland and Baltimore, Northern Virginia, and Washington, D.C.

“And I don't have enough power for my businesses to grow, to employ my people and have them earn family sustaining wages.

“So, I'm completely in agreement. It's time we have an energy policy that puts Pennsylvanians first.”

Sen. Trący Pennycuick (R-Berks) said-- "Obviously, we have more demand in Pennsylvania than we have supply. I think we can agree on that.

“I would love to see Pennsylvania meet all of our demands first before we export any of our electricity.

“I just think that makes good sense because we're naturally exporting electricity.”

Sen. Cris Dush (R-Jefferson) asked-- "What would be the impact on Pennsylvania in terms of supply as well as what it would do to benefit businesses and others. if Pennsylvania got out of the PJM and created a model like ERCOT in Texas, where the power lines stopped at the state border?”

Chairman DeFrank said in response-- "Leaving PJM is the easy part. What happens after PJM? And you used ERCOT as an example, that's one model."

"You can use New York as an example where they have their own instate ISO, but they're still interconnected with the intercontinental grid.

“I would be very hesitant of not being interconnected in an intercontinental grid because we've seen what happens in Texas when you go your own. Lots of people died there.

“I think that for me personally, whether we go our own or not, that's one conversation, but I think we still should be interconnected into the intercontinental grid though.”

-- PJM Auction Price Collar: Sen. Joe Pittman (R-Indiana), Senate Republican Leader, expressed a concern that the price collar and floor negotiated by Gov. Shapiro reduced costs for ratepayers in Maryland and Virginia and actually increased costs for Pennsylvanians.

Sen. Pittman said, "Before the collars, the constrained RTO [PJM] capacity payment was $446 in Delmarva [Delaware, Maryland, Virginia]. The negotiated collar amount is $325 across the PJM."

"It went up to $325 for Pennsylvania purposes because our capacity payment in Pennsylvania was the $269 PJM wide payment."

"My point is the constrained RTOs were paying a higher capacity payment prior to the collars, $446 in Maryland and Virginia because they are constrained markets.

"So the real dollar effect was that utility bills in Virginia and Maryland went down because the capacity auction number went down to $325 in those constrained markets, but it went up in Pennsylvania because we went from 270 to 325."

PUC Commissioner Kimberly Barrow responded by noting PJM and the PJM Market Monitor were forecasting prices going into the first PJM auction without the collar-- "were going to hit $500 and actually probably more when you layer on some of the additional costs, there was no way we were going to avoid going to the very top price."

Sen. Art Haywood (D-Philadelphia) focused the issue-- "The formula I understood is that since there's a collar, it was $325, that there's a subsidy to the folks in Virginia because they're paying less than the prior price, and that we [Pennsylvania] are paying more than the prior price, so therefore that's the subsidy.

"And then I understood that if we [Pennsylvania] were at $500 without a subsidy, that would be the other scenario.”

"So I would like to know what's the advantage for Pennsylvanians of option B, which would be paying the $500 without subsidy?

“Is that a better position for Pennsylvanians?"

Chairman DeFrank replied "no."

Click Here for the PUC’s written budget testimony.

Click Here for a video of the hearing.

Sen. Scott Martin (R-Lancaster) serves as Majority Chair of the Senate Appropriations Committee and can be contacted at 717-787-6535 or send email to: smartin@pasen.gov. Sen. Vincent Hughes (D-Philadelphia) serves as Minority Chair and can be contacted at 717-787-7112 or send email to: vincent.hughes@pasenate.com.

Resource Links:

-- Independent Fiscal Office Reports PA Electricity Prices Increased 46.1% From 2018 to 2025, More Than Other PJM States, Largely Due To Pennsylvania's Reliance On Natural Gas-Fired Electric Generation [PaEN]

-- Independent Fiscal Office Reports 2025 PA Natural Gas Production Up 5.1% Over 2024; Average Natural Gas Prices Up 70.9% From 2024 [PaEN]

-- Gov. Shapiro Secures 2 Year Extension Of PJM Price Cap, Collar On Electricity Capacity Auctions [PaEN]

-- Gov. Shapiro’s Proposed Budget Includes Performance Standards For Data Centers Seeking State Tax Credits; Renewed Call For Lightening Energy Plan; New PUC Benchmarks For Utility Profits [PaEN]

-- House Committee OKs Bill To Give PUC More Authority To Regulate A.I. Data Centers, Other Large Loads To Protect Ratepayers, Electric Grid [PaEN]