Governor Shapiro Issues Executive Order Imposing New Requirements for Data Centers

Pennsylvania Governor Josh Shapiro has issued Executive Order 2026-05 – Protecting Pennsylvania Consumers from Data Center Impacts (Executive Order), effective immediately, which introduces new requirements for data center projects in Pennsylvania.

WHY THE EXECUTIVE ORDER MATTERS

The Executive Order could materially reshape the development and operation of data centers in Pennsylvania. Developers may face new requirements related to power supply, grid upgrades, environmental controls, workforce commitments, and an additional requirement to offer community benefit agreements addressing issues such as noise, lighting, traffic, air quality, emergency response, and financial contributions to municipalities.

As the new framework is implemented, the evolving permitting and regulatory landscape may affect project timelines and development considerations until the applicable processes and requirements become more established. Utilities and other energy-sector participants may likewise face changes to large-load tariffs, cost allocation, and curtailment rules through further proceedings at the Pennsylvania Public Utility Commission (Commission).

Through its emphasis on local involvement, public disclosure, and project-specific commitments concerning environmental and community impacts, the new framework may also create additional opportunities for engagement—and, in some instances, disputes or litigation—among developers, neighboring landowners, municipalities, community groups, and other stakeholders. Below is a comprehensive summary of the Executive Order, along with key takeaways.

EXECUTIVE ORDER: MODIFYING THE DEVELOPMENT LANDSCAPE FOR DATA CENTER PROJECTS IN THE COMMONWEALTH OF PENNSYLVANIA

The Executive Order cites reports that more than 100 data center projects have been proposed in Pennsylvania, with 20 having sought the necessary permits from the Pennsylvania Department of Environmental Protection (DEP).

The Executive Order also asserts that electricity demand from proposed data centers in the PJM region (including Pennsylvania) has led to increased capacity prices and increased costs for consumers. It seeks to make data centers solely responsible for any electric transmission and distribution system upgrade costs necessary to serve them.

The Executive Order, among other things:

• Establishes two DEP permitting review tracks for permit applications submitted after August 18, 2026 for data center projects with a peak demand of more than 25 megawatts (MW);
• Directs the Department of Revenue (DOR) to condition new Computer Data Center Equipment Exemption Program (which exempts computer data center equipment from Pennsylvania sales and use tax when it is sold to, used, or consumed in a certified data center) applications in compliance with the Governor’s Responsible Infrastructure Development (GRID) Requirements (which impose standards addressing energy procurement and infrastructure costs, community engagement and benefits, workforce and economic development, and environmental protection), and removes all data center projects from the PA Permit Fast Track Program;
• Imposes new reporting requirements and restricts the use of nondisclosure agreements by Pennsylvania agencies under the governor’s jurisdiction;
• Directs the Governor’s Special Counsel for Energy Affordability (Special Counsel) to engage and advocate before the Commission for the adoption of rules, procedures, and orders that protect consumers;
• Directs DEP to evaluate whether additional environmental regulations should be adopted in connection with data center development and identify mechanisms to expedite clean energy development; and
• Directs the Department of Community and Economic Development (DCED) to prepare “best practices” documents that local governments may utilize when engaging with data centers.

PJM Capacity Market and Cost Impacts

The Executive Order cites rising capacity prices in the PJM energy markets as a driving factor in the adoption of the Executive Order. PJM operates the regional transmission grid and wholesale energy markets, serving more than 67 million people across all or parts of 13 states—including Pennsylvania—and the District of Columbia.

The PJM capacity market is designed to ensure that sufficient generation resources are available to meet future demand. Capacity payments support resource adequacy (i.e., sufficient energy resources to meet forecasted demand and reserve requirements) rather than compensate suppliers for the energy that they produce.

Proposed data centers have contributed to a significant increase in PJM’s load forecast, leading to a sharp increase in capacity prices. PJM capacity auction clearing prices increased from $28.92/MW-day for the 2024/2025 delivery year to $269.92/MW-day for 2025/2026, $329.17/MW-day for 2026/2027, and $333.44/MW-day for 2027/2028.

The price for 2028/2029 decreased by 2.5% to $325.00 (a capped amount previously approved by the Federal Energy Regulatory Commission in response to high prices) but still remained approximately 11.2 times higher than the 2024/2025 price. PJM also reported that the auction procured less than its reliability requirement, resulting in a capacity shortfall.

While capacity is only one component of retail energy consumers’ electricity bills, the recent PJM auction prices are contributing to increases in the retail cost of electricity. At the wholesale level, the PJM Independent Market Monitor (IMM) reported in July 2026 that capacity costs in the first half of 2026 increased by 207.1% year over year, energy costs increased by 47.7%, and total wholesale power costs increased by 50.3% during the same period.

The IMM estimates that data centers have been responsible for about 46% of capacity charges in the last four PJM auctions. Other cost drivers include resource retirements, revised capacity accreditation and planning assumptions, interconnection delays, transmission constraints, and increases in fuel and energy markets.

New DEP Permitting Framework for Large Data Centers

The COA/GRID Path: Significant Possible Commitments in Exchange for a Preferred Permitting Process

The Executive Order sets forth a new bifurcated permitting process for data centers with a peak demand of more than 25 MW that apply for DEP permits after August 18, 2026. The Executive Order directs DEP to develop a template Consent Order and Agreement (COA) for use in connection with such data centers that adhere to the Governor’s Responsible Infrastructure Development (GRID) requirements.

The 33-page template COA was released on the same date as the Executive Order. Projects that commit to following the GRID requirements can utilize the template COA; projects that do not commit will proceed under an alternative, presumably slower and more onerous, permitting review process. The non-COA track will be subject to different sequencing, nonrolling review, and excluded from certain permitting-timeline programs.

DEP’s template COA states that it may be modified for specific projects but includes the following principal terms:

• A project must build, bring, or buy sufficient incremental capacity for its full peak demand and sufficient incremental energy for its annual consumption in the same PJM locational deliverability area (or elsewhere if the developer can demonstrate firm delivery). The COA also contemplates procurement of Pennsylvania “Clean Firm Energy” (as defined in the COA) equal to at least 10% of annual use from 2027 to 2029, 14.5% from 2030 to 2034, and 32% beginning in 2035, subject to an alternative compliance payment.
• The developer would be responsible for transmission, distribution, network-upgrade, dedicated-facility, and other costs caused in whole or in part by service to the project, or costs that would not have been incurred otherwise. Compliance may be demonstrated through an electric service agreement and/or transmission security agreement under utility terms no less stringent than the Commission’s final large-load model tariff and provisions addressing embedded costs. For projects that have not yet submitted a permit with a building design to DEP, buildings exceeding 100,000 square feet would also need to be designed and constructed as “solar ready.”
• Developers shall consult with municipal leaders and adjoining jurisdictions, host accessible in-person public meetings in addition to meetings otherwise required by law, and solicit public comment on viewshed, noise, and façade design.
• Developers shall offer a community benefit agreement to the host municipal and county governments addressing development phasing, noise, lighting, traffic, emergency response, aesthetics, local priorities, financial contributions, annual reporting, and other locally identified issues. Obligations may cascade to owners, operators, tenants, contractors, and affiliated entities, with reporting and transfer provisions.
• The COA would require a Pennsylvania hiring and training plan using registered apprenticeship programs and skilled construction labor, the creation of at least 200 jobs at prevailing wage and benefit rates, and, before the fourth anniversary of commercial operation, creation of 50 permanent full-time jobs paying at least 125% of the statewide average wage. Thereafter, the project would maintain at least $1.5 million in annual gross compensation and at least $250 million in cumulative new investment.
• Developers would need to comply with requirements for performance-based facility certification addressing energy and water efficiency; zero-emission backup generation or storage, or generators with Tier 4-equivalent emissions controls; and limits on generator runtime to emergencies and legally authorized testing and maintenance. Facilities would also need to have at least three publicly accessible air-quality monitors, a water plan, and project-specific measures addressing conservation, environmental justice, and ecological impacts where applicable.
• The COA proposes stipulated civil penalties of $25,000 to $100,000 per MW of rated capacity per day for violations of core energy obligations and $25,000 per day for other violations (amounts are bracketed for project-specific negotiation).
• The template also treats violations as violations of a DEP order, makes remedies cumulative, permits removal from the preferred permitting process, and includes a waiver of appeal or challenge to the COA’s content.

The template COA also includes an addendum that may be utilized to replace portions of energy obligations for projects that, as of August 18, 2026: had already submitted a DEP permit application in connection with a data center project that has a peak demand of more than 25 MW; and had executed a binding electric service agreement and/or a transmission security agreement.

To utilize the COA/GRID track, data center developers must notify DEP of their intent to comply with the COA/GRID requirements and participate in a preapplication meeting to discuss local permitting and a project-specific COA. DEP will review permit applications on a rolling basis only for applicants who have executed a COA to implement the GRID requirements, provided the applicant also demonstrates consistency with local comprehensive plans and has secured all required municipal approvals.

These are also requirements for commencement of processing timelines under the PAyback program and the DEP Permit Decision Guarantee Policy. Depending on the developer, many of these COA requirements may represent a significant shift from current development trends.

Alternative Path: More Restrictive Permitting for Projects That Do Not Commit to GRID

For a project that does not execute a COA, DEP will not commence permit review until the applicant has demonstrated that the project is consistent with the local comprehensive plan, and that it has received all applicable local or municipal approvals and all required water withdrawal or wastewater discharge authorizations.

DEP may not use rolling review and may not issue permits or authorizations until it has received and reviewed all necessary applications. Non-COA applications are excluded from both the PAyback program and DEP’s Permit Decision Guarantee policy.

Furthermore, data center projects (including data center projects under development) are no longer eligible for the PA Permit Fast Track Program. This delayed development schedule may cause some developers to reconsider current possible investments in Pennsylvania in light of the need for immediate powered and entitled land.

GRID Compliance Becomes a Condition of Pennsylvania’s Data Center Tax Incentive

The Executive Order directs DOR to update the Computer Data Center Equipment Exemption Program forms, procedures, and guidelines so that applicants for the sales and use tax exemption on or after August 18, 2026 comply with the GRID requirements. Unlike the DEP permitting provisions, the Executive Order’s DOR directive contains no express 25 MW threshold and does not expressly grandfather the 14 locations that the Executive Order identifies as holding active certificates.

DOR has already issued updated Program Guidelines, stating that as of August 18, 2026, all program applicants must include an executed DEP COA implementing the GRID standards and that DOR will acknowledge only applications containing confirmation of an executed COA. The guidelines also state that DOR may revoke certification and recapture benefits for failure to meet the Executive Order.

Increased Transparency and Reporting

The Executive Order prohibits the use of nondisclosure agreements by state agencies under the governor’s jurisdiction in connection with data center projects. DEP must also create a publicly accessible map with current permitting information for proposed data center projects known to DEP or DOR.

Existing data centers are required to submit annual reports (by July 1, 2027, and annually thereafter) detailing their energy and water consumption, efficiency measures, environmental protections, and future projections, among other disclosures.

Direct Community Feedback to the Commonwealth

A few days after issuing the Executive Order, Governor Shapiro also created a new public-facing portal inviting residents to submit concerns and other feedback directly to the Commonwealth regarding proposed data center developments in their communities. The portal is accompanied by an interactive DEP map of known proposed projects and expressly encourages residents to identify concerns relating to data center development and compliance with the GRID requirements.

This additional avenue for public participation may increase state agencies’ (e.g., Governor’s Office, attorney general, DEP) visibility into local opposition and project-specific concerns earlier in the development and permitting process.

Developers should anticipate and prepare for community concerns that may be raised regarding the potential effects of proposed projects on issues such as noise, water use, energy costs, infrastructure, and other local impacts. These community concerns may now be communicated directly to the Commonwealth outside of or in addition to formal permitting proceedings.

Advocacy at the Commission

The Executive Order directs the Special Counsel to engage the Commission to advocate for regulatory changes that prioritize curtailment of data centers during grid emergencies unless the centers have secured incremental capacity for their demand.

The Executive Order also directs the Special Counsel to work with the Commission to ensure utility tariffs appropriately require data centers to pay their fair share of reliability and interconnection costs, protecting non-data center customers from costs arising from data centers.

Additional Environmental Regulation and Local Government Involvement on the Horizon

DEP is instructed to recommend regulatory updates to address unique environmental challenges posed by data centers, including emissions from backup generators and cumulative impacts from multiple generators at a single site.

The Executive Order also emphasizes the need for expedited permitting for clean energy and storage projects, especially on brownfield or previously developed sites, as well as for advanced transmission upgrades that can help offset the energy footprint of new data centers. Data centers must also annually disclose their efficiency, environmental, and energy sourcing measures.

The Executive Order also directs DCED to develop best practices on zoning standards and community benefit agreements that municipalities and other local governments may use when engaging with data centers.

Key Takeaways for Developers, Utilities, and Other Project Participants

The Executive Order represents a significant shift for developers, operators, and investors in the data center sector in Pennsylvania. Companies that wish to pursue data center projects in Pennsylvania will need to review and consider compliance with the GRID Requirements as reflected in the COA. To prepare for increased public transparency regarding their operations, companies can take the following steps.

Consider Permitting Pathways Early in Project Planning.

Developers of projects exceeding 25 MW may wish to consider at the outset whether the COA/GRID pathway is appropriate for a particular project and how local approvals and GRID compliance could affect the development schedule. Projects that do not execute a COA may face a slower, sequential DEP review process, while all data center projects are now excluded from the PA Permit Fast Track Program.

Evaluate Potential Implications for Power Supply, Utility Arrangements, and Project Economics.

Developers, utilities, energy suppliers, and investors may wish to evaluate how new requirements potentially resulting from future Commission proceedings might affect power procurement, electric service and interconnection agreements, and responsibility for transmission and distribution upgrades. Potential changes to large-load tariffs, cost allocation, and curtailment rules could further affect project economics and risk allocation.

Consider Community Engagement and Potential Litigation Risk as Part of Project Planning.

Developers may wish to consider the timing and scope of engagement with municipalities and neighboring communities as well as whether and how community benefit agreements might address noise, lighting, traffic, air quality, emergency response, aesthetics, and local financial contributions. Increased public participation, disclosure, monitoring, and project-specific commitments may also create additional grounds for disputes or challenges by municipalities, neighboring landowners, community organizations, and other stakeholders.

These considerations may warrant evaluation of potential nuisance, environmental, land-use, and other litigation risks when designing projects and negotiating community commitments. Developers may wish to consider how the Commonwealth’s new direct-feedback portal, which provides residents with an additional channel to raise project-specific concerns with state officials outside of formal permitting proceedings, may inform the timing and scope of community engagement efforts.

Evaluate Environmental Impacts as Project Design Develops.

Noise, backup-generator emissions, water use and discharge, traffic, lighting, and other localized impacts may warrant consideration during the project-design process, particularly as DEP considers additional regulation of data centers and cumulative generator emissions. Addressing potential impacts earlier in the process may provide opportunities to manage permitting risk and the potential for later community opposition or litigation.

Evaluate Incentives in the Context of Potential Compliance and Enforcement Exposure.

Companies relying on Pennsylvania’s data center sales and use tax exemption may wish to evaluate eligibility and project economics in light of the GRID/COA requirements. Developers electing the COA pathway may also wish to consider the potentially significant stipulated penalties and other remedies for noncompliance as well as how project agreements address the allocation of compliance risks among owners, operators, tenants, contractors, utilities, and other participants.