3.3.26 - Senate PUC Budget Hearing

Public Utility Commission – FY 2026–27 Budget

Hearing overview and framing

The Senate Appropriations Committee convened a budget hearing with leadership from the Pennsylvania Public Utility Commission (PUC), including Chairman Stephen DeFrank, Vice Chair Kimberly Barrow, and Commissioner Kathryn Zerfus. Commissioners were sworn in before testimony began.

Committee leadership noted that the PUC’s roughly $105 million operating budget is funded primarily through assessments on regulated utility companies, consisting of approximately:

• $97 million in state-restricted revenues, and
• about $8 million in federal funds.

The hearing focused largely on electricity prices, PJM wholesale markets, capacity auctions, and rising power demand, particularly from data centers and electrification of the grid.

Major policy and budget topics discussed

1. How electricity is produced and delivered in Pennsylvania

Committee members asked commissioners to explain how electricity reaches homes and businesses.

PUC officials described the system in three main stages:

Generation

Electricity in Pennsylvania is generated through the PJM Interconnection wholesale electricity market, which operates across multiple states. Generators bid into PJM markets to supply electricity in future years through capacity auctions, including the Base Residual Auction, which typically procures capacity three years in advance.

Transmission

Electricity then travels across high-voltage transmission infrastructure, which is regulated federally by the Federal Energy Regulatory Commission (FERC).

Distribution

Finally, electricity flows through local electric distribution companies that deliver power to homes and businesses.

PUC commissioners emphasized that Pennsylvania regulates only the distribution portion of the system, while generation markets and transmission rates are governed primarily by federal oversight.

Electricity pricing and regulatory authority

2. What the PUC regulates — and what it does not

Members pressed commissioners to clarify what parts of electric bills the state can control.

The commission explained that:

• Roughly 60–65% of an electricity bill reflects wholesale generation and transmission costs, which fall outside direct PUC authority.
• Approximately 35–40% of bills relate to state-regulated distribution costs and state programs.

The PUC directly regulates:

• Utility distribution infrastructure
• Rate cases involving distribution system costs
• Utility investment and infrastructure spending

However, the commission does not regulate electricity generation prices because Pennsylvania is a restructured electricity market where generation operates competitively.

PJM capacity auctions and rising electricity prices

3. Role of PJM and capacity market dynamics

Much of the hearing focused on PJM’s capacity auctions, which determine payments to generators for maintaining available electricity supply.

PUC officials noted:

• These auctions are intended to signal when new generation is needed.
• Capacity prices recently increased dramatically after many years of very low auction prices.
• A previous auction saw a nearly 900% increase, rising from roughly $28–$29 per megawatt-day to nearly $290.

Officials attributed the price volatility to several factors:

• Rapid growth in electricity demand
• Electrification of sectors like transportation and heating
• Expansion of data centers, particularly in the PJM region
• Slower-than-expected additions of new generation resources

Commissioners said PJM had historically maintained very large reserve margins, but those margins have now fallen to roughly 17–18%, increasing system risk and price pressure.

The PJM “price collar” and Shapiro administration actions

4. Governor’s FERC complaint and the capacity auction cap

Lawmakers questioned the price collar negotiated between PJM and Governor Shapiro’s administration, which places limits on capacity auction prices.

Commissioners explained that the agreement established both:

• A cap (maximum price) and
• A floor (minimum price)

for capacity auction outcomes.

Both recent auctions cleared at the capped price, meaning the price reached the upper limit allowed by the settlement.

PUC officials said PJM estimated the auctions could have reached significantly higher prices without the cap, which is why the administration has claimed the policy saved ratepayers money.

However, senators emphasized that while the cap may have prevented higher increases, electricity bills still increased compared to the prior auction.

Debate over impacts of the PJM price collar

5. Concerns Pennsylvania may be subsidizing other states

A significant exchange occurred regarding whether the PJM collar benefits some states more than others.

One senator argued that:

• Some constrained PJM regions (such as parts of Maryland and Virginia) previously had higher capacity prices than Pennsylvania.
• Under the uniform capped price, those regions saw their capacity costs decrease while Pennsylvania’s costs increased relative to the previous auction.

The senator suggested this dynamic could mean Pennsylvania ratepayers are subsidizing electricity demand in other states, particularly those with large data center clusters like Northern Virginia.

PUC officials acknowledged that the price collar changed relative price dynamics between regions but emphasized that without intervention the capacity price could have risen toward $500 or higher, making the cap necessary to protect consumers.

Energy reliability and generation mix

6. Reliability of different energy sources

Committee members also asked about the reliability of different energy resources.

PUC officials cited Effective Load Carrying Capability (ELCC) measures used by PJM to estimate reliability:

• Solar: roughly 10–12% reliability contribution
• Solar tracking systems: about 12–14%
• Natural gas plants: about 70%
• Nuclear plants: about 92–93%

These figures reflect the percentage of capacity PJM considers dependable during peak demand periods.

Renewable energy policy costs

7. Alternative Energy Portfolio Standard (AEPS) costs

Members asked about the cost of Pennsylvania’s renewable energy requirements.

PUC officials testified that:

• The Alternative Energy Portfolio Standard (AEPS) has cost more than $700 million in total.
• About 54–55% of costs come from Tier II resources.
• Roughly 45% come from Tier I resources (excluding solar).
• Solar represents about 3% of AEPS costs.

Rate cases and consumer protections

8. Process for utility rate increases

Lawmakers asked how utility companies increase distribution rates.

PUC officials explained:

• Utilities must file a rate case with the commission.
• The PUC has 30 days to suspend the rate request for investigation.
• If suspended, the commission has nine months to evaluate the request and issue a final decision.

Rate cases examine:

• Infrastructure investments
• System upgrades
• Utility operating costs
• Allowed revenue requirements

However, wholesale electricity supply costs are handled separately through default service procurement processes, not rate cases.

Future grid challenges

9. Growing electricity demand from data centers

Commissioners warned that electricity demand is rising at an unprecedented rate due to:

• Data center expansion
• Electrification of buildings and transportation
• Economic development and new industrial loads

Historically, electricity demand in PJM grew 1–3% annually, but new demand sources are now creating much steeper growth projections.

Officials said PJM is currently developing new market mechanisms—including backstop auctions and faster generation interconnection processes—to address the anticipated supply shortages.

Key themes emerging from the hearing

Electricity affordability and reliability are becoming central policy concerns

The hearing highlighted increasing concern among lawmakers about the rapid rise in electricity prices, particularly tied to PJM capacity auctions and growing demand.

Regional power markets complicate state policy

Several exchanges underscored the difficulty of regulating electricity prices when much of the market operates across multi-state regional grids governed by federal regulators.

Demand growth from data centers is reshaping the energy system

Multiple comments during the hearing suggested that data center electricity demand may be one of the biggest drivers of future grid investment and pricing pressure.

✅ Key takeaway:
The hearing underscored that Pennsylvania’s rising electricity costs are being driven largely by regional capacity markets and rapid growth in power demand, while the state retains regulatory control over only a portion of the overall utility bill.