For data center developers, investors, utilities and users, the order is significant because it places additional regulatory, infrastructure and community requirements directly into the development process.
Facing rising public opposition to the upwards of 100 proposed data center projects in various stages of development in the commonwealth, Pennsylvania Governor Josh Shapiro took aggressive action to rein in data center proliferation, helping to define what “responsible” data center development will look like.
Governor Shapiro’s Executive Order 2026-05 requires data center developers seeking commonwealth permits to make legally enforceable commitments to the new Governor’s Responsible Infrastructure Development (GRID) requirements. The order also removes data centers from Pennsylvania’s fast track permitting program, requires local approval before state permits can be issued and prohibits nondisclosure agreements for data center projects.
For data center developers, investors, utilities and users, the order is significant because it places additional regulatory, infrastructure and community requirements directly into the development process. While the approach is less draconian than outright bans proposed or enacted in other jurisdictions, including New York, it injects new uncertainty and risk into data center development in Pennsylvania. Understanding these requirements early will be critical for developers planning Pennsylvania projects.
Development Risk Is Becoming Regulatory Risk
The GRID requirements address energy affordability, environmental protection, workforce and economic development, transparency and community engagement.
Most significantly, developers will be required to pay the costs of new generation, transmission, distribution and other infrastructure needed to serve their projects rather than shifting those costs to other Pennsylvania customers.
This addresses one of the industry's central challenges: determining who pays for the significant infrastructure investments required to serve rapidly growing data center loads.
For developers and investors, the key issue will be predictability. Infrastructure costs can be incorporated into project economics if they can be identified and allocated early. Clearly defined cost-allocation rules can help developers by providing greater certainty for project budgeting and financing. Uncertainty over those costs can materially affect land values, development budgets, financing and investment returns.
The same is true for permitting and regulatory requirements. The earlier those requirements can be identified, the easier they are to incorporate into project planning and underwriting.
Community Engagement Is Becoming Part of the Development Process
The executive order makes local approval a prerequisite to state permitting and directs Pennsylvania agencies to develop best practices for municipalities addressing data center proposals, reflecting a broader trend across the country.
Data centers are large infrastructure projects. They can have significant impacts on electricity demand, water use, roads and other infrastructure while also generating substantial capital investment, tax revenue and employment.
As a result, community engagement is increasingly becoming an integral part of the development process rather than an issue addressed immediately before permitting decisions.
Community benefit agreements, infrastructure commitments and other local requirements can also become material components of a project's economics and legal structure.
Transparency Creates New Considerations
The prohibition on nondisclosure agreements presents a different set of challenges for transaction structuring.
Confidentiality has traditionally been important in data center development. Developers may simultaneously be negotiating with landowners, utilities, hyperscalers, investors and local governments, often while competing for scarce land and power capacity.
Greater transparency could affect site acquisition, competitive negotiations and the timing of public disclosure. At the same time, early transparency can help build community trust and reduce the risk of opposition.
At the same time, communities are increasingly seeking information about proposed data centers, including their power requirements, water use, economic impact and infrastructure needs.
Developers will therefore need to consider public disclosure requirements much earlier when structuring transactions and negotiating site control, power and development agreements.
Pennsylvania Is Establishing a New Development Framework
The executive order does not prohibit data center development. Instead, it establishes additional requirements that developers must satisfy to move projects through the commonwealth's regulatory process.
Pennsylvania remains an important data center market because of its energy resources, existing infrastructure and proximity to major population centers.
The question for developers and investors will be whether the new requirements can be incorporated into project economics and development schedules with sufficient certainty to support investment and financing.
Implications for Data Center Development
The practical implications extend across virtually every stage of a project.
Power diligence will need to address not only available capacity and energization timing, but also the allocation of generation, transmission and distribution costs.
Site control agreements will need to account for permitting requirements, regulatory changes and potential delays.
Community engagement will need to begin earlier in the development process.
Tax incentives will need to be evaluated together with the compliance obligations required to maintain them.
Financing structures will need to account for regulatory commitments and their potential effect on project economics.
More broadly, Pennsylvania's approach illustrates how data center development is evolving. Land, power, permitting, tax incentives, community relations and financing can no longer be evaluated independently. Changes in one area can materially affect the others.
For developers, investors and other industry participants, the ability to identify and plan for these risks early will increasingly be a critical component of successful data center development.
About Duane Morris
Attorneys in the firm’s Real Estate Practice Group and Energy Industry Group are involved in matters related to data centers and their construction. Our What’s Watt Webinar Series brings insight from their experience in the industry as well as that of our guest speakers. The next session, Balancing Responsible Growth, Regulation and Community Impact of Data Centers, will be held Wednesday, September 16. Registration is available on the event webpage.
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