The Keystone Test

Last week, Pennsylvania passed a $50.8 billion state budget.

Going into it, the legislature had a stack of data center bills to choose from: a statewide three-year moratorium, an 18-month municipal moratorium option, a repeal of the sales tax exemption, codification of the governor's clean-energy standards, and more. Sixty-four percent of Pennsylvanians tell pollsters they're concerned about data centers. The pressure to act was real, bipartisan, and loud.

Out of all of it, exactly one measure made the budget: data centers using more than 10 megawatts annually must now disclose their energy and water usage.

That's it. Disclosure. Environmental advocates called it "positive, but not especially impactful." The sales tax exemption, projected to cost Pennsylvania $2 billion in revenue by mid-2031, stayed untouched.

If you read that as the industry winning, you're reading it wrong. And if you read it as the opposition failing, you're reading it wrong too.

Pennsylvania is now the single most important state in the American data center fight, more than Virginia, more than New York, because it's the one state where the buildout's biggest promises and its biggest backlash have to share the same ballot in November. Amazon has committed $20 billion here. More than $90 billion in AI and energy projects have been announced across the state. And the legislature just demonstrated it can't decide what to do about any of it.

This issue is about what happens when an irresistible force and an immovable object hold an election. Plus: the earnings-season number that proves the power bottleneck better than anything we've published all year.

Let's get into it.

Start with what makes Pennsylvania different from every state we've covered.

Virginia is the incumbent, 706 data centers, decades of buildout, fighting over how to tax what already exists. New York is the gatekeeper, barely 130 data centers, pausing before the wave arrives. Pennsylvania is the frontier, the state where the wave is actually landing right now, in real time, in communities that have never seen anything like it.

The investment side of the ledger:

The opposition side:

And in the middle: a divided legislature that just passed disclosure-only, and two gubernatorial candidates who have both made data centers a centerpiece, from opposite directions.

Here's the quote that explains the paralysis, from Spotlight PA's coverage: "There is a belief that we're in a race with other places to attract these projects, and that if we throw up too many obstacles in Pennsylvania, they'll go elsewhere."

Every legislator believes both things at once: their constituents are worried, and the money will leave if they act on the worry. So they passed disclosure and went home.

Buried in the pile of stalled legislation is one measure worth watching closely, because it represents a genuinely new structure, and it's advancing.

Senate Bill 1345, sponsored by Republican Senator Jarrett Coleman, cleared the Senate Rules & Executive Nominations Committee on a 13-4 vote earlier this month. It doesn't impose a statewide moratorium. It doesn't ban anything. It authorizes municipalities to enact their own 18-month moratoriums on new and unapproved data center applications while they update local zoning.

Read what that vote count means: 13-4 in committee, in a divided legislature, with Republican sponsorship. Senate Republican leader Joe Pittman has said his caucus is open to reviewing moratorium measures, "especially those that give authority to local governments."

This is the compromise structure the entire national fight has been searching for, whether anyone admits it or not:

Remember the Pennsylvania loophole we covered in Issue #16, townships exploiting the Municipalities Planning Code's 180-day pause to draft data center zoning? SB 1345 is that loophole, formalized and tripled in length. The improvised tactic is becoming statutory architecture.

If SB 1345 passes, expect the "local option" model to spread to every purple state within a year. It's the only structure we've seen that lets both parties claim victory in the same bill.

The Pennsylvania governor's race is now the closest thing America has to a statewide vote on data centers.

Governor Josh Shapiro's position: build, but with conditions. His GRID proposal, which the state House has now passed legislation to codify, conditions data center tax breaks on 32% clean energy usage and a signed community benefits agreement. He's simultaneously the man who announced the Amazon $20 billion deal and the governor demanding CBAs as the price of admission. His bet: Pennsylvanians want the jobs AND the guardrails.

Treasurer Stacy Garrity's position: the deals themselves are the problem. She's spent months hosting data center listening sessions across the state and attacking "sweetheart tax deals" a Republican running to the populist side of a Democratic governor on corporate subsidies. Her bet: the 64% concerned includes a lot of her base, and "I'll stop the giveaways" beats "I'll manage them better."

Notice what's missing from both platforms: anyone arguing for the pre-2025 status quo of quiet approvals and unconditional exemptions. That position no longer exists in Pennsylvania politics. The debate has moved from whether to constrain the industry to which constraints and who decides.

Whoever wins in November, the result will be read nationally as a mandate. A Shapiro win validates the CBA-conditioned model, Cedar Rapids economics, enforced at state scale. A Garrity win validates subsidy rollback as a winning message for either party. Both outcomes tighten terms. The only question is which set.

For everyone reading this from outside Pennsylvania: this is your state in 24 months. Watch it closely.

Now flip to the industry side of the ledger, because earnings season just handed us the single most important statistic of the year.

The big four hyperscalers, Microsoft, Google, Amazon, Meta, are now tracking toward roughly $725 billion in combined 2026 capital expenditures, up about 77% from around $410 billion in 2025. Amazon leads near $200 billion. Google around $185 billion. Meta at $115-135 billion, raised twice. Microsoft roughly $120 billion.

But the number that matters most came from Microsoft's disclosures: an $80 billion backlog of Azure orders that cannot be fulfilled due to power constraints.

Sit with that. Eighty billion dollars of paying demand, contracts customers want to sign, revenue Microsoft wants to book, stuck in a queue because the megawatts don't exist to serve it.

That's not a projection or an analyst estimate. That's the world's second-largest company telling its own investors that electricity, not demand and not capital, is the binding constraint on its growth.

Two more signals from the same earnings cycle round out the picture:

The monetization pivot is here. The H2 2026 debate among investors has shifted from "how big is capex" to "who can prove the returns." Meta's answer came July 1: Meta Compute, a program to rent out excess GPU capacity, turning surplus infrastructure into a revenue line. When hyperscalers start selling their spare compute like airlines selling empty seats, the industry has entered a new phase: the buildout is now expected to pay rent.

Investors are punishing spend without proof. Meta's stock fell roughly 6% after raising capex guidance. Google, Amazon, and Microsoft all sold off after their calls despite strong results. The capital markets haven't turned against the buildout, but they've stopped applauding it unconditionally.

Put the two halves of this issue together and the picture sharpens: Pennsylvania can't decide whether to constrain the industry, while the industry's own constraint, power, is already doing the constraining. Microsoft's $80 billion backlog is worth more than every moratorium in America combined. The grid is the real regulator.

And as if to prove the point on cue, the grid itself published the evidence last week.

PJM Interconnection, the grid operator serving 67 million people across 13 states including Pennsylvania and Virginia, announced the results of its capacity auction for the 2028-2029 delivery year. The numbers:

The independent market monitor put a number on the attribution: data centers accounted for $6.3 billion, 38%, of the $16.4 billion in charges from this auction. Across the last four auctions, data center-related charges were nearly half of $63.6 billion in total costs. One consumer advocate's summary: "Our capacity market is breaking under the weight of data center demand and a dysfunctional interconnection queue."

Since June 2025, annual customer capacity costs in PJM have increased by an estimated $12.5 billion. That's the pool of anger every Pennsylvania moratorium bill, every Virginia consumption tax, and every "data centers pay their fair share" campaign is drawing from. The politics we cover in this newsletter aren't abstract, they're a direct function of these auction results, arriving in utility bills.

Two things to watch from PJM's response: the board is preparing FERC filings for a backstop capacity auction in September, dedicated procurement for large loads like data centers, and a "connect and manage" framework that could reshape how data centers interconnect entirely. If the September auction happens, it will be the first serious attempt to make hyperscale demand buy its own reliability rather than socializing the cost. Every state legislature will be watching what it clears at.

The through-line for this issue: Microsoft can't serve $80 billion in demand because power doesn't exist. PJM can't buy enough capacity at any allowed price. And Pennsylvania's legislature passed... a disclosure requirement. The gap between the size of the problem and the size of the response is the defining fact of this industry right now.

The municipal map kept moving this week:

El Paso, Texas approved a Data Center Policy Framework requiring future hyperscale projects to undergo enhanced public review, meet stricter environmental standards, and forgo local economic incentives entirely. Read that last clause twice. El Paso, where Meta is investing $10 billion, just established that hyperscale projects get zero local subsidy going forward. Not reduced. Zero. If that principle spreads, the entire incentive-competition model that has governed data center siting for fifteen years starts to unwind.

Spokane County, Washington is considering a nine-month moratorium on new data center building permits to evaluate infrastructure, water, energy, and zoning impacts.

Brookhaven, New York approved an 18-month moratorium on new applications, notable because it landed after Hochul's statewide executive order, confirming that local governments are stacking their own pauses on top of the state's. Layered moratoriums are now a thing.

Lakeland, Florida approved the first reading of a one-year moratorium on large-scale data center applications.

And the Hochul aftermath: No industry lawsuit against the New York executive order yet, despite the Data Center Coalition's statement reading like a complaint in draft. The legislature's harsher 20 MW bill remains unsigned on the table. The 60-day clock on the state's community-benefits guidance runs into mid-September. Watch this space.

Developers: Pennsylvania just showed you the next five years of state politics: paralysis at the statewide level, delegation to municipalities, and elections that function as referendums. The strategic response is the same one Cedar Rapids taught (Issue #18) get ahead of the CBA requirement voluntarily, because in Pennsylvania it may soon be statutory (GRID) and in El Paso the incentives are already gone. The projects that survive the next cycle are the ones that don't need subsidies to pencil and don't need secrecy to permit.

Suppliers and contractors: The Microsoft backlog is your sales deck now. $80 billion in unfulfillable orders means every megawatt you can help deliver, through generation, efficiency, faster interconnection, or behind-the-meter builds, has a customer with proven, contracted demand waiting behind it. You are no longer selling capacity into a speculative boom. You're selling into a documented shortage.

Municipal officials: El Paso's zero-incentive framework and SB 1345's local-option structure are the two most important documents of the month. Together they sketch the emerging baseline: communities set conditions, projects pay their own way, and the state provides the legal cover. If your jurisdiction is in a data center corridor, the Pennsylvania model, pause authority plus disclosure requirements plus conditioned incentives, is what's coming to your legislature.

Community organizations: The Pennsylvania lesson cuts your way and against it simultaneously. The statewide moratorium stalled, but the disclosure requirement passed, SB 1345 is moving with Republican votes, and both gubernatorial candidates are campaigning on your issue. The winning play isn't the maximal bill; it's the bill that gives local governments the tools. Redirect accordingly.

Investors: Three data points from one week, Meta punished for raising capex, Microsoft power-constrained on $80 billion of demand, El Paso zeroing out incentives. The market is repricing the buildout's inputs (power scarcity premium), outputs (monetization proof required), and subsidies (no longer assumable). Models built on 2024 assumptions are now wrong in three directions at once.

If one number justifies this project, it's Microsoft's: $80 billion in orders that can't be fulfilled because the power doesn't exist.

The companies that close that gap, generator suppliers, transformer brokers, switchgear vendors, substation engineers, interconnection consultants, behind-the-meter developers, are the most important companies in this industry right now, and the hardest to find through anything except word of mouth.

That's the gap the DC Pipeline Power Equipment Map exists to close. The early access list keeps growing. If your company operates in any of the nine categories: reply with "MAP" in the subject line. Formal applications open soon.

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Pennsylvania spent this month proving that the data center fight has outgrown the tools American politics uses to resolve fights. The legislature couldn't pass a moratorium or repeal an exemption, so it passed disclosure and delegated the rest, to municipalities through SB 1345, and to voters through November.

Meanwhile the industry's own numbers revealed the deeper truth: the binding constraint was never going to be legislation. Microsoft has $80 billion in demand it cannot serve because the electricity doesn't exist. The grid is regulating the buildout more effectively than any statehouse.

That convergence, political paralysis above, physical scarcity below, is the actual state of this industry in July 2026. The states can't decide. The grid already has.

Which means the people who solve for power, who finance it, permit it, engineer it, deliver it, and connect it, aren't just participants in this market anymore.

They're the market.

The DC Pipeline tracks data center construction, policy, and market intelligence across North America.

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