Last November, we wrote about the possibility of large data centers coming to Kentucky. Utilities like LG&E and KU had projected a major increase in electricity demand and won approval to build new gas plants and extend the life of a coal plant all before any data center had signed a contract to connect to the grid.
Now, the Kentucky General Assembly has taken small steps to protect ratepayers from potential utility bill increases due to these potential developments. But even as lawmakers make this move, a new trend is emerging. Data centers are starting to propose building their own power plants on-site and sidestep many of the new protections altogether.
Bill to Protect Ratepayers
In early March, the Kentucky House passed House Bill 593 with overwhelming bipartisan support (90-4). The legislation, sponsored by Rep. Josh Bray (R-Mount Vernon), is designed to ensure that data centers “pay their own way” and do not shift the cost of new energy infrastructure onto Kentuckians, from everyday residential ratepayers to small businesses and local governments.
HB583 includes:
- A $75,000 non-refundable application fee to discourage speculative projects
- Requirements that data centers pay upfront for new transmission and grid upgrades
- Long-term contract guarantees to ensure utilities recover costs directly from the large-load customer
- A requirement that data centers with peak demand over 250 megawatts secure a dedicated energy resource
- A linkage to state tax incentives (data centers must comply with these new provisions to remain eligible for existing tax breaks)
The bill is now awaiting consideration in the Kentucky Senate.
Data Centers Building Their Own Power Plants
Even though this bill would protect ratepayers from grid-related costs, there is now another concern: some data center companies are proposing to build their own natural gas power plants on-site, completely separate from the grid.
These “behind-the-meter” projects allow data centers to bypass interconnection delays, avoid large-load tariffs, and—crucially—circumvent siting and oversight requirements that would apply to a traditional power plant. Because the generation is not connected to the grid, it falls into a regulatory gray area, raising questions about government review, local zoning authority, and community input.
Consumer and environmental groups have called HB 593 a positive first step in protecting Kentucky ratepayers. But they caution that the behind-the-meter trend threatens to undermine those protections. In much of Kentucky, local governments lack planning and zoning authority to weigh in on such projects. And without clear legislative direction, the state risks trading one set of cost-shifting risks for another.
“We have still yet to hear from anyone who the end customer in any of these speculative projects will be, let alone see a single electric service agreement signed,” said Byron Gary of the Kentucky Resources Council. “Yet despite that, we’ve seen approval to build two new gas plants and extend the life of a coal plant in Louisville previously scheduled for closure.”
Gary noted that LG&E has now filed its first “Pilot Generation Recovery” expense report, seeking to add roughly $3 million to ratepayer bills for a single month of costs—before any data center has formally connected to the grid.
Learn More About Data Centers
One of Mountain Association’s energy experts, Chris Woolery, is active in the Rural Power Coalition. Chris has been closely tracking data center developments across Eastern Kentucky and the Commonwealth, participating in legislative discussions, and helping to connect local concerns about energy costs, ratepayer protections, and community input to the policy conversations happening in Frankfort.
For a deeper look at how data centers are affecting rural communities across the country, check out the Rural Data Center Forum, an ongoing series of virtual presentations convened by the Rural Power Coalition. The series features knowledgeable voices exploring the impacts of data centers in rural regions. Find the full playlist here: Rural Data Center Forum
The Mountain Association and our partners regularly intervene in utility company proposals presented to the Kentucky Public Service Commission, our state regulators, in order to advocate for energy affordability in Eastern Kentucky.
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