Data center companies coming to KY would pay fee, utility costs under new bill
A Kentucky lawmaker thinks his bill to make data centers pay their own way and protect existing utility ratepayers is the first step in making sure development of the projects across the Bluegrass State is “done right.”
House Bill 593, sponsored by state Rep. Josh Bray, R-Mount Vernon, passed unanimously out of the House Standing Committee on Economic Development and Workforce Investment Thursday.
The bill would let data centers use public utilities, but only if they agree to cover transmission and infrastructure costs related to their facility’s operations. Those contracts would make sure costs incurred by building or running data centers would not be passed onto existing utility customers.
If a company does not enter into a power purchase agreement, the bill would mandate it generate its own electricity and donate the excess to a local utility. The company could also purchase its own electricity on the open market rather than from a state-mandated utility.
The proposal also adds a $75,000 application fee for companies seeking connection to utilities for a data center project.
The fee was a provision Bray added to “separate the wheat from the chaff,” or ensure those wanting to invest in Kentucky have strong ties to industry partners and that the project materializes — unlike the project in Oldham County last year that fell through when developers didn’t have a customer.
The application fee, Bray said, is also an attempt to protect the market from a flood of data centers, with the additional hope that there may be enough power generation leftover after a data center is built for a different kind of project.
The bill still encourages data center development in Kentucky, but asks it be “done right,” Bray said, by going above and beyond utility company terms and conditions for data center customers in a way that makes sure every day customers are not subsidizing their development.
“What this bill tries to do is make sure Kentucky handles data centers the right way, so that we protect our ratepayers and we take advantage of kind of a unique opportunity to protect our future economic interest going forward,” the representative told the committee Feb. 26.
A committee substitute adopted in committee changes the bill to make an exemption for projects under construction in Paducah where they are fed by the Tennessee Valley Authority, which is a federally owned and regulated utility corporation.
Bray, who has chaired the General Assembly’s artificial intelligence task force during the last two interim periods, said Kentucky is in an odd position because the state does not have enough generation to meet its needs. That gap is a concern, he said, because electricity infrastructure is necessary for economic growth, job creation and making the next success story in the likes of Toyota and the advanced manufacturing sector.
The rush of data center proposals and regulatory bills come less than a year after the General Assembly passed statewide incentives to attract them. Just one data center is being built in Kentucky in the South Louisville area, but the user of it has yet to be announced.
“This bill is a due diligence bill,” said Rep. William Lawrence, R-Maysville, before casting a yes vote. “I feel like we are always on the backside of fixing problems here in Frankfort and this is a bill that gets ahead of the game. We’re setting the parameters, we’re making the guardrails as we should.”
Bray’s bill does not address environmental concerns often talked about in the same breath as the costs related to data centers. Several statewide advocacy groups issued statements before Thursday’s committee hearing calling the bill a step in the right direction, but worried the process being put in place wasn’t taking into consideration the rural communities where they might be located.
“If we are going to incentivize and try to attract data centers, it is imperative to regulate them so that they don’t negatively impact any of our communities,” said the committee’s ranking minority member, Rep. Nima Kulkarni, D-Louisville. “... I want to also make sure we address environmental impacts of these data centers. So, there’s going to be a lot of areas where we need to regulate them, but I appreciate you taking this first step.”
Regulating data centers was identified as a priority among the General Assembly’s GOP majority over the interim and at the start of this year’s legislative session.
There’s also House Bill 544, or the “Kentucky Ratepayer Protection Act,” sponsored by Lexington Democrat Rep. Adam Moore. It’s meant to protect residents from higher utility bills that come with the additional electricity infrastructure needed to power data centers.
In his second State of the Union address since taking office again last year, President Donald Trump pitched Tuesday his “ratepayer protection pledge.” He said tech companies “have the obligation to provide for their own power needs. ... I’m telling them they can build their own plant. They’re going to produce their own electricity.”
But many Americans are still on the hook for funding the data center boom, according to a fact check of the speech by POLITICO. As demand increases for artificial intelligence, subsequent requests for power, fuel, vacant land and other electric-grid essentials are already driving up bill prices as utilities prepare themselves for additional load.
Trump’s assertion — similar to what’s being proposed in House Bill 593 — only addresses some of the causes of rising prices. The cost of grid upgrades, those associated with extreme weather and who pays for it are generally determined by utility companies and state regulators, not the White House or tech companies.
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