Data center companies must demonstrate they will not harm ratepayers or the environment, pay their share of local taxes and build relationships with the community under an executive order Gov. Andy Beshear issued Thursday.
In the executive order, Beshear said his office will “actively monitor” data centers and hold them accountable to the commitments he demands. It is unclear from the order what penalties developers will face if they fail to agree to some of the required commitments.
“The executive order is going to set a baseline. If you cannot meet it, you're not coming to Kentucky. If you can, you better get in the local community and work with people,” Beshear said. “Be transparent about what the opportunity is, so that the local community can decide.”
Beshear said the executive order represents the “teeth” behind his previous statements on data centers. These are the three commitments that the governor lays out in his executive order:
- Data center developers must ensure there are no "detrimental impacts” by submitting an energy plan to the Energy and Environment Cabinet to protect ratepayers. The Public Service Commission is also barred from allowing a utility to increase rates to recover costs created by data centers. The cabinet must also deny any permit applications that would negatively impact air or water quality or Kentucky’s natural resources.
- Data center projects are directed to not avoid paying any local or school taxes. Large projects already receive significant sales tax exemptions under state law.
- Data center projects are expected to engage in “public discussions with local community leaders and members.”
Proposals for data centers are popping up in communities across Kentucky. Many have just as quickly drawn backlash from residents. More than 30 counties and localities have passed moratoriums to block data center projects for some period of time, according to Energy and Environmental Cabinet Secretary John Lyons. In a few cases, data center companies have attempted to bypass zoning laws or have threatened to sue local governments seeking to block them.
In Simpson County, for example, a data center developer sued over a land use ordinance in an effort to clear the way for the project. The ordinance would have required an area be zoned for heavy industrial use and would have required the company to get a conditional use permit — giving the local government more opportunities to make specific requirements for the project.
In Cave City, a land development company is suing the city council after it put in place a data center moratorium, accusing them of illegally rushing the ordinance.
The Kentucky General Assembly considered, but did not pass a GOP-led bill that would have put consumer protections in the face of the hyperscale data center boom into law. The bill’s sponsor, Republican Rep. Josh Bray of Mount Vernon, said he appreciates the attempts to protect Kentuckians, but there’s a lot left to do.
“House Bill 593 was much more thorough and provided far better oversight. I remain committed to working on this issue to make sure Kentucky leads the nation in smart energy and economic development policies,” Bray said in a statement. “I will have a bill ready to file the first week of session next year.”
GOP House Speaker David Osborne from Prospect echoed the intention to address data center protections through legislation and noted that the governor's order did not include “real enforcement mechanisms.”
“Without that accountability, it is unclear how effective the order will be beyond providing guidance for communities that choose to include data centers in their economic development plans,” Osborne said.
GOP Senate President Robert Stivers from Manchester, who spearheaded efforts to incentivize data center development, opposed the legislation and said at the time he felt utility regulators would put in place sufficient protections for ratepayers. Bray’s bill passed in the House, but fell short in the Senate.
Stivers responded to Beshear’s executive order Thursday, saying it was “issued for headlines,” and that the General Assembly is taking a “deliberate approach.”
“We're coordinating with our federal delegation, including Congressman Brett Guthrie, to ensure Kentucky's policies complement, not conflict, with federal efforts,” Stivers said. “While the governor has finally embraced the right premise, this is more political theater than public policy.”
While proponents of the hyperscale data centers promote the property taxes they’ll bring to local communities, opponents argue the environmental costs and potential impact on utility ratepayers outweigh benefits. Without adequate protections, advocates fear the enormous cost of building out new electric generation capacity will get passed onto communities instead of the profiting data centers.
Lyons said the administration does not have many details on proposed data center projects. He said they have yet to see any air quality permit applications this year and have seen only a few water supply-related permit applications.
“Until we get those applications, we really don't know what they're proposing,” Lyons said.
But Lyons said once those applications start coming in, the cabinet will enforce standards as they would for any industrial site.
“There are water quality standards that they have to meet, and we have a statutory duty to enforce those standards,” Lyons said. “The governor's executive order and his directive are clear: the cabinet simply will not permit, not issue a permit that's not protective of human health, our natural resources, and the environment.”
Angie Hatton, the chairperson of the Public Service Commission that regulates public utilities, said data center projects and the utility buildouts approved to power them must be done in a “thoughtful and deliberate way.”
“As Kentucky looks toward increasing interest from data centers coming into our state, it's important that Kentucky learn lessons from other states that maybe have not implemented data centers in the most effective way to protect ratepayers,” Hatton said.
*This story has been updated to include additional details.
