The Kentucky Public Service Commission on Tuesday granted the state’s largest utility companies permission to spend $3 billion to build two new natural gas power plants.
Louisville Gas and Electric and Kentucky Utilities say the new plants are mostly needed to meet the future power demands of energy-guzzling “hyperscale” data centers they expect to be built in Kentucky in the near future. Such data centers have proliferated across the country in recent years — many now powering customers’ artificial intelligence services — with Kentucky lawmakers recently attempting to lure them with tax incentives.
LG&E/KU were also cleared by state regulators to extend the life of a coal-fired power plant in Carroll County that was set to be retired in the coming years, but denied a request to keep a coal unit open in Louisville.
“The PSC believes that these projects will be adequate to replace expected generation retirements and keep current facilities in operation while also allowing the utilities to prepare to meet the power needs of potential economic development projects within LG&E/KU’s territory, including data centers, while protecting ratepayers from potential speculative costs of powering an expected 1,470 MW of load growth,” the Public Service Commission (PSC) order states.
The order also denies LG&E/KU a cost-recovery mechanism for its new gas plant in Louisville. This involved a special tariff for high-energy customers like data centers that is detailed in a separate rate case, with that revenue directed towards paying off the debt from private equity or bonds used to build the power plants.
While granting permission for LG&E/KU to build the new gas power plants, the PSC order adds that the utility companies can’t build the plants if they learn that the forecasted need for power doesn’t materialize.
“While LG&E/KU have met their burden of proof to move forward with the approved CPCN projects, the Commission expects LG&E/KU to follow through on their statement that if load growth does not materialize as reasonably anticipated, that LG&E/KU will not build CPCN-approved facilities when it was not least-cost to do so,” the PSC order stated.
Environmental and consumer advocacy groups opposed the LG&E/KU requests, arguing the companies’ data center forecast was speculative and inflated, putting existing customers at risk of being left with higher utility bills if data centers weren’t actually built, or, used less energy than expected. They also criticized LG&E/KU for seeking to build out more fossil fuel infrastructure that will contribute to the escalating climate crisis, instead of investing in renewable energy.
Spokespersons for LG&E/KU and groups intervening in the case did not immediately reply to a request for comment on the PSC order.
LG&E/KU requests more gas plants, scraps battery storage
In February, LG&E/KU filed its application for a Certificate of Public Convenience and Necessity (CPCN) with the PSC, originally seeking permission to spend $3.7 billion to build two new 645-megawatt natural gas power plants — one in Louisville, the other in Mercer County — in addition to a new battery storage system in Louisville, and upgrades to keep an old coal-fired power plant operating in Carroll County.
The utility companies reached a proposed settlement with the office of Kentucky Attorney General Russell Coleman in July, which sought to alter the original application by scrapping the battery storage facility and extending the life of an additional coal plant in Louisville that was set to retire in 2027.
The proposed settlement also included the cost-recovery mechanism for the Louisville gas plant, saying new high-energy customers like data centers would agree to the terms of a new tariff structure within a separate LG&E/KU rate case that is still pending.
Under the proposed new “extremely high load factor” tariff rate, new data centers would pay for at least 80% of the energy they say they will consume each month — even if they wind up using less — for a period of 15 years. While LG&E/KU and Coleman said this would protect existing customers from bearing an undue burden of the costs of new plants through higher utility bills, critics intervening in the PSC case argued these protections still weren’t strong enough and would leave them vulnerable.
LG&E/KU serve roughly 1 million electric customers in Kentucky across more than two-thirds of its 120 counties.
Spokespersons for Coleman, Gov. Andy Beshear and Republican supermajority leadership of the Kentucky General Assembly did not immediately reply to a request for comment on the PSC decision.
Critics say push for more carbon emissions worsens climate change
The local governments of Louisville and Lexington were both parties to the settlement to keep an additional coal plant open in Louisville and scrap the renewable battery facility, agreeing not to oppose the agreement before the PSC.
Environmental advocates criticized the leadership of both cities, saying this was an abandonment of their previous goals to eliminate carbon emissions in the next 15-25 years. They also criticized PPL Corporation — the parent company of LG&E/KU — for backtracking on its 2021 goal to reduce its carbon emissions 70% from 2010 levels by 2035, then have an 80% reduction by 2040, and ultimately achieve net-zero emissions by 2050.
At a summit on Monday, United Nations Secretary-General António Guterres warned that climate change “is getting out of control,” as their target on limiting global warming to 1.5 degrees Celsius above pre-industrial levels “is on life support.”
The energy generation of LG&E/KU is currently dominated by coal, but reliance on natural gas will only continue to rise with the new PSC order. Power plants burning natural gas release about half the amount of carbon dioxide as coal-fired plants, but they also release significant amounts of methane, a potent, though shorter-lived greenhouse gas.
As of today, 84% of the utility’s power comes from burning coal, followed by gas at 15% and renewable energy at 1%. However, those percentages are projected to shift in the next few years, thanks to a PSC order in late 2023 allowing LG&E/KU to retire two coal units and replace them with a new gas plant in Louisville and several new solar and battery storage facilities.
Data center proposals followed Kentucky tax incentives
Plans for the first hyperscale data center in Kentucky were announced in January, as PowerHouse Data Centers and Poe Companies announced a 525-megawatt project in southwest Louisville. The project is currently cleared to go forward, though the identity of the company or companies that will be its end user have not yet been revealed.
Other data center projects attempting to launch in Kentucky have faced stiff opposition from local residents, as well as new regulatory and zoning hurdles from local governments.
Two data centers proposed by Western Hospitality Partners in Oldham County (just east of Louisville) faced resistance from locals who criticized their location, size and various forms of pollution. The company switched its original location to a smaller property, but the Oldham County Fiscal Court still passed a moratorium halting all data center projects — causing the company to pull out of the county.
In October, the local governments of Franklin (a city in Simpson County along the Tennessee border) and Meade County (just west of Louisville) voted to reject the companies’ proposal to amend the zoning of property to allow new data centers. The public meetings in both Franklin and Meade were jam-packed with critics of rezoning proposals for data centers, and both were rejected by unanimous votes.
An unnamed company is also attempting to build a massive hyperscale data center in Mason County, just across the Ohio River from Ohio in northeast Kentucky.
The Kentucky General Assembly passed a bill in 2024 to exempt data centers from sales and use taxes for 50 years on their computer equipment, but only within Jefferson County.
Late into this year’s session — and after the Louisville data center was announced — a bill was amended just before it passed that would extend such data center tax breaks to all counties. This amendment was pushed by Republican Senate President Robert Stivers of Manchester, who said in April that the incentives will make Kentucky a hub for artificial intelligence and data centers.
“Within the next few months, you will see more and more announcements about artificial intelligence and data centers,” Stivers said. “I'm very well aware of what is being negotiated in various parts of the state.”
LG&E/KU executives testified in the August hearing of their CPCN case that time is of the essence for their request to build new plants, as Kentucky is competing with other states to land new data center projects and other economic development projects needing large amounts of energy.
“The question we have is, are we going to have enough generation to serve what the governor wants, what the General Assembly wants to attract to the state of Kentucky,” said LG&E/KU Vice President Robert Conroy.
The filings and testimony of LG&E/KU in the CPCN case indicated the 1.3 gigawatts additional power generation from two new gas plants would allow it meet its forecasted 29% increase of seasonal peak demand by 2032 — rising from just more than 6 gigawatts currently, to roughly 8 gigawatts.
The companies added that they expected the energy demand of new data centers in Kentucky to reach 1.75 gigawatts by 2032. That’s considerably more than the second phase of the massive electric vehicle battery plant in Glendale that’s expected to use 120 megawatts — or .12 gigawatts — when it comes online in 2028.
