Kentucky governor wants to limit data centers, but critics say executive order has little teeth

Those agencies he’s referring to include Kentucky Public Service Commission, the state’s utility regulator, and the Energy and Environment Cabinet, which regulates water and air pollution. Among other things, he directed the agencies to deny utility rate increases and prevent negative environmental impacts from data centers.

But some people who watch energy policy in the state wonder how the executive order will be implemented and if a governor can compel an agency like the Public Service Commission, which has to follow a mandate defined in state law, to deny requests from utilities. The governor’s executive order doesn’t have the backing of any specific state law regulating data center impacts, potential legislation that the GOP-controlled state legislature has failed to take up so far.

Lane Boldman, the executive director of the environmental advocacy group Kentucky Conservation Committee, described Beshear’s executive order as a “document of intent” that makes clear to state regulators what the governor wants to see happen. But she said the regulators still have to show evidence for their decision-making with data centers.

“I think anything that starts bringing more attention to the very real impacts of these facilities and has any teeth at all is welcome. And this has a little bit of teeth, but it certainly could be enhanced more with strong legislation,” Boldman said.

Another environmental legal group agrees with Boldman. In a recent statement, the Kentucky Resources Council wrote it supports the governor’s goals but that executive branch agencies are “creatures of statute and their authority and discretion are bound and limited by law.” The organization also called on the state legislature to adopt new laws for data centers.

Boldman said she wishes state lawmakers had addressed the impacts of data centers sooner. After a bill to limit data center impacts on electricity ratepayers died during this year’s legislative session, a key GOP lawmaker told the Lantern he’s working on new legislation.

“You invite a high impact economic development industry into your state, and you are surprised now at the impact because they’re coming on so fast. That should have been anticipated,” Boldman said.

Regulator independence

Specifically, Beshear’s executive order directed the Kentucky Public Service Commission, or PSC, to deny any request from utilities to raise rates that would have other ratepayers pay for data center construction and operations.

Yet a former chair of the commission told the Lantern the executive order doesn’t have an enforcement mechanism to ensure the commission complies.

“I don’t think it has any legal weight. I don’t think it needs to necessarily have legal weight for the PSC to take it seriously,” said Kent Chandler, a non-resident senior fellow in energy and environmental policy at the think tank R Street Institute. “Either they’re going to take the governor’s public demands at face value, or they’re not.”

In quasi-judicial cases, the commission weighs whether to grant utilities a rate increase to recover cost from utility investments including power plants. The governor appoints and reappoints the five commissioners on the board, who are then confirmed by the Kentucky Senate. The PSC is guided by state law — including that utility rates be “fair, just and reasonable” —  on whether to approve or deny a request.

Chandler said parties can appeal a decision if they believe the commission didn’t follow state law or regulations. He also doesn’t believe the executive order bucks how the commission was already operating with utility cost allocation.

“I just don’t think there’s anybody out there beating the door down at the PSC saying, ‘Yes, please, let’s allow utilities to raise rates on other customers for costs they didn’t incur for the benefit of data centers,’ right?” Chandler said.

Chandler said he also doesn’t recall a time when a governor has issued an executive order dictating to the commission how to rule on utility requests.

Chandler pointed to the U.S. Supreme Court overturning a precedent giving President Donald Trump control over federal agencies that Congress intended to be independent. He also pointed to a new state law giving the Public Service Commission more independence in its operations from the rest of the state executive branch.

“I think it just goes to show how important regulator independence is,” Chandler said.

He said that new state law indicated the commission is “independent from the rest of the executive branch and that they should have the ability to do their jobs without fear or favor.”

In an emailed statement, current Public Service Commission chair Angie Hatton told the Lantern the executive order is consistent with “what the PSC has already tried to do” under its statutory mandate of setting “fair, just and reasonable” rates.

“When it comes to data centers and other very large load customers, fair cost allocation means striving to ensure those large loads pay for the costs they cause,” Hatton said. She said the regulator would conduct a “prudency review” to determine the cost allocation.

The commission recently held a conference with data center developer TeraWulf to discuss the executive order as the regulator weighs whether to approve a special contract between the developer and utility Big Rivers Electric Corporation.

Permits and energy plans

The governor also has stood firm on his oversight of environmental permitting.

When asked in a recent MS NOW interview about a massive hyperscale data center and natural gas-fired turbines being built on or near a federal site in McCracken County — a project he said he wasn’t briefed on ahead of time — he referenced the Energy and Environment Cabinet’s permitting power.

“You can’t operate without an air or water permit,” Beshear said. “If you’re going to invest $100 billion to build something, you probably ought to go talk to the person in charge of the state.”

The cabinet oversees a variety of permitting for industrial sites including for water withdrawal, floodplain construction, storm water runoff and air quality, and those permits set limits on the amount of pollution allowed by an operation. Beshear’s order directed the cabinet to deny any permit request from a data center that would “negatively impact” water, air, and natural resources.

Additionally, Beshear’s executive order requires data center developers to submit an “energy plan” to the cabinet explaining how the developer plans to protect residential ratepayers and meet its energy needs. In a PSC filing, TeraWulf said it provided on Aug. 14 an 88-page energy plan to the cabinet.  Earlier this month, Energy and Environment Cabinet Secretary John Lyons said the state has received only a few water-related permits from data center developers.

Robin Hartman, a spokesperson for the cabinet, in a statement said the cabinet is drafting “guidelines” for the energy plans.

“All related projects – past, present and future – must provide an energy plan to Team Kentucky’s Energy and Environment Cabinet, as well as meet all other requirements outlined in the executive order,” Hartman said.

Kentucky Lantern is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Kentucky Lantern maintains editorial independence. Contact Editor Linda Blackford for questions: info@kentuckylantern.com.