The largest electric utility company in Kentucky has an expensive plan to construct and upgrade power plants to significantly increase its energy load over the next seven years — mostly due to the demands of new data centers it expects will be built in that time.
Critics say the utility company may be moving too fast, as data centers remain speculative in Kentucky and may not end up consuming the staggering amount of power being forecast. If that happens, they fear current customers may be the ones picking up the tab of the new plants in the form of higher rates.
Kentucky now finds itself in part of the national context of electric utility companies figuring out how to adapt to projections of data center power demand skyrocketing in the coming years. This includes skepticism from some state utility regulators and experts about how realistic those forecasts are, and the risk of spending billions of dollars on new power generation if such data center demand ends up being overestimated.
Louisville Gas and Electric (LG&E) and Kentucky Utilities (KU) filed a case with the Kentucky Public Service Commission (PSC) in February seeking approval to spend $3.7 billion to significantly increase its power generation capacity. Three-quarters of that spending would go to building two new 645 megawatt natural gas power plants — one in Louisville, one 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 company’s filings with the state’s utility regulator indicate this additional power generation would allow it meet the forecasted 29% increase of seasonal peak demand by 2032 — rising from just more than 6 gigawatts currently, to roughly 8 gigawatts.
Nearly all of LG&E’s projected growth in load demand is due to large economic development projects it expects to come — mostly that of massive data centers, which are facilities housing computer servers that store and process data for services like cloud storage, streaming platforms and artificial intelligence.
In PSC filings and testimony over the past several months, the utility indicated it expected the energy demand of new data centers to reach 1,750 megawatts — or 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 when it comes online in 2028.
John Bevington, an executive with PPL Services Co., the parent company of LG&E and KU, stated in PSC testimony that “without certainty of available generation and transmission capacity, it will be difficult to fulfill the initiatives of the General Assembly and Gov. (Andy) Beshear in marketing Kentucky to data centers and other large load customers.”
LG&E expects this rise in data center demand due to new statewide tax incentives passed by the Kentucky legislature this year that seek to lure companies to the state, as well as more than a dozen inquiries they’ve received by companies expressing an interest in locating one there — altogether totaling more than 6 gigawatts.
This included two of the massive “hyperscale” data center projects announced early this year — a 400 megawatt project in Louisville and a 600 megawatt complex in neighboring Oldham County.
But the example of Oldham County shows the risks of utilities basing billions of dollars in new power plant construction based on speculation of new data center demand that may or may not come to fruition — a risk that state regulators, utilities and customers all across the country are taking a closer look at.
Critics say inflated demand could lead to ‘stranded asset’
Following a local uproar of opposition to the Oldham County project, the company behind it scrapped its plans for a 600 megawatt data center, instead announcing it would build a 100 megawatt facility on a smaller property. When the opposition progressed into the passage of a countywide moratorium on data center projects, World Hospitality Partners announced it would abandon all plans to build one in Oldham.
Byron Gary, an attorney for environmental advocacy group Kentucky Resources Council, says this highlights the speculative nature of data center load demand that is the basis for LG&E’s infrastructure buildout. If these data centers don’t materialize as hoped, his fear is that the expensive new plants “become a stranded asset that everybody ends up having to pay for.”
Gary says utility companies typically use private equity and bonds to build power plants, and then recoup those funds through charges to ratepayers. How LG&E specifically charges ratepayers to recover the $3.7 billion would have to be formally requested by the utility in a PSC case, which the regulator could approve or deny.
In PSC filings and testimony, LG&E officials have identified 18 data center “opportunities,” in which companies have requested information about the feasibility of a specific site in Kentucky. The utility does not have to name who made the requests, but they are categorized in five different stages based on how close they are to going forward.
Gary noted that none of these are at the final stage of having a signed contract for service and only one — likely the announced Louisville project — was deemed “imminent,” with the company having all of the information it needs, but still finalizing business plans before proceeding. The rest are still in the lower stages of inquiry, suspect and prospect, in which companies are still gathering information and evaluating sites.
Gary said the likelihood of those 17 other data center “opportunities” actually happening “is really uncertain, as we've seen with Oldham County.” He noted that Western Hospitality Partners of the Oldham project and the companies behind the Louisville data center are not the actual end users that would operate it, as they are developers setting up “colocation facilities” that they would then lease out to potential tech companies for use, such as Amazon, Meta or Google.
With real estate developers likely making inquiries about sites in multiple states in order to land an agreement, build a facility or get connected to the grid, he says this is likely inflating the overall forecast of data center demand in Kentucky and throughout the country.
“If we build two new power plants to serve a data center and Pennsylvania manages to get theirs online first, then we could end up being just out of luck and eating the cost of a new power plant for a data center that doesn't come,” Gary said.
This concern of duplicative inquiries was also raised in PSC motions and testimony from the Sierra Club, which is intervening in the case.
“Service territory shopping, when data center developers are in conversations with multiple utilities across a number of states, is standard practice,” a Sierra Club motion stated. “Since (LG&E and KU) appear to lack any barriers to entry to the load interconnection queue, it’s possible that inquiries are coming from customers who have no intention of constructing data centers themselves and are merely attempting to hold a place in line.”
An LG&E map of data center opportunities shows most are located in Jefferson and Oldham counties, along with one in Mercer County, one in Mason County and at least one in Bell County.
State regulators, stakeholders taking closer look at data center forecasts
The concern that utilities may be overbuilding power generation due to inflated forecasts of data center demands is shared by credit ratings agencies — a key player in the financing of construction.
Last year, both Moody’s and Fitch warned that inaccurate load increase forecasts for data centers could create credit risks for utility companies.
Beyond just site speculation, Fitch warned that actual demand may turn out to be lower than projected “because of technological changes and efficiency improvements that lower the power requirements for data centers.” Without tariff schedules, rates and contracts that protect other ratepayers, “there is considerable risk that residential customers may end up paying disproportionately for the significant investments needed to connect the large, new commercial loads.”
Todd Snitchler, the CEO of the Electric Power Supply Association, also warned in an op-ed this year that artificial intelligence-driven data center forecasts are succumbing to “irrational exuberance,” risking the overbuilding of power infrastructure that will burden current ratepayers.
Just like fears of digital commerce using excessive power at the turn of the century turned out to be unfounded due to technological advances in efficiency, some expect the same to happen with data centers. For example, Chinese AI firm DeepSeek announced this year that it had replicated other AI models while consuming only a fraction of the energy.
Stakeholders are closely following the potential overestimation of data center demand in Texas, which consumes more power than any other state, by far.
Electric Reliability Council of Texas (ERCOT), the operator of the state’s electrical grid, recently unveiled what its CEO Pablo Vegas called a “sanity check” on power demand forecast driven by the data center boom.
Peak energy demand was forecast to grow from 85 gigawatts to 208 gigawatts by 2030, but ERCOT adjusted this down to 148 gigawatts when it changed its methodology for anticipated growth in data centers. The state operator examined how many anticipated data centers actually came to fruition and adjusted the percentage of upcoming projects, cutting the forecasted power demand of data centers in half.
Vegas said previous estimates were inflated because of the market race of developers attempting to land multiple sites across the country, in the hopes of landing one and preparing it for a large end user, like Microsoft or Apple.
Similar to LG&E in Kentucky, Georgia Power Company is seeking permission to build new gas-fired power plants that will generate more than a gigawatt of power, largely due to a forecasted data center boom. However, Microsoft — which now operates three data centers in Georgia, with plans for more — argues data center demand is inflated by speculative developers, in addition to requesting more reliance on renewable energy instead of burning fossil fuels.
In Ohio, state regulators approved a settlement with American Electric Power Company and other stakeholders that would require data centers to pay for at least 85% of the energy they claim they will consume each month, even if they wind up using less. This is seen as a safeguard in case data centers use much less power than forecast, ensuring they bear the brunt of costs for new utility infrastructure and not other ratepayers.
In Indiana, an American Electric Power affiliate entered a settlement agreement earlier this year with utility regulators and stakeholders on amended tariff terms for data centers. It would apply to a new or expanded facility using at least 70 megawatts — or multiple sites of the same company using 150 megawatts — setting up a specific rate formula for those large load customers.
Gary of Kentucky Resources Council says new data centers in Kentucky could either use the existing large load rate in the current PSC tariff — which does not specifically apply to data centers — or enter into a special contract that would need PSC approval.
He also notes that LG&E has just filed a new case with the PSC to adjust its tariff schedule, creating a new category of “Extremely High Load Factor Service” that resembles portions of the Ohio agreement. The utility also has an ongoing report filed with the PSC last year that outlines its expected energy plans over the next 15 years, which the regulators will make recommendations for.
Even if the PSC does approve a new tariff scheme for data centers that is protective of consumers, Gary warned that may not do much good for ratepayers if data centers don’t actually materialize in the state and fund the recouping of expenses for new power plants — should the PSC give them permission to build them.
“If nobody comes and takes advantage of that tariff, then it seems like there's a possibility that the rest of the rate payers could end up holding the bag for this stranded asset,” Gary said.
Kentucky Resources Council and the Sierra Club also take issue with LG&E plan to build out power with two new gas plants and lengthening the life of a coal-fired plant, arguing that building out more fossil fuel infrastructure instead of renewables will contribute to the escalating climate change crisis.
There is a public comment hearing in Louisville on Monday for the LG&E case requesting PSC approval to build out $3.7 billion of power generating infrastructure. The July 14 hearing takes place at 6 p.m. at the Jefferson Community & Technical College’s Southwest Campus Auditorium at 1000 Community College Drive.
State government and politics reporting is supported in part by the Corporation for Public Broadcasting.
