One of the most significant bills passed by the Kentucky General Assembly in 2025 was legislation giving massive tax breaks to data centers — the enormous and energy-guzzling facilities hosting artificial intelligence services that lawmakers want to entice to Kentucky.
State lawmakers are already indicating that data centers will again be a major focus in the 2026 legislative session that kicks off in January, addressing the opportunities, challenges and fears that have been unleashed this past year.
“I think it's going to dominate this legislature coming up,” said GOP Sen. Robby Mills of Henderson in an interim committee meeting in November. “But it's very difficult and very intertwined… so many issues there.”
The months that followed the passage of the data center tax break bill in March showed its immediate effects.
Kentucky’s largest energy utility sought and received permission from state regulators to spend $3 billion on building two new gas power plant units with a combined generation capacity of 1.3 gigawatts. Louisville Gas & Electric and Kentucky Utilities say this is necessary mostly due to the giant amount of energy they forecast would be needed by future hyperscale data centers they anticipate coming to the state.
There were also new data center projects popping up across rural Kentucky seeking permission to build and making grand promises of jobs and local tax revenue — but facing heavy opposition from skeptical residents and local governments.
Proponents of data centers stress that Kentucky needs to compete with other states for the multi-billion dollar investment of companies in AI, which will boost local tax revenues and economies where they are located.
John Bevington, an executive with the parent company of LG&E/KU, told lawmakers in a November meeting that local communities should welcome data centers and the millions of dollars they’d bring in local tax revenue, rather than lose projects to other states.
“We ought to get our fair share,” Bevington said. “If we get three or four of these things, it'd be a game changer for our state's economy.”
Those skeptical of the rush for data centers point to setbacks faced in other states where hyperscale facilities have been operating, including increased energy bills caused by utilities’ expansion of power generation to serve the data centers, as well as local concerns over noise, water or air pollution near the massive campuses. Consumer and environmental advocates also point to the speculative nature of data center forecasts and fear of an AI “bubble,” a burst of which could leave residents holding the bag to pay for the new power plants with higher bills.
Much of the opposition packing public forums that has pushed local governments to block data center zoning requests this year in Oldham, Simpson and Meade counties has centered around the lack of transparency from developers. Companies leading the proposals in those counties — as well as another pending project in Mason County — would not reveal the identity of the large tech company who would be the end user of the data center, fostering a lack of trust in the promises being made about its benefits and risks.
“I think a lot of these (companies) are looking for — for a lack of a better way to say it — these little Podunk communities where they think everybody's going to be ignorant or illiterate and just willing to accept everything they say is the gospel,” said Simpson County Judge-executive Mason Barnes, a strong critic of the data center proposal there. “And thankfully, that's just not happening.”
Legislative leaders in Frankfort have referenced this in recent months, stressing that while Kentucky must get into the data center game, any legislation they advance should take account of local concerns.
“I think the extent of maybe regulation around data centers is going to be more around giving communities the abilities and the tools that they need to make sure that they're making good decisions for themselves,” said GOP House Speaker David Osborne from Prospect at a Kentucky Chamber of Commerce forum in November.
Still, lawmakers are wary about scaring tech firms away from Kentucky with regulations, just as the administration of President Donald Trump is pushing for a ban on state regulation of AI and rolling back federal rules in an effort to facilitate more data centers. Trump has portrayed the advancement of AI as a national security issue, as the United States competes with China.
Tech companies, Trump and Frankfort lawmakers in the GOP supermajority all agree that a massive expansion in power generation is needed to meet the demand of AI data centers. In Kentucky, utility companies are already starting that process for data centers, and Osborne says the General Assembly will do everything it can to facilitate that expansion of energy infrastructure.
“It really is a matter of national security,” Osborne said. “And if we don't build out a network pretty quickly, then we will be left behind on it.”
Making data centers pay ‘their fair share’ of energy infrastructure
In the latter half of 2025, a new legislative task force on artificial intelligence met six times in Frankfort. Much of their discussion focused on data centers, as lawmakers heard testimony from utility companies and firms in the data center industry.
The task force released its recommendations in November, including two directly related to data centers:
- Consider legislative policies for the location of data centers in Kentucky, including minimum requirements for location and collaboration among local, state and private entities.
- Consider legislative policies for data centers' need for large amounts of water and power, requiring more base load power to ensure grid efficient sufficiency, including consultation with the Public Service Commission.
GOP Rep. Josh Bray of Mount Vernon, a co-chair of the task force, said these were to address concerns about data centers and would be included in a bill in the upcoming session. He said there would be location requirements to get “local buy in” on projects, and also assurances that existing customers’ utility bills “don’t increase because of consumption by the data center.”
Republicans have not released a draft of legislation to address the concerns, but one House Democrat did so last month after speaking about it at a chamber conference.
Rep. Adam Moore of Lexington calls his bill the Kentucky Ratepayer Protection Act, which he says “makes sure that clear guardrails are established — not to scare data centers away, but to be very clear and be open and transparent as far as what’s the expectation here.”
Moore’s bill closely resembles LG&E/KU’s request for a new tariff on data center customers in a case still pending before the Kentucky Public Service Commission.
LG&E/KU’s proposed tariff would require any large data center customer to sign a 15-year contract guaranteeing it would pay for at least 80% of the energy it says it will consume each month, even if they end up using less. Utility executives say this would ensure the data company pays for its fair share of power generation and not stick existing customers with higher bills if the data center winds up using less energy than expected.
Moore’s bill would require those terms for any large data center to be powered by a public utility, though it would increase the minimum required payment to 85% and require a company to guarantee collateral amounting to 50% of its total costs over the course of the contract.
“These billion dollar companies, whether it's Amazon, Google or someone else… we're going to make sure that they're paying their fair share of that upfront capital investment, but also of their projected energy needs down the line as well,” Moore said.
Consumer and environmental advocacy groups intervening in the case before state utility regulators at the Public Service Commission say large-load tariffs proposed by LG&E are a positive step, but add that they do not go far enough to protect consumers — especially if an AI bubble bursts and data centers do not emerge to pay for the new power plants.
Let data centers build their own power plants?
According to a study this year from Harvard Law School, the only way to truly protect existing customers from data center-induced rate hikes is to entirely separate the facilities’ energy needs from the public utility grid.
Arguing that “Big Tech” will always find a way to pass off costs to other customers, the authors say this could be avoided if the tech giants like Amazon, Meta and Microsoft essentially build their own power plants that serve their data centers, cutting off any reliance on public utilities.
This “behind-the-meter” tactic is increasingly being used by large companies that don’t want to wait on utilities to build out new power generation. This includes the massive 10-gigawatt data center complex of OpenAI and Oracle in west Texas, powered by their own gas turbines, as well as the data center of Elon Musk’s xAI in Memphis.
Several Kentucky lawmakers quizzed LG&E officials in committee meetings about whether this would be allowed in Kentucky, but did not receive a clear answer.
“I would rather be in a position of selling from an obligation perspective, knowing that the generation will show up if the customers are going to be there,” said Bevington of the LG&E/KU parent company.
Under Kentucky law, regulated public utilities serve as designated monopolies in their service territories, as customers can only purchase power from them. Customers can also generate their own power through methods like rooftop solar panels, and the PSC can approve merchant electricity-generating facilities to sell power to the wholesale market.
Asked if a data center could entirely power their facility behind-the-meter, LG&E/KU spokesperson Liz Pratt told Kentucky Public Radio in an email that customers cannot buy power from an unregulated third party, but if a data center customer “owned its own source of generation and wants/needs to connect to the electric grid for backup power, they would have to work with the utility that serves that territory.”
The only way that regulated public utilities like LG&E/KU can make a profit is by building new power infrastructure, then making a guaranteed rate of return by passing along those costs to customers. The PSC approval of its two new power plants was highlighted in the earnings call last month of its parent company PPL.
Byron Gary, an attorney with Kentucky Resources Council that represents clients in PSC cases, says he is not aware of anything in Kentucky law that would prevent a data center company from building its own power plant to exclusively serve it. He adds this scenario would also likely be outside the scope of PSC regulation.
While this may protect ratepayers from higher bills, Gary adds that many local governments aren’t prepared for such massive projects and their potential environmental impacts, as only a third of counties even have planning and zoning ordinances.
“(Local) planning and zoning isn't really prepared to deal with essentially a warehouse with a power plant connected to run computers in it,” Gary said. “Like, that's just not something contemplated under most planning and zoning codes.”
This scenario isn’t even hypothetical, as the data center project for Franklin in Simpson County proposed doing just that — building its own power generation that would be the sole provider of its data center.
Gary says state lawmakers should step in with regulations on data centers to address situations that nobody would have even contemplated five years ago.
“What we are hoping to see is some sort of acknowledgement that this is a growing issue that needs to be addressed in one fashion or another, to ensure that everybody else's rates don't go up,” Gary said. “And so that we don't see this totally sort of novel thing springing up everywhere and potentially not being properly regulated.”
Data centers need power. Will it be gas, coal, nuclear or renewable?
Whether data centers in Kentucky are powered by public utilities or themselves, there’s also the question of what type of energy they will use — natural gas, coal, renewable or nuclear power.
LG&E/KU is clearly shifting its energy profile to gas, though it is also trying to keep old coal plants open that it previously scheduled for retirement, viewing that as necessary to land data centers in the short term. The Kentucky legislature has assisted the latter effort in recent years with legislation to make coal unit retirement more difficult.
Some Kentucky lawmakers view the data center rush as an opportunity to revive the state’s decimated coal industry — hoping the Trump administration will make good on promises to end regulations that have prevented new coal power plants from being built and allowed many old plants to close.
“We need to build more coal plants,” said Republican Sen. Gex Williams of Verona in a November committee meeting. “I'm hoping we create the regulatory environment that when that window opens to build more coal plants, that we jump on it and we're ready to go.”
That viewpoint was encouraged by Don Gulley, the CEO of the Big Rivers Electric Corporation serving western Kentucky. He told lawmakers he’s hopeful coal plants will be built again and state and utilities should work to “keep your coal plant.”
“If you keep investing in them and protecting (coal plants), yes, they can run into the 2040s 2050s,” Gulley said.
Gulley added that while tech companies have publicly stated that they want their high-load data centers to be powered by green, renewable energy — often citing the climate change crisis — some are now settling for a “dirty hedge” in the short term “and look the other way whenever the coal comes by wire.”
In an AI task force meeting, Williams pressed Sean Liu, a partner at a Silicon Valley venture capital firm, on whether coal and fossil fuel power would be an impediment to Kentucky landing a data center. Liu said that fossil fuels could serve as a bridge for a few years, but coal is less attractive.
“Most of the conversation we've seen have preferred gas as a bridge, versus coal,” Liu said. “They do want to transition to renewables, a mix of solar, nuclear, wind and next generation, combined cycle gas, in like a five to 10 year time frame.”
Liu considers nuclear power to be renewable energy, and the CEO of a new company he’s backing in Kentucky considers nuclear power to be the key to the state’s energy and data center future.
Scott Nolan, the CEO and founder of General Matter — a Paducah company enriching fuel for power reactors — said data centers are now looking to nuclear energy for the future.
With their company in Paducah and the U.S. Department of Energy tapping the city as one of four prioritized AI infrastructure sites, Nolan said that “could position Western Kentucky as a hub for both AI data centers and nuclear energy, and really lock up that supply chain in Kentucky.”
Bartlett Cleland, an attorney for NetChoice, a trade association of large data center giants, told the task force that modular nuclear reactors the size of a tractor trailer could allow behind-the-meter generation at data centers, with some in the industry predicting that could be possible in 5-10 years.
The biggest backer of such a nuclear energy future in Frankfort is Republican Sen. Danny Carroll of Paducah. At the chamber conference in November, we said he’s working on a potential $75 million pilot project to set up three sites for nuclear reactors in Kentucky that would power data centers.
Giving locals ‘the tools’ to make data center decisions
Currently, only one data center project in Kentucky has been approved to go forward. That 525-megawatt data center in Jefferson County was announced in January — before the March legislation was passed to exempt data centers in the other 119 counties from sales and use taxes for 50 years on their computer equipment.
Bevington of PPL told lawmakers in November that the $11 billion investment in Louisville would amount to $500 million in new local tax revenue over the next 10 years. While other cities and counties around the state could have similar revenue if they are open to developers, he said locals are forming unfounded negative opinions about data centers by relying on their Google searches.
“It's something that is hard for the local communities to really grab a hold of, but I think that's something that definitely needs to be out there as part of the story,” Bevington said.
(PHOTO of either Louisville data center or the big crowd in Lisa's story)
That argument was not welcome in Franklin this fall, as its planning commission and city council both voted unanimously to reject a proposed zoning change sought by the company attempting to locate a data center there.
“I just don't believe that the data centers are all the great things that these people have them cracked up to be that's trying to push them on the communities all across the country,” said Barnes, the top official there in Simpson County who is now pushing for a countywide zoning effort.
Franklin Commissioner Kelly Bush, who led the charge against the data center, said the state needs to help local governments with regulations, or at least not step in and force local governments to accept them against their will.
“We need to have the ability as elected officials to pump the brakes on some of this stuff, because even though Washington thinks it's great and we're a rural community, that's not always the case,” Bush said.
House Speaker Osborne says that while some local governments do not want data centers, others “are calling me on a daily basis saying, ‘Yes, we do want them.’ So we need to make sure we're giving them the tools to make the decisions that are best for their communities.”
That opinion was echoed by Sen. David Givens of Greensburg, a member of Republican Senate leadership.
“I think this is a wonderful example of the way government should work, when local communities get the right to say, 'not here, no thank you,' and then others show interest,” Givens said. “By us not stepping too heavily into that data center space specifically, but focusing on the delivery of energy, I think we're doing the right thing.”
