Beshear’s instincts on data centers are good but his tools are few
As power-hungry data centers proliferate, states are searching for ways to protect utility customers from the steep costs of upgrading the electrical grid, trying instead to shift the cost to AI-driven tech companies. (Dana DiFilippo/New Jersey Monitor)
Gov. Andy Beshear has a clear message on data centers: Not one penny of Kentuckians’ electric bills should rise because of them. Any data center that wants to locate in Kentucky must pay for 100% of its own energy, including any new generation it requires. Companies that can’t meet that standard, he says, aren’t welcome.
The principle is exactly right. The problem is that it’s easier said than done.
There is no Kentucky law requiring data centers to cover their own costs. House Bill 593 – which would have required new data centers to bring their own generation, prepay infrastructure costs, or buy power on the open market – never received a vote in the Senate, in spite of overwhelming support in the House (90-8).
What Beshear offers instead is a series of pledges made to him in private meetings. A pledge to the governor is not a tariff. It is not a statute. It is not a Public Service Commission (PSC) order. When a project’s economics tighten three years in, a handshake in Frankfort with a now-former governor will not protect ratepayers.
The governor’s authority is also thinner than his rhetoric. He says he won’t “let” a bad project come to Kentucky. But where facilities land is a local zoning question. The decision of how to set rates belongs to the PSC. His real leverage is incentive approvals and the bully pulpit, and his ability to appoint PSC commissioners. These are lagging or weak political weapons, at best.
Beshear should, however, be praised for his political bravery in taking a measured view of data centers. The politics of data centers are currently grim: most people blame them for rising electricity prices, and vast majorities don’t want them (7 in 10 are opposed to local siting, with nearly half strongly opposed, and barely a quarter in favor). However, there are strong benefits to data centers. They are a cash cow for local governments. Beshear frames the windfall in terms of new spending–teacher raises chief among them, for a constituency that is among his strongest allies–when it could fund tax relief. He also notes not all data centers are for artificial intelligence. In other words, if you are reading this, it is coming to you from a data center.
Choosing which disfavored industries are allowed the privilege of access to electricity is a dangerous game. Data centers have environmental costs and energy demands, but this is true of almost all industrial facilities. And banning data centers won’t mean an end to AI – it just means the facilities locate elsewhere, while other local economies reap the benefits.
There is a moment of bipartisan support for legislation insulating ratepayers from paying data center costs. The current research is murky as to whether or not data centers raise electricity prices, but public perception is often more politically potent than economics. The long run of electricity demand remaining flat is coming to an end, and Kentucky can’t rest on its laurels and hope electricity prices remain low and Kentucky’s competitive advantage continues.
None of this is as simple as it sounds. It is essentially illegal for anyone other than the data center developer itself to build power generation and sell it to them off-grid–and few data center operators are in the power generation business – for example, if Google wants to build a data center, Google is the only company that can provide it with off-grid power, and Google is not a power generation company.
Electrical utilities are government-protected monopolies, so any proposed changes become a dance between consumers and utilities refereed by the Public Service Commission and the regulations bestowed on them by the legislature – a data center cannot go to the electricity store and buy a box of electricity as though it were an office supply. Policies like consumer-regulated electricity – in which entities can create their own electrical grid, generate and sell power, and avoid PSC regulation while insulating current ratepayers–are not currently the law of the land in the commonwealth (though lawmakers should change that).
If Beshear wants to both protect ratepayers and make Kentucky a welcoming destination for large energy consumers and the tax windfall they can provide, he should work with lawmakers on legislation that gives data centers developers and utilities tools to do just that.