Data centers will come to Kentucky; EKPC is prepared
Kentucky and the next revolution of the information age
Kentucky finds itself at the heart of the next revolution of the Information Age. Data centers are coming, and East Kentucky Power Cooperative (EKPC) is ready.
Because of their role in digital computing, data centers are as vital to our nation’s economy as factories, stores and office buildings. They will create new jobs, bring new investment to Kentucky communities, and generate tax revenue to support schools, roads and other essential services. For many communities across the Commonwealth, they offer an important opportunity for economic growth.
Due to their energy needs and operating characteristics, data centers will also make significant contributions to electric cooperatives’ fixed costs and financial stability. Large electric loads like data centers can help stabilize and potentially lower electricity prices for homes and businesses by spreading infrastructure costs across a larger customer base.
EKPC and its 16 owner-member cooperatives are prepared to do their part to power data centers. Several years ago, EKPC recognized both the potential risks and the tremendous opportunities these facilities present to the communities and 1.1 million people they serve. Under Kentucky law, cooperatives must provide service to any home or business that chooses to locate in their service territories, making preparation essential.
Importantly, any new data centers located within EKPC member territories will pay their own way. They will not pass along their costs to other cooperative members or raise existing electric rates. EKPC has established rules requiring data centers to fund any new power plants or transmission infrastructure needed to serve them. These investments will strengthen the electric grid while ensuring existing members are protected.
Data centers will cover the costs of electric upgrades necessary to serve them, ensuring other cooperative members are shielded from both the financial risks and infrastructure costs associated with these large facilities.
The digital economy
Today’s digital economy operates around the clock through phones, laptops and other connected devices that support communication, commerce and entertainment. Businesses increasingly compete based on their ability to transfer, process, analyze and store data quickly and efficiently.
Digital capabilities will play a major role in determining success across industries such as communications, health care, manufacturing, finance and national security.
Data centers are the backbone of this digital economy. They house the equipment needed to transfer, process, analyze and store vast amounts of information. Today, nearly 12,000 data centers operate worldwide, including roughly 5,400 in the United States.
As companies race to build faster and more capable computing infrastructure, data centers are becoming larger and more centralized. Given their importance to global business competition, these facilities will certainly be built—the question is simply where they will be located.
Because of their high electricity demand, developers seek locations with access to reliable, affordable power. Kentucky is an attractive option due to its relatively low electric rates and strong grid reliability.
Residents understandably want to protect these advantages, and EKPC shares that goal.
Ensuring data centers pay their fair share
Like all cooperative members, data centers should pay their fair share. This principle forms the foundation of EKPC’s data center rate schedule, which was recently approved by the Kentucky Public Service Commission.
The rate structure reflects lessons learned from utilities in states such as Virginia and Ohio, where large numbers of data centers already operate.
The schedule establishes guidelines to identify the costs and risks of serving large facilities and includes strong protections to ensure those costs remain with the data centers themselves. Developers must also provide upfront financial commitments associated with large electricity consumption.
These requirements protect cooperative members if a data center project ends early, ensuring existing customers are not left paying for expensive infrastructure upgrades.
For projects requiring more than 250 megawatts of electricity, developers must secure dedicated energy resources. They cannot rely solely on wholesale electricity markets to supply power.
EKPC’s Spurlock Station is located near Maysville, Ky. A Fortune 100 company is considering constructing a data
center in the vicinity of Maysville, near the power plant.
For more than a year, EKPC has been in discussions with a Fortune 100 company considering a potential data center site near Maysville, close to the Spurlock Station power plant. Various levels of electricity demand and supply options have been discussed.
Meeting that demand could involve building new generating capacity in Kentucky, purchasing electricity through long-term agreements, or using a combination of both approaches.
Currently, excess capacity exists on the regional transmission grid to support a large load in the Maysville region with moderate additions to transmission infrastructure. Under EKPC’s rate schedule, the data center developer would pay all costs associated with these upgrades.
However, this available capacity could quickly disappear if another state attracts the project first. If that happens, Kentucky cooperative members would lose potential benefits such as rate stabilization, local jobs and expanded tax base.
EKPC already plans to build additional generating resources, including a new unit at Cooper Station in Somerset and another power plant in Casey County. These projects are designed to serve the growing needs of existing cooperative members. Large new loads would require additional resources beyond those already planned.
EKPC and the regional power grid
EKPC is a member of PJM Interconnection, a regional transmission organization that coordinates electricity flow across 13 states and the District of Columbia. PJM’s primary mission is maintaining the reliability of the electric grid using competitive market mechanisms.
Power plants and transmission lines are owned by utilities like EKPC, while PJM coordinates how electricity is generated and delivered across the region.
When new power plants or large electricity users are proposed, PJM conducts studies to identify transmission constraints and requires infrastructure upgrades when necessary.
PJM also operates wholesale electricity markets where utilities buy and sell energy and power plant capacity. Because PJM manages the largest electricity market in the United States and serves major population centers in the Mid-Atlantic region, data center developers often seek locations within its footprint.
PJM does not set retail electricity rates. Instead, it operates a market where prices reflect supply and demand.
EKPC typically owns enough generating capacity to meet its members’ needs, limiting exposure to market price volatility. In fact, EKPC is often a net seller of power capacity within PJM, while some other states must purchase capacity from the market.
Maintaining reliable power generation in Kentucky helps protect residents from price volatility experienced in regions that rely more heavily on market purchases.
As long as Kentucky policymakers continue supporting reliable power generation and data centers are required to pay their own costs, EKPC and its member cooperatives can serve these facilities while maintaining affordable electricity for homes and businesses.
Maintaining local control and winning
Data centers will be built somewhere. If they are not built in Kentucky, they will likely be constructed in nearby states.
When that happens, the economic benefits—including jobs, tax revenue, transmission investments and local power generation—leave Kentucky with them.
Ironically, Kentucky customers could still face costs if these projects locate in neighboring states. Electricity flows across regional grids in complex ways that can create congestion on transmission systems. Under regional transmission rules, the costs of certain infrastructure upgrades may be shared by neighboring utilities.
If a data center locates outside Kentucky cooperative territory, it would not be subject to EKPC’s rate structure requiring the developer to pay for these costs. As a result, Kentucky consumers could end up paying part of the transmission expenses while other states receive the economic benefits.
This is why maintaining local control over energy development decisions is so important.
Kentucky has long been home to winners—from championship basketball teams to the iconic races at Churchill Downs and Keeneland. By approaching data center development carefully and responsibly, EKPC and its 16 member cooperatives believe Kentucky communities can also win in the digital economy, keeping jobs, investment and opportunity here at home.
Don Mosier is president & CEO of East Kentucky Power Cooperative (EKPC), which supplies electricity for 16 electric cooperatives serving 1.1 million Kentucky residents across 89 counties.
