LEXINGTON, Ky. — The GOP supermajority in Frankfort and Kentucky’s environmental advocacy groups don’t always see eye to eye, but this legislative session, lawmakers and green activists are focused on the same issue: artificial intelligence and the opportunities and risks data centers pose to the commonwealth.

Energy- and resource-intensive data centers represent a boon-or-bust moment for the Bluegrass State, as officials rush to roll out the red carpet for tech firms interested in housing their computing hardware on cheap land with affordable electricity and water.

But groups like the Sierra Club and Kentucky Waterways Alliance are urging caution, insisting that what they call the state’s overreliance on fossil fuels and pockets of skyrocketing electricity rates could put an AI corporate windfall in Kentucky at the expense of poor, rural communities.

That issue could come to a head during the nearly four-month General Assembly budget session that kicked off last week. Lawmakers say they are eager to capitalize on AI’s economic potential and many members are eyeing options for steering projects into their home districts.

“I think you’ll see us focus on positioning rural parts of Kentucky to deliver large-scale, reliable, and affordable power to capitalize on the explosive growth and investment in AI and graphics cards,” Sen. Brandon Smith, R-Hazard, said in a statement to the Herald-Leader.

Lawmakers in Frankfort have spent the last two sessions granting developers tax breaks to build data centers. Senate President Robert Stivers, R-Manchester, told fellow GOP senators in December to expect more policy this year that gives Kentucky a competitive edge in AI dominance on the global stage.

But Stivers said an increase in demand “has to be allocated to the person who creates the demand. That’s not the residential consumer.”

That’s a slight opening for dialogue Kentucky’s environmental lobby hopes it can exploit to start a conversation about the danger of relying on fossil fuels to power data centers and already strained municipal water systems to cool them.

Now, by framing the conversation around residential power rates, those groups believe they can find common ground with the GOP and “slow the pace of this development down,” Sierra Club Kentucky Chapter Director Julia Finch said.

“The data-center specter is totally speculative,” Finch said. “We don’t know much about it, but what we do know is that it’s extremely energy intensive, and it’s taking clean water from local residents.”

Locals weigh in on plans to locate AI centers in their communities

Data centers are the physical backbone to the digital explosion of AI, real-time streaming services, cloud computing and online learning. They house the servers, networking equipment and permanent storage devices that make generative technology possible.

Large centers used by companies like Google, Meta and Microsoft are hot, loud and extremely power hungry.

That could be a problem in a state still coming to grips with the decline of its once thriving coal economy, Finch said. Relying too heavily on fossil fuels to power AI’s explosive growth could reverse steps already taken to curb climate change, she said. Diverting water from municipal supplies could strain aging systems, draw down a limited resource and exacerbate stream clean-up efforts.

The GOP majority in Frankfort hasn’t been shy about its preference for coal. In 2023 and 2024, the General Assembly pushed through policies setting tougher standards for state regulators to phase out coal-fired units and established a commission to review fossil fuel-fired plant closures, including those that burn coal, oil or natural gas.

Last year, a bill backed by the coal industry that relaxed the state’s grip on run-off pollution controls overcame Gov. Andy Beshear’s veto, putting Kentucky on par with a weakened Environmental Protection Agency at the federal level.

In October, the Kentucky Public Service Commission allowed Louisville Gas and Electric and Kentucky Utilities to spend billions of dollars building new natural gas power plants in the state and extending the life of a coal-fired power plant slated for retirement, all part of a data-center development forecast that shows the company needing at least 29% more generation by 2032.

So far, the total number of confirmed major data centers under development in Kentucky is just one—a 525-megawatt center in South Louisville.

But projects under consideration are meeting opposition at the local level. The Oldham and Simpson county fiscal courts have paused projects in their communities, bowing to pressure from residents who feared their scale would spoil the areas’ charm. Mead County leaders unanimously blocked zoning changes a center had requested in Ekron. Landowners in Mason County refused to sell farmland to a mysterious, Fortune 100-company buyer that offered them $8 million.

Those efforts have been aided by environmental groups equipping residents with legal expertise and talking points to defeat measures at the local level. On Jan. 7, the Kentucky Resources Council issued a model data center siting ordinance counties can use to regulate proposed data center projects. The Sierra Club and Kentucky Conservation Committee have sent representatives into communities to meet with local leaders and support resident opposition.

“We’re concerned with making sure that communities are not overly impacted for their energy costs, land use, environmental impacts and noise levels,” KCC Executive Director Lane Boldman said.

State-level approach

With the start of the session, that advocacy is shifting to Frankfort, where Kentucky’s AI future is clashing with rising residential power rates.

In Eastern Kentucky, where Sen. Smith says residents could stand to gain the most from AI data-center growth, the far-eastern region’s sole power utility is seeking the state’s permission for a nearly 15% rate increase, partly due to population decline and the loss of industrial customers like coal mines.

“These rate increases have to stop, and we remain committed to seeking solutions that provide rate relief to Kentuckians,” House majority caucus members from the Eastern Kentucky said in a joint statement Jan. 8.

Some Republicans, like Smith, are banking on Eastern Kentucky coal fueling data centers, mirroring a plan U.S. Rep. Andy Barr unveiled last week in his bid to replace retiring U.S. Sen. Mitch McConnell. The state Republican caucus blamed the region’s proposed rate increase on “hostile federal energy policies implemented during the Obama and Biden Administrations.”

But Stivers comments during a majority caucus retreat last month more closely align with environmental groups’ push to ensure data centers themselves pay for the infrastructure costs needed to get them online. Without those protections, Kentucky Waterways Alliance Executive Director Michael Washburn said, residential ratepayers could be left holding the bag if the AI bubble bursts.

The PSC is still mulling a request by LG&E/KU that would force data-center customers into 15-year contracts at 80% or more of the energy they project to spend monthly, even if they use less. That mirrors an Ohio service commission order that dashed some utilities’ hopes for major load growth in the coming years, including American Electric Power, the company that owns Kentucky Power, which is behind Eastern Kentucky’s proposed rate increase.

Ohio’s utility regulator rejected a bid from Amazon, Google and other data center developers to reverse an order requiring the companies to cover infrastructure costs needed to bring them online, even when they use less than they projected.

AEP said the state’s tariff encourages data center operators to estimate their electricity needs accurately and reduce the number of “speculative” projects in queue for development.

But unlike Ohio, Kentucky hasn’t set a moratorium on building new data centers while it figures out how to power them. Plus, the LG&E/KU’s proposed threshold for forcing customers into the new tariff schedule wouldn’t kick in until they used 100 megawatts or more. Ohio’s threshold for data-center users is 25 megawatts, and the PSC approved an East Kentucky Power Cooperative plan in November that would force customers using at least 15 megawatts to pay 90% or more of what they planned.

Lexington Democratic Rep. Adam Moore’s planned legislation, which he calls the “Kentucky Ratepayer Protection Act,” would codify those individual utilities’ proposed tariffs into a statewide policy that forces data centers to pay what they plan.

In November, the legislature’s Special Committee on Artificial Intelligence Task Force recommended lawmakers consider policy that governs the location of data centers and their need for large amounts of water and power “to ensure grid sufficiency.”

Environmental priorities for 2026 KYGA

Nuclear energy has been eyed as another fuel source that could power data centers in Kentucky. There are no nuclear power plants in the state, but private developers and U.S. regulators are have set their sights on property around the former Paducah Gaseous Diffusion Plant as areas for development to lower energy costs and energize AI.

Sen. Danny Carroll, R-Paducah, has introduced legislation that would create a Nuclear Reactor Site Readiness Pilot Program to fast track commercial licensing and applications in the state. His bill could unlock state grant funding to cover the costs of procuring an early site permit for nuclear reactor facilities, as well as construction permits or combined operating licenses.

KCC’s Boldman said she expects the two-year budget to include funding for nuclear projects, but she said Kentucky is “decades away” from seeing any facilities up and running. In the meantime, she said, she fears the state will be overreliant on existing energy sources while avoiding renewables like wind and solar.

Kentucky ranks last in the country for share of electricity derived from wind and solar, according to an internal Sierra Club report shared with the Herald-Leader. A study commissioned by KRC and other groups in the state says renewable resources would save Kentuckians billions of dollars over the next 25 years

Washburn, of the state waterways alliance, said he fears legislators are going to use talking points from President Donald Trump and his administration to advance policies this session that remake health and environmental regulations in the image of the federal government.

Sen. Greg Elkins, R-Winchester, filed legislation Friday that would ensure local water districts and not the state health and family services Cabinet can decide whether to add fluoride to their municipal drinking water.

Fluoride has been the subject of controversy since U.S. Health Secretary Robert F. Kennedy Jr. told the Centers for Disease Control and Prevention to stop recommending it, amid concerns adding the cavity-preventing mineral could have adverse health effects. There is little scientific evidence the small amount of fluoride in drinking water is harmful, and most health experts believe the good for people’s oral health far outweighs any risks.

Elkins has also introduced a bill aimed at keeping batteries out of household trash to reduce the likelihood of fires. Another piece of legislation he filed earlier this month would prohibit counties and solid-waste districts from charging other entities for collecting, storing, processing, treating or disposing of their own waste. The Senate Natural Resources & Energy cleared both bills Wednesday for consideration on the Senate floor.

Environmental groups told the Herald-Leader they are sending lobbyists to Frankfort this year to ensure adequate funding for state regulators charged with protecting natural resources like clean water and air, as well as healthy soil. Washburn said those agencies are already strained by budget cuts and competition for talent with the private sector.

Groups are also expected to renew their push for restoring funding to Kentucky’s Heritage Land Conservation Fund, which steers the state’s purchase of public lands through the sale of nature license plates, mining taxes and some environmental fines, all of which have been in decline.

Since 2014, the legislature has swept more than $16 million land conservation funding to make up deficits elsewhere in the budget, but last year, the fund received a $2 million stimulus environmental advocates want to build on.

“We’ve faced a funding challenge for many, many years,” said Boldman. “But we’re still trying.”

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