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This piece first appeared in the Lexington Herald-Leader.
Kentuckians are right to worry that data centers will drive up their electric bills. When a single facility demands as much power as Owensboro, someone pays for the new plants and wires that serve it. The General Assembly is still arguing over how to make sure that someone isn’t the residential ratepayer.
There is a simple answer, and Kentucky law currently forbids it: let large consumers build their own grid.
Data centers have been clear they are willing to finance, build, and operate their own generation—just look at President Trump’s Ratepayer Protection Pledge. Generally, it is good public policy to get out of the way of progress if it avoids harming others, and an islanded system imposes no costs on other ratepayers, adds no strain to the regional grid, and cannot shift a dollar of stranded infrastructure onto a family in Lexington or a factory in Bowling Green, because it never touches their wires.
We call this Consumer-Regulated Electricity (CRE), and it rests on three conditions: the system must be electrically islanded from the existing regulated grid, serve only sophisticated customers who voluntarily contract for service, and obey all the other environmental and safety laws already on the books.
The premise of a Public Service Commission is that ordinary consumers need protections from utilities acting as natural monopolies—these grids are inherently not natural monopolies, and these consumers are multi-billion-dollar companies. Letting these large consumers trade bureaucratic protection for speed-to-market is a win for all electricity customers.
Currently, Kentucky law makes consumer-regulated electricity nearly impossible. Anyone generating and selling electricity to others risks becoming a “utility”—and with that label comes the obligation to obtain a certificate of public convenience and necessity before building anything, as well as a host of other regulations. Layered on top is the 1972 Certified Territory Act, which carved the Commonwealth into exclusive service territories and gave each incumbent supplier the sole right to serve customers within its boundaries. Companies wanting to build a private power system serving several willing industrial customers aren’t just trying to start a business: they’re initiating a lopsided turf war.
These statutes were not written in bad faith. Even today, most economists view the electrical grid as a natural monopoly. But this consensus goes back decades, to a time before the kind of demand generated by data centers could be fathomed.
The irony is that in many ways what we are advocating for is how the power grid began: large consumers and producers building wires. It wasn’t until later that residential customers and rural areas received service. For instance, the Tennessee Valley Authority grew from a single factory connected to a single power plant. Like modern day data centers, the 1883 Southern Exposition brought its own power plant to light up Louisville brighter than New York City.
The policy we are proposing has been tested in other states. Legislation in Ohio has allowed private grids to pop up in New Albany, the data center hub outside of Columbus. New Hampshire, Utah and West Virginia all have passed similar laws. Kentucky, competing for the same investment, still tells these projects to get in line.
The fix is modest. The General Assembly can exempt islanded systems serving new, nonresidential customers from the definition of a public utility and from the certified territory framework. Such systems would remain fully subject to environmental, safety, and building codes—everything except economic regulation that exists to police a monopoly these systems do not have.
CRE also keeps corporate energy politics off Kentucky’s grid. Many tech companies have made environmental pledges that Kentuckians never voted for. Under CRE, a company that wants to run on solar, battery storage, and small reactors can build exactly that without retiring a coal plant, lobbying for a renewable energy portfolio standard, or pressuring existing utilities.
This is also a future-proof policy. While data centers are the current concern, these policies are technology-neutral. Any large industrial consumer can take advantage of these grids, and any new technology can power them. Data centers powered by gas turbines today, nuclear-powered future tech manufacturing tomorrow.
Kentucky lawmakers have already shown they want data center investment and the resulting tax windfalls—now they’re working on how to protect ratepayers. The easiest way is also the simplest: let these companies build their own power, at their own risk, on their own dime.
Joseph Verruni is an energy policy fellow at the Bluegrass Institute. Travis Fisher is director of energy and environmental policy studies at the Cato Institute.
