Kentucky's Public Service Commission Finds the Credit Support in a Data Center Service Agreement Sufficient to Protect Existing Customers From the Risk of Unpaid Costs

On August 21, 2026, the Kentucky Public Service Commission approved a retail electric service agreement for a planned data center campus in Hancock County, Kentucky. The agreement, approved in its order in case 2026-00115, is between a generation and transmission cooperative, the distribution cooperative that will serve the site, and the subsidiary of a publicly traded company that plans to redevelop the former site of an aluminum smelter as a large-scale data center campus. The planned facility has a Maximum Contract Demand of 482 MW. Parts of the order follow, not the whole.

What the Commission Weighed

In reviewing a special contract, the commission evaluates, among other things, whether its rates, terms and conditions "adequately protect existing customers from unreasonable costs or risks." The load would use existing transmission capacity at the former smelting site, but "the costs of serving" the data center "may vary significantly based on MISO energy and capacity prices," the prices of the Midcontinent Independent System Operator. The order calls it "a central issue" whether those costs and risks will be borne by the data center or "could be shifted" to the two cooperatives, "and thus their existing customers."

The generation and transmission cooperative will procure the energy and capacity through MISO's markets, and the agreement uses a market-based pass-through pricing structure. The customer pays the day-ahead cost of its energy, the costs or benefits of any difference between its day-ahead estimate and its real-time load, and capacity, transmission and MISO market charges. The order says the agreement states the parties' intent that the data center bear all MISO energy and capacity risks and not be subsidized directly or indirectly by the cooperatives.

What the Customer Commits To

The agreement has an initial term "of fifteen years following the Construction Completion Date," with automatic five-year renewals unless terminated. It carries "a minimum 482 MW take-or-pay" obligation "during the first six years of the contract." In those years the monthly billing demand is the greater of the maximum contract demand or the actual peak, so the customer remains responsible for demand-based charges on the full amount "regardless of whether its actual demand is lower."

After the sixth year the customer may reduce its maximum contract demand "upon at least 18 months' notice." If it does, the negotiated wholesale demand adder increases as the contracted demand decreases, and the cooperative may resell, reuse or redirect the unused transmission capacity. If service requires upgraded or new facilities, the customer must deposit their estimated cost in advance, and the deposit is reconciled to actual costs even if the agreement ends before construction is completed.

In the take-or-pay years the order leaves the risk of a smaller load with the customer. After them, the protection is a price that rises as the commitment falls. Which of those periods a campus's own lease and debt fall in is a question for anyone lending to it.

The Credit Support

Billing examples, the order says, using market conditions from a winter storm and actual MISO prices from January 2026, showed that "both short-duration market events and ordinary monthly operations may produce significant charges when applied to a 482 MW load." Given the size of the proposed load and the potential volatility of MISO market prices, the order says, the agreement "could result in substantial billing exposure over a relatively short period."

For capacity, once the cost for a MISO planning year is set, the customer must "within 45 days" either prepay the entire annual capacity cost or provide and maintain collateral equal to it. Acceptable collateral may include an irrevocable standby letter of credit or a surety bond. For its other monthly bills it must keep collateral "equal to two times" the cooperative's estimate of the highest monthly bill for the planning year, recalculated at the beginning of each planning year and six months after, and at the beginning of any calendar quarter if the cooperative chooses. If outstanding bills exceed that amount, the cooperative must issue daily invoices for amounts incurred above it, payable by the next business day "regardless of whether the amount is disputed," and if payment is not received by then, service may be discontinued without further notice.

The commission found these provisions "sufficient to protect existing customers from the risk that unpaid costs attributable to" the data center will be borne by the cooperatives or their other customers, and that "additional credit support is not necessary at this time."

Curtailment and Conditions

The agreement will not become effective until the parties receive the necessary approvals from MISO and complete the arrangements required for the facility to operate at its maximum contract demand. The cooperatives keep the authority to curtail the load when necessary to address local voltage issues, the integrity of the system or MISO directives, and during a MISO Energy Emergency Alert Level 3 event the data center "may be curtailed before any other non-interruptible load" on their systems. The customer's parent company currently anticipates about 10 MW of temporary emergency generation to support network rooms and essential building functions, not intended to serve the facility's normal operating load, and it may not install behind-the-meter generation without the generation and transmission cooperative's consent.

In a Level 3 emergency the order lets the campus be cut ahead of every other non-interruptible load. What does a campus whose emergency generation is meant for its network rooms and essential building functions do then?