TeraWulf doubles Kentucky power deal, promises $100 million in credits

Kentucky Power and TeraWulf have agreed to double the contracted electric demand for a proposed AI data center campus in Grayson, Kentucky, to 1 gigawatt, while adding $100 million in residential bill credits and a commitment by the developer to help finance new generation.

The amended agreement would move the second 500-megawatt phase of the Muskie Data Campus from 2030 to 2029. The first phase is still targeted to begin ramping in 2028. Both the larger commitment and the revised schedule depend on approval by the Kentucky Public Service Commission and Kentucky Power’s construction schedule.

“Customer interest in Muskie has been tremendous, and power availability is central to those conversations,” TeraWulf Chairman and CEO Paul Prager said in the company’s Oct. 5 announcement. TeraWulf did not identify a Muskie tenant or announce a lease.

The proposed deal puts a concrete price on one of the hardest questions in data center development: how a utility can supply an exceptionally large new customer without passing the cost and risk to existing ratepayers. The terms announced Monday would direct credits to households and put some generation financing costs on TeraWulf, but regulators have yet to review the amended contract or test whether those protections are sufficient.

The project has drawn local pushback since TeraWulf announced it in May. At a packed June town hall in Boyd County, residents objected that local officials had signed nondisclosure agreements with TeraWulf and pressed for answers on water use and electric rates. In July, the Boyd County Fiscal Court approved a six-month moratorium on new data centers but exempted Muskie. Judge-Executive Eric Chaney said the EastPark industrial park, where the campus sits, spans five counties and he could not make decisions for the others.

Kentucky Power said the $100 million would fund winter bill credits for residential customers over the first 10 years of the contract. It estimated a credit of about $25 a month for a typical customer during the winter heating season, starting in 2029. Those figures are projections contingent on commission approval, not credits already authorized.

The utility also said TeraWulf would pay the estimated financing costs associated with its planned 760-megawatt combined-cycle power plant at Big Sandy, in addition to applicable electric service charges. Kentucky Power did not put a dollar amount on those financing costs in its announcement. The release said the contract includes collateral requirements and other financial protections, but did not publish the revised terms. Kentucky Power plans to file the amended agreement and seek regulatory approvals later this year.

That filing will show how the cost of the new plant, transmission work and electric service would be allocated, and what happens if the data center draws less power than contracted or misses its development schedule. It will also establish the precise conditions for the residential credits. For now, the companies’ descriptions of the benefits are claims about a contract the public has not yet seen.

Muskie is being developed on roughly 308 acres in Grayson. In its latest quarterly filing, TeraWulf said its May purchase involved $30 million paid at closing, $50 million of deferred cash consideration and up to $90 million tied to power capacity delivered to the campus. The contingent payment is calculated at $90,000 per megawatt, up to 1,000 megawatts, if the relevant milestones are reached within 15 years. The company said it bought the remaining optional parcels in August.

The same filing described an initial electric service agreement for up to 500 megawatts and a separate letter covering infrastructure for 1,000 megawatts. Kentucky Power agreed to build a 345-kilovolt substation connected to an existing 765-kilovolt transmission network. Monday’s announcement says the amended service agreement now raises contracted electric demand to the full gigawatt; it does not mean a gigawatt of data center capacity is operating or that the additional power has been delivered.

The earlier 500-megawatt service agreement has a 20-year initial term beginning when both transmission and generation are available, whether or not the campus is consuming electricity, and no earlier than October 2028, according to TeraWulf’s filing. It requires minimum monthly charges tied to contracted capacity. The company reported $310.7 million in collateral obligations under that service agreement and up to $320.2 million under the infrastructure letter. It posted $360.7 million in letters of credit in July. The amended contract may change those figures; Kentucky Power has not yet disclosed its revised collateral schedule.

TeraWulf says bringing forward the second phase gives it more room to respond to prospective customers. It is also evaluating whether Muskie could eventually support 2 gigawatts, but that would require additional utility planning, infrastructure and agreements. Neither the 2029 phase nor the larger possibility should be treated as capacity ready for a tenant.

The company’s other Kentucky project has already been through a separate regulatory review. In August, the commission approved a retail electric service agreement for TeraWulf’s Justified Data Campus in Hawesville, finding that its terms adequately protected existing customers and allocated the costs and risks of serving that project. That approval does not cover Muskie; the sites involve different utilities and contracts.

Kentucky Power serves about 163,000 customers across 20 eastern Kentucky counties. Its promised winter credits make the Muskie proposal unusually visible on household bills, while the Big Sandy financing provision ties the data center’s power demand to a planned generating plant. The commission’s review will determine whether those commitments hold up in the filed agreement and how much exposure, if any, remains with customers if the project changes course.