Otter Tail Power Proposes 2026 Updates for Small Power Producers Following Major Rate Settlement

Northeast Radio SD News – South Dakota - Otter Tail Power Company (OTP) has officially moved forward with its annual regulatory ritual: updating the rates it pays to independent energy producers.

The filing, docketed as EL26-001, was submitted to the South Dakota Public Utilities Commission (PUC) on January 30, 2026. Titled “In the Matter of the Filing by Otter Tail Power Company for Approval of Tariff Revisions to Its Rates for Small Power Production and Cogeneration,” the case is currently under review by state regulators.

While technical in nature, the outcome of this docket will dictate the financial viability of small-scale wind, solar, and industrial cogeneration projects across the northeastern corner of the state for the remainder of the year.

The Context: A “Mega-Settlement” Just Days Ago

The timing of EL26-001 is critical. It follows closely on the heels of a massive victory for Otter Tail Power in a separate, much larger case. On March 10, 2026, the South Dakota PUC approved a settlement in EL25-022, a general rate case that granted the utility a $3.33 million (7.74%) increase in base revenue.

That settlement was a compromise; Otter Tail had originally requested a $5.7 million (12.5%) hike. The approved increase, which takes effect April 1, 2026, was paired with a “rate moratorium” through December 1, 2029—meaning customers won’t see another base rate request for at least three years.

For small power producers, EL26-001 represents the “other side of the coin.” While the general rate case focused on what customers pay OTP, EL26-001 focuses on what OTP pays to customers who generate their own power and feed it back into the grid.

What is “Small Power Production and Cogeneration”?

Under federal and state law—specifically the Public Utility Regulatory Policies Act of 1978 (PURPA)—utilities are required to purchase energy from “Qualifying Facilities” (QFs). These typically include:

·         Small Power Producers: Facilities (often renewable like solar or wind) with a capacity of 80 megawatts or less.

·         Cogenerators: Industrial or commercial facilities that produce both electricity and useful heat (steam) for their own processes.

The rates paid to these producers are based on the utility’s “avoided cost”—essentially, the amount it would have cost the utility to generate that power itself or buy it from another source on the wholesale market.

Inside the EL26-001 Filing

In EL26-001, Otter Tail Power is proposing revisions to its Small Power Producer Rider. While the specific cents-per-kilowatt-hour (kWh) figures are formula-driven, they reflect the current market conditions of the Midcontinent Independent System Operator (MISO), the regional power grid.

The filing typically updates three core rate components:

1.     Energy Credits: What the producer gets paid for each actual unit of electricity (kWh) delivered to Otter Tail.

2.     Capacity Credits: Payments for the “dependability” of the producer’s power, reflecting the value of having that energy available during peak demand periods.

3.     Customer Charges: The administrative fees small producers must pay to remain interconnected with the utility’s system.

Historically, these rates fluctuate annually. In 2024 (EL24-002) and 2025 (EL25-002), these updates were handled as routine filings. However, with the 2026 base rate increase now finalized, observers are watching to see whether the avoided-cost calculations reflect the higher costs of utility-owned generation and transmission highlighted in the general rate case.

Impact on South Dakota Producers

Otter Tail Power serves approximately 11,500 customers in northeastern South Dakota, a region known for its high wind potential and industrial hubs. For a farmer with a small wind turbine or a business with a rooftop solar array, even a fraction-of-a-cent change in the energy credit can affect the ROI of their equipment.

“These dockets are extremely complex and require significant research,” noted PUC Vice Chairman Gary Hanson in a recent statement regarding utility filings. “The commission strives to issue a reasoned decision... that upholds the law and ensures fair and reasonable return.”

What’s Next for the Docket?

The PUC staff is currently conducting a comprehensive analysis of the filing. They will examine the utility’s “avoided cost” methodology to ensure the proposed rates aren’t too high (which would unfairly burden other ratepayers) or too low (which would unfairly penalize small producers).

·         Public Comment: South Dakota law allows residents to submit informal comments to the PUC. Those interested in the outcome of EL26-001 can email puc@state.sd.us.

·         Anticipated Ruling: A final decision is expected by early summer. Most tariff revisions of this type are approved within 90 to 120 days of the filing date.

As the state transitions toward a more decentralized grid, dockets like EL26-001 serve as a bellwether for how investor-owned utilities such as Otter Tail Power will balance their infrastructure investments with the growing contributions of independent, small-scale energy producers.