Otter Tail Power Seeks South Dakota Approval for New Data Center Electric Rates to Protect Local Customers
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Otter Tail Power Seeks South Dakota Approval for New Data Center Electric Rates to Protect Local Customers

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Northeast Radio SD News – Watertown, SD - On July 27, 2026, Otter Tail Power Company (OTP) submitted a formal petition to the South Dakota Public Utilities Commission (SD PUC) requesting the approval of new electric rate schedules tailored specifically for very large customers. The proposed changes, slated to take effect on January 1, 2027, introduce a specialized rate class for high power compute (HPC) loads, such as large-scale data centers and artificial intelligence (AI) facilities.


The utility has assured the public that these updates are designed exclusively to isolate the energy costs of data centers, emphasizing that the changes will not affect current electric rates or existing customer bills.


Alignment with the “Data Center Bill of Rights”

The utility’s filing follows the recent passage of South Dakota’s “Data Center Bill of Rights for Citizens” (Senate Bill 135), which went into effect on July 1, 2026. The legislation mandates that data centers with a peak demand of 10 megawatts (MW) or greater must fully reimburse electricity providers for all costs fairly attributed to their service and utility consumption, including costs incurred if a facility abruptly departs the system.


Because adding a data center could require hundreds of megawatts of new capacity—potentially doubling OTP’s current 1,000 MW system peak load across its entire three-state service territory—the utility is taking proactive steps. OTP’s new framework complies with the state legislation by financially isolating these massive loads, directly assigning the cost of new generation and transmission resources to the data centers rather than blending them into the rates of everyday residential and commercial customers.


A New Tiered Structure for Large Customers

To ensure fair cost allocation, OTP proposes dividing its existing Large General Service (LGS) class—which previously grouped all customers using over 200 kilowatts (kW)—into three distinct tiers.

Rate Schedule

Minimum Size

Maximum Size

Tier I (and Tier I Time of Day)

200 kW

2,499 kW (or 24,999 kW for Time of Day)

Tier II (Time of Day)

25,000 kW (25 MW)

No Maximum

Tier III (High Power Compute)

75,000 kW (75 MW)

No Maximum

Note: The Tier II Time of Day schedule will initially utilize the same rates as Tier I until OTP’s next general rate case.

Understanding the Tier III High Power Compute (HPC) Rate

The most significant addition to OTP’s tariff is the Tier III HPC rate schedule, specifically structured for data centers. To qualify for and maintain service under this tier, facilities must adhere to strict financial and operational requirements:


·         Size and Efficiency: Customers must bring a new, firm electric load of at least 75 MW to a single site or contiguous campus and maintain an average annual load factor of at least 70%.

·         Long-Term Commitment: Customers must sign a Commission-approved Electric Service Agreement (ESA) that includes a “Build-Out Period” for facility construction, followed by a mandatory “Steady Period” lasting a minimum of 15 years.

·         Customer Pays: The HPC customer is responsible for the full revenue requirement of any dedicated generation resources (whether built by OTP or contracted) and any incremental transmission and distribution upgrades required to serve them.

·         Stranded Asset Protection: To protect the utility and its existing ratepayers from being left with unpaid infrastructure bills if a data center closes, the customer must post and maintain substantial upfront credit support. If the customer breaks the contract early, they are subject to severe Exit Fees and Early Termination Penalties.

·         System Benefit Credit: The rate schedule includes a “System Benefit Contribution” built into the data center’s charges. This ensures that the net positive financial contributions from the data center are credited back to existing retail customers across all of OTP’s jurisdictions, actively benefiting the legacy ratepayers.


Otter Tail Power will notify its South Dakota customers of these proposed changes via a standard bill message during the month the rates go into effect. The SD PUC will review the filing and must approve the new rate schedules before they are officially implemented.

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