South Dakota PUC Approves MDU Power Service for Proposed Leola Data Center

Northeast Radio SD News – South Dakota - In a unanimous decision, the South Dakota Public Utilities Commission (PUC) approved a settlement agreement allowing Montana-Dakota Utilities (MDU) to serve as the electric provider for the proposed Leola Data Center, clearing a major regulatory hurdle for the technology project.

The decision grants a service territory exception for the facility, which sits in an area traditionally served by the local cooperative, FEM Electric Association. Under a 1975 state law, commercial operations with an electrical load of 2 megawatts or more can petition the commission to use an alternative power provider.

Bill Van Camp, attorney for the Leola Data Center, noted that the settlement resulted from extensive negotiations between the developers, MDU, and the rural electric cooperatives.

“The parties have had some conversations over the last couple of months, aided in great deal by staff, and kind of came to what is before you now as a settlement and stipulation agreement,” Van Camp told the commission.

As part of the compromise, the data center’s proposed footprint has been scaled back from 20 acres to just over nine acres. Furthermore, the agreement ensures that the electrical infrastructure within that specific footprint is used solely by the Leola Data Center to maintain the MDU contract.

Future-Proofing the Grid

A key provision of the settlement addresses the long-term viability of the site. If the facility ceases to operate as a high-capacity data center or its power demand drops below the two-megawatt statutory threshold, the service rights would be terminated and revert to the incumbent cooperative, FEM Electric.

Van Camp highlighted the tech sector's unpredictability when explaining the inclusion of this safeguard.

“What is AI going to look like 20 years from now? I have no idea. So, it might be not a server farm. It could be something different,” Van Camp said.

“What if this facility changes its nature wholesale and is no longer a data center... and becomes, as I describe it, a very expensive sheep barn and it does not use that load? We agreed that if that was to occur, that the parties... could ask that it no longer be able to receive power from MDU.”

Brett Kennedy, representing MDU, expressed satisfaction with the final terms.

“My client’s plumb satisfied with the agreement that’s before you,” Kennedy said. “We look forward to serving Leola Data Center in that location.”

Representatives from Basin Electric Power Cooperative and East River Electric also voiced support on the record, calling the agreement a strong compromise that protects incumbent utilities while accommodating massive new industrial loads.

Clarifying the PUC’s Jurisdiction

Amid growing public debate over the establishment of power-hungry data centers in South Dakota, PUC Chairman Chris Nelson used the hearing to explicitly outline the limits of the commission's authority to the public.

“We are not approving any kind of a permit to construct a data center. We, meaning PUC, simply does not have jurisdiction to do that. That’s not our deal,” Nelson stated. “Those kinds of things happen at the county level.”

The Leola project is currently navigating a separate conditional use permit process with the local county zoning and planning board.

Nelson also noted that the commission’s oversight of the data center is not yet complete. The PUC will open a subsequent docket to review the specific electric service agreement between MDU and the Leola Data Center. That review will ensure that the massive power draw does not degrade grid reliability for local residents and that all infrastructure upgrades are paid for directly by the developer rather than existing ratepayers.

“The commission’s job is: cost causer pays,” added Commissioner Kristie Fiegen. “The person or the company that has the expense pays the cost.”

A Model for Future Developments

Commissioner Gary Hanson commended the legal teams and utility representatives for avoiding a protracted legal battle over the service territory, noting that the cooperative approach sets a positive standard for future large-scale projects.

“It shows that people are willing to look at facts, work through challenges, that the challenges are perhaps so great that compromises have to be made,” Hanson said. “It just reassures my faith in the companies that are working for the consumer.”

With the utility exception granted and the docket record finalized, the future of the Leola Data Center now hinges on the pending county zoning approval and the developer's submission of finalized facility maps.