South Dakota utility regulator candidates clash over AI data center pause

A South Dakota Democratic Public Utilities Commission candidate is calling for a one-year ban on new artificial intelligence data centers in the state, while his Republican opponent calls the proposal “reckless and pandering” and says new state laws regulating the industry are sufficient.

Frank Kloucek, a farmer from rural Scotland, South Dakota, and a Democratic former 22-year state lawmaker, proposed the moratorium. He said large data centers require large investments in electrical infrastructure — from generation to transmission — and South Dakotans should not subsidize their development through higher energy bills.

“Slow down, get the facts, protect the ratepayers and make sure South Dakota is in control of its own future,” Kloucek said.

State lawmakers passed, and Republican Gov. Larry Rhoden signed, two data center bills into law earlier this year.

One allows the Public Utilities Commission to assess data center companies the cost of regulatory reviews related to their projects. The other requires local water providers to determine whether the water use of large data centers — for cooling of spaces filled with heat-emitting servers — is compatible with the local water supply. It also requires electrical providers to establish separate terms and conditions for large data centers and to require reimbursement for all costs fairly attributed to data centers. Additionally, the law prohibits the state from overriding local ordinances limiting, prohibiting or otherwise regulating data centers.

Lawmakers rejected other proposals that would have incentivized data centers, such as a proposed sales tax exemption for data center equipment and software purchases. Lawmakers also rejected moratoriums on data center development.

Don Haggar, of Sioux Falls, who previously served five years in the Legislature, is the Republican nominee for the Public Utilities Commission. He said in a statement sent to South Dakota Searchlight that the new state laws are “the right foundation for how these decisions should be made going forward, case by case, on their unique merits.”

Haggar said the regulatory role of commissioners means “every case that comes before us deserves a fair, unbiased hearing, not a verdict decided in advance, and not a rubber stamp either.”

“It’s reckless and pandering to propose what my opponent has just done,” Haggar said in the statement.

Kloucek said the new state laws “lack any teeth.” The law regulating water and electricity use does not add any penalties for violations. Kloucek said a one-year moratorium would give the state more time to study the issue before any new projects move ahead.

South Dakota has small data centers but none of the large centers, known as hyper-scale, that have proliferated elsewhere. Proponents of data center development said during the legislative session that the state is missing out on high-paying jobs and millions in additional property tax revenue, while putting America at risk of falling behind foreign competitors. On Monday, President Donald Trump said on social media, “The only reason that communities throughout the U.S.A. should not want Data Centers is if they want to end up being backward and poor.”

Meanwhile, 23 Democratic candidates for the South Dakota Legislature have signed a pledge to implement public protections, greater transparency and local control in data center development, while opposing tax incentives. The laws approved earlier this year received bipartisan support.

Haggar and Kloucek are seeking the Public Utilities Commission seat being vacated by Republican Commissioner Gary Hanson, who is not seeking reelection. The commission has three positions, one of which is up for election this year. The election is Nov. 3, and advance voting starts Sept. 18.

The last Democrat on the commission was Steve Kolbeck, who served from 2006 to 2011. He’s now a Republican state senator but is not running for reelection to the Legislature this year.