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Rapid expansion of hyperscale data centers across the Upper Midwest is drawing increasing attention—and concern—from rural communities, policymakers and utility providers. As artificial intelligence infrastructure grows, so does the demand for land, electricity and water resources.
In states like South Dakota and Minnesota, lawmakers have already introduced legislation addressing the construction and operation of these facilities. While supporters emphasize economic benefits such as tax revenue and job creation, critics worry about long-term resource strain.
Projects are already underway or under consideration across the region. One example includes a proposed development by Gemini Data Center LLC near Brandon, South Dakota, on land rezoned by Sioux Falls. The project has sparked debate among nearby residents, particularly regarding local input in zoning decisions.
Energy usage remains the central concern tied to data center expansion. According to industry experts, these facilities require immense and continuous power to support computing operations and cooling systems.
“We’ve gotten multiple inquiries and I know the rest of the cooperatives within the Basin Electric footprint have also had more inquiries,” said Ted Smith, vice president of engineering and operations at Sioux Valley Energy. “They’re out there. They’re looking for spots.”
Smith explained that colder climates are attractive to developers due to reduced cooling costs:
“They tell us they like this northern climate because a lot of their costs goes into cooling, so, they don’t have to cool 12 months of the year like they may have to if they're in Texas or Florida or Arizona or something like that,” Smith said. “That’s why they’re looking at this area.”
The scale of electricity consumption is particularly striking. Data centers could consume six to ten times more electricity than the entire city of Brookings, which has a population of about 25,000 and includes major institutions and manufacturers.
“So, it’s a significant amount of electricity that they’re going to use,” he said. “They’re going to require some dedicated facilities that, you know, they’re going to have to pay for.”
To meet this demand, new infrastructure will be essential, including substations, transmission lines and power generation facilities.
“Not a lot of on-site infrastructure, you know, maybe a substation, but that’s about the extent of what’s needed on-site. Then it will all be on their property from that point,” Smith said. “But, there will be transmission lines and generation needed. The generation, you know, might be regional, it might not be right next door to it, it might be where the fuel is, which might be coal plants, might be natural gas plants, you know, it’s kind of hard to build a hydroelectric dam nowadays, that wouldn’t be the case, but it’s going to be needed to be built somewhere.”
A key issue for utilities is ensuring that the financial burden of supporting large-scale data centers does not fall on existing customers.
If not managed properly, Smith warned, electricity costs for rural residents could rise. To prevent that, cooperatives are implementing safeguards.
“We’ve created special rates. We’ve created special processes within the cooperative to ensure that they’re paying their fair share for generation and transmission lines,” Smith said. “We are not going to connect them on the backs of our other members.”
Utilities are working to align pricing structures with actual costs, ensuring that data centers bear the financial responsibility of their high energy consumption.
“That’s why we are being very diligent to try and charge them the actual prices that they’re going to be needing for the electricity they use,” Smith said.
Organizations like Basin Electric Power Cooperative have also introduced policies to shield existing customers from rate increases tied to these projects.
“We’re out in front of it. It may not be what the data centers like necessarily, but we are definitely out in front and charging them what they’re costing the cooperative to provide electricity,” Smith said.
Despite concerns, data centers are still seen as a potential driver of economic development in rural regions. Communities stand to benefit from investment, job creation and infrastructure upgrades.
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However, the balance between economic gains and resource sustainability remains a critical question.
“Now, not everybody is going to agree what that is. But, if there is investment coming and economic development coming, we want to make sure that it doesn’t electrically negatively affect our other members,” he said.
As demand for AI and cloud computing accelerates, the Midwest is emerging as a key destination for data center development. Cooler climates, available land and expanding infrastructure make the region attractive—but not without trade-offs.
Going forward, policymakers, utilities and communities will need to carefully manage growth to ensure that the benefits of data center expansion do not come at the expense of local residents.
Originally reported by Ariana Schumacher in AG week.
