LRC: Good Data Center Policy Requires Transparency from Developers

The South Dakota Legislative Research Council (LRC) presented a draft issue memorandum on hyperscale data centers to the Legislative Executive Board, serving as a comprehensive primer for legislators. The 17-page document defines hyperscale data centers and notes that while no existing facilities in South Dakota meet the criteria, Big Watt Digital's 30-MW crypto-mining facility in Sully County plans to expand to 300 MW, and the 500-MW Gemini project is proposed for Sioux Falls. The LRC's primary call for action is increased transparency from data center developers regarding their projected resource demands and environmental impacts, citing concerns that non-disclosure agreements prevent public access to crucial information.

The memo discusses various impacts, including potential strain on utility users from high power and water demands, and the risk of "stranded assets" where ratepayers might fund infrastructure upgrades for facilities that cease or reduce operations prematurely. It highlights a 2025 Harvard Law School study suggesting a lack of transparency in power rate contracts can lead to discounted rates for data centers, potentially increasing residential rates. While the LRC avoids taking a definitive stance on the net benefits of data centers, it points to 2026 Senate Bill 135, signed by Governor Larry Rhoden, as a step towards transparency by requiring data center operators to report water usage.

The report also delves into environmental concerns, noting that natural gas turbines and diesel backup generators contribute to air pollution (PM2.5, NOx) and noise pollution, which can significantly impact nearby residents. It mentions an xAI facility in Southaven, Mississippi, as an example of a data center causing sleep disturbances due to continuous turbine operation. Additionally, the memo challenges the narrative of significant job creation, presenting evidence that data centers typically create fewer, often low-wage, temporary jobs compared to other industries, and that tax incentives often fail to yield positive economic returns for local communities, referencing studies from Michigan and Virginia.

Ultimately, the LRC's memo, while a research brief, offers substantial support for legislators inclined to regulate or restrict data center development in South Dakota rather than broadly inviting it, with transparency being the only explicit policy direction it advocates for.