A Montana city council member and former utility regulator is intervening in a major energy rate case to ensure that AI data center operators, not everyday electricity customers, bear the financial risk if the facilities become obsolete. The dispute highlights a growing tension between utilities eager to attract power-hungry AI infrastructure and regulators worried about protecting consumers from stranded costs.

What Happens When an AI Data Center Shuts Down Early?

Tony O'Donnell, who served eight years on Montana's Public Service Commission and now sits on the Billings City Council, filed a motion to intervene in NorthWestern Energy's proposal for a new large-load tariff. The tariff would set electricity rates for customers using 5 megawatts or more of power, a threshold that captures most data centers.

O'Donnell's core concern is straightforward but sobering: technology changes fast. A data center built today might become obsolete in five years as computing needs shift or more efficient processes emerge. If that happens, the facility could stop drawing power from NorthWestern before its contract ends, leaving the utility with unpaid revenue it had counted on. Under current utility accounting, ordinary ratepayers would have to make up the difference.

"You never know the future technologically. Things change in an instant. Somebody comes up with a highly efficient process and Nvidia, the darling of the chip market, is out of business the next day. You simply never know," O'Donnell said.

Tony O'Donnell, Billings City Council Member and Former Public Service Commissioner

O'Donnell argues that shareholders of publicly traded NorthWestern Energy, not ratepayers, should absorb this risk. "I want to make sure that any tariff that is given to Northwestern, that all of the risk having to do with the AI data centers is taken completely by shareholders, not the ratepayers," he explained.

How Are Utilities Currently Protecting Ratepayers?

NorthWestern's tariff proposal includes some protections, though O'Donnell believes they may not go far enough. The utility's application states its rule is meant to ensure "existing customers are not harmed" while it pursues data center contracts.

The proposed safeguards include the following mechanisms:

• Early Termination Penalty: If a data center stops using power before its contract ends, the customer must pay at least three years of electricity costs as a penalty, creating a financial disincentive to abandon the facility early.
• System Upgrade Costs: Data center customers must pay for any required system or infrastructure upgrades needed to serve their facility, preventing the utility from passing those expenses to other ratepayers.
• Large Customer Approval: For customers needing more than 50 megawatts from NorthWestern, electricity agreements must be approved by the Public Service Commission, adding regulatory oversight to the largest deals.

Despite these provisions, O'Donnell remains unconvinced. The three-year penalty, he suggests, may not fully cover the utility's lost revenue if a data center becomes stranded for a longer period.

Why Are Data Centers Attracting Regulatory Scrutiny in Montana?

Montana is seeing proposals for new data centers pile up as artificial intelligence (AI) companies race to build massive computing facilities to train and run large language models (LLMs). These facilities require enormous amounts of electricity, and utilities see data center contracts as a way to increase revenue and stabilize their customer base.

But regulators and consumer advocates worry that utilities are making long-term commitments to customers whose business models may not survive technological disruption. O'Donnell's concern reflects a fundamental question: if a data center operator abandons a facility because the technology becomes outdated or a competitor offers better service elsewhere, who pays for the infrastructure the utility built to serve it ?

How to Evaluate Data Center Rate Proposals as a Ratepayer?

If you receive electricity from a utility considering data center contracts, understanding the rate structure matters. Here are key factors to watch:

• Penalty Terms: Check whether early termination penalties cover enough years of electricity costs to protect you from subsidizing stranded infrastructure if a data center closes.
• Infrastructure Costs: Verify that data center customers, not regular ratepayers, pay for system upgrades needed to serve their facilities.
• Public Participation: Look for opportunities to comment during Public Service Commission hearings on large data center rate proposals, especially those exceeding 50 megawatts.

O'Donnell filed his motion to intervene on June 19, stating he "strongly believes he can help evaluate equal cost allocation and cost analysis distribution as it relates to the application by Northwestern Energy." The Public Service Commission will decide by early July whether he has the right to intervene as both a NorthWestern customer and a former commissioner.

O'Donnell emphasized that he is not opposed to AI or data centers in principle. He described himself as someone in favor of AI, viewing it as necessary. However, he wants to ensure that any tariff agreement protects ratepayers from bearing the cost of technological obsolescence. "We need to be involved in it. We need to be a key player in it. We can't be dominated by it," he said.

The case also involves the City of Missoula, which has intervened separately, suggesting that municipal governments across Montana are paying close attention to how data center deals are structured.

The outcome of the NorthWestern case could influence how other utilities in Montana and beyond structure their data center tariffs. As AI continues to reshape the energy landscape, the question of how to protect ratepayers while enabling infrastructure investment will only become more urgent.