With the April 30, 2026, filing by NorthWestern Energy of its 2026 Montana Integrated Resource Plan (2026 IRP), an initial framework for the development of new large loads in Montana has been proposed. Large-scale data center development is anticipated to be the most significant source of load growth, with NorthWestern Energy having executed letters of intent with three data center developers for loads ranging from 150 MW to over 1,000 MW. The 2026 IRP provides a sense of the cost, source and type of energy for these new loads and follows a March 31, 2026, filing by NorthWestern Energy in which it proposed Large New Load Service Tariff Rule No. 24 (LNL Rule) with the Montana Public Service Commission (MPSC). The LNL Rule is an effort by NorthWestern Energy to implement Mont. Code Ann. § 69-8-201, which establishes a regulatory process for large new load customers to be charged costs specific to their incremental load. Together, these two filings set the framework within which energization for Montana data center development will be evaluated for the foreseeable future.
The LNL Rule also applies to any load forecast to be more than 5 MW, which will bring a whole suite of developments and projects under the purview of the rule that had previously been excluded, such as many new industrial facilities, most new mining and oil and gas operations, and critically, even modest-sized residential and commercial developments.
What the IRP Scenarios Mean for Data Center Developers
The 2026 IRP modeled three data center load scenarios — 150 MW, 650 MW and 1,160 MW (against NorthWestern’s current average daily peak load of approximately 760 MW and system peak of approximately 1,300 MW) — with results that carry direct significance for project planning. Modest additions reduce per-unit costs for existing customers reflecting some initial economies of scale, but the benefit narrows sharply at scale: the 13% per-MWh cost reduction at 150 MW shrinks to 2% at 650 MW and reverses to a 4% increase at 1,160 MW - the only scenario in which per-unit costs rise above the Base Case. The IRP also identifies severe transmission constraints in Billings, Butte and South of Great Falls, making siting location a material feasibility factor. The IRP also notes an existing winter capacity shortfall of approximately 23 MW projected for 2027–2028 that each data center addition would accelerate. These findings are likely to form the primary evidentiary record against which the MPSC will evaluate each customer’s ESA.
The Permitting Process: What “Very Large Customer” Status Means
The LNL Rule classifies any customer with an expected average monthly demand of 50 MW or more at a single Site as a “Very Large Customer,” triggering an enhanced regulatory track that culminates in mandatory MPSC approval before service may commence. The process begins with a Development Agreement and Development Deposit to fund feasibility, interconnection and system impact studies. Execution of the Development Agreement establishes queue position but does not obligate NorthWestern to provide service and does not constitute a capacity reservation. After studies are complete and an Electric Service Agreement (ESA) is negotiated, NorthWestern must file the executed ESA with the MPSC for approval, along with all supporting studies and work papers, and receive MPSC approval before service begins. Any material modification to the ESA, including changes to contract demand or minimum load factor, requires separate MPSC approval. Requests for additional load may require an entirely new ESA.
Key Contractual Obligations
As initially proposed, the LNL Rule would require every Very Large Customer ESA to include a minimum demand floor of 75% of contract demand, billed monthly as a take-or-pay obligation regardless of actual usage, and a minimum service commitment period of 15 years. In addition to tariff rates, ESAs must address a Contribution in Aid of Construction (CIAC) for directly assignable infrastructure and may require a Service Surcharge, a recurring charge to recover customer-specific generation, capacity or infrastructure costs not otherwise covered by standard rates. Performance Assurance must cover development and infrastructure costs pre-service and adjust post-commencement to equal applicable Termination Costs, which are set at a minimum of three years’ worth of minimum billing with three years’ advance written notice required. The Rule also provides a Customer-Sponsored Generation option allowing Very Large Customers to integrate front-of-meter generation or storage into NorthWestern’s supply portfolio, subject to MPSC approval, a provision that may strengthen a customer’s position in MPSC proceedings given the IRP’s finding that large-scale additions require substantial new generation.
What Clients Should Do Now
The MPSC must still approve the LNL Rule and accept the 2026 IRP. However, the existing statutory framework requires that the MPSC approve only those new demand customers that can demonstrate “no adverse impact” under Mont. Code Ann. § 69-8-201, a qualitative inquiry focused on whether the proposed load will increase costs or degrade service for existing ratepayers. Although Mont. Code Ann. § 69-8-201 has been in effect for some time, its adverse impact standard appears to have never been applied to a genuinely new large load customer through a standalone MPSC proceeding. The surge in data center interest, with proposed loads that could double NorthWestern’s average daily demand, rendered that standard impossible to defer, and the LNL Rule represents the MPSC’s effort to establish a formal procedural framework for its application. The MPSC must scrutinize resource adequacy; transmission siting feasibility; cost-shifting protections; and the sufficiency of Performance Assurance with the IRP’s scenario modeling serving as the primary evidentiary backdrop.
Any developer that expects to need more than 5 MW should prioritize consideration of the LNL Rule at the outset of project planning. Queue position is established early but guarantees nothing. Siting near constrained transmission areas — Billings, Butte and South of Great Falls — carries material feasibility risk. Assuming the LNL Rule is approved as proposed, the 15-year minimum term and 75% minimum demand floor will be mandatory ESA requirements that developers should stress-test against their project economics before executing a Development Agreement, as the financial commitments that flow from those obligations begin to accrue at that stage. Separately, mandatory MPSC approval before service commences, a requirement already imposed by Mont. Code Ann. § 69-8-201, means no power flows until the PSC acts, a regulatory dependency that must be built into any project’s financing timeline and critical path.
Parsons’ attorneys advise clients on complex energy, utility and infrastructure matters, including Montana’s evolving framework for large-load and data center development. The new IRP and proposed Large New Load Service Tariff Rule create significant regulatory, financial and operational considerations, making experienced legal counsel critical to managing risk, avoiding delays and navigating the MPSC approval process. Our attorneys are actively monitoring these developments and are prepared to help clients position projects for successful approval and energization.
