In Agency Voices, state agency staff share updates and insights about issues, programs, and changes that affect city governments.

By Dan Miller

To support cities as they consider water-intensive developments, the Minnesota Department of Natural Resources (DNR) is sharing key information about new laws that affect water appropriations for data center projects.

Data centers and water demand

The rapid growth of artificial intelligence has driven an increase in data center development, which often use large volumes of water for cooling equipment — sometimes comparable to the needs of a small city. As a result, communities face an important balancing act: providing clean, reliable drinking water for residents while also supporting business growth.

Evaluating water supply availability and limitations early in the planning process is a critical step when considering water intensive developments. If proposed water use approaches or exceeds existing permit authorizations, a permit amendment may be necessary. That process can involve additional costs, such as testing or monitoring, and could extend project timelines. It is also important to note that increased water use is not guaranteed in Minnesota. All water appropriations are limited by the availability and sustainability of the water resource.

Water use priorities and efficiency

Data centers are classified as a priority 5 (industrial) water use under Minnesota law, even if water is obtained through a municipal system. If water supplies become limited and conflicts arise, priority 5 water users may face restrictions to ensure sufficient water for domestic use and other higher-priority needs.

New laws passed in 2025

During the 2025 legislative session, the Minnesota Legislature passed two laws that address water use related to data center development. These laws allow — and in some cases require — the DNR to engage with data center developers early in the planning process. The DNR may implement permit requirements to protect water availability and ensure sustainability of water resources.

The laws apply whether a data center uses an onsite water source or connects to a municipal or public water supply. In some cases, the DNR may require municipalities to implement permit conditions to fulfill the requirements in law.

Early engagement with the DNR

Minnesota Statutes, section 103G.265, subdivision 5 allows the DNR to engage with a data center proposer before a water appropriation permit application or amendment is submitted if the project is expected to use more than 100 million gallons of water per year.

Under the provision, the DNR requests information from the data center project owner or consultant to evaluate whether the proposed water source can sustainably support the project alongside other water uses.

The DNR may request information, including:

• The project’s estimated water use.
• The likely source of water.
• Water quality or temperature requirements.
• A description of the proposed project.
• Any additional information that is needed to assess the ability of the water source to meet the needs of the project.

After reviewing the information, the DNR must respond in writing. This preapplication process does not replace existing preliminary well-construction assessments or water appropriation permit requirements. It also does not limit the DNR’s ability to request additional information later in the permitting process.

New permit conditions for large data center projects

The second statutory change, Minnesota Statute, section 103G.271, subdivision 5b, requires the DNR to add conditions to new or existing water appropriation permits for data center projects that exceed 100 million gallons of water use per year. In some cases, this requirement may apply to municipalities that hold an active water appropriation permit and distribute water to a data center.

Under the statute, the DNR must ensure that:

• Public health, safety, and welfare are adequately protected.
• Water conservation and efficiency measures are considered, such as water recycling, efficient fixtures, closed-loop systems, and watershed restoration or replenishment efforts.
• Water use conflicts are addressed, as needed.
• Testing is conducted to understand water source limitations and availability.

Coordinating support for business development

New statutory language also requires the DNR, along with other state agencies, to refer proposed data center developments to the Minnesota Business First Stop program, administered by the Department of Employment and Economic Development. Minnesota Business First Stop assists new and existing companies understand regulatory processes and requirements.

Balancing growth and water stewardship

The DNR is required to balance competing objectives, including both the development and protection of Minnesota’s water resources. State law also requires the DNR to manage water resources for current and future generations. This includes meeting the needs of domestic water supplies; agriculture, fish and wildlife habitat; recreation; power generation; and, in some cases, navigation.

For questions about these new laws, connect with your local DNR hydrologist (bit.ly/MnDNR-Hydrologists) or contact Dan Miller, DNR water use specialist, at [email protected] or (651) 259-5731.

Dan Miller is a water use specialist with the Minnesota Department of Natural Resources.