Data center developers and critics are reckoning with what a new data center pause in Texas will mean — and how possible state legislation could further slow massive construction plans.
Republican Gov. Greg Abbott, who is up for reelection this fall, directed the state’s power regulators and grid managers Monday to audit data centers seeking to connect to the main Texas grid. The governor said no additional data center connections can be approved or move forward until that process occurs.
In a letter to the state Public Utility Commission and the Electric Reliability Council of Texas, Abbott wrote that officials need to collect more information to keep the state’s grid stable. It’s unclear how long the pause could last or how long it could take ERCOT and the PUC to conduct an audit.
“Any project that fails to comply with the requirements set forth by the PUC and ERCOT, and by state law, must be denied connection to the Texas grid,” Abbott said. “Simply put, Texans must come first.”
Abbott’s letter called for an audit that would require data centers to report to ERCOT and the PUC information about their proposed water use, tax breaks they receive, what cooling technologies they’re using and who owns the projects.
Texas is slated to overtake Virginia as the data center capital of the world in the coming years, and as many as 474 gigawatts worth of projects are seeking to plug into ERCOT — more than five times the region’s all-time demand record. The implications are huge, even if experts don’t expect that level of new demand online anytime soon. The ERCOT grid handles most of the electricity demand in Texas.
The Abbott move added more uncertainty to the Texas power market after Lt. Gov. Dan Patrick and state Sen. Charles Schwertner, both Republicans, called Friday for the PUC to reject pending applications to build $33 billion worth of extra-high voltage power lines across the state. Those lines could help supply power to oil and gas operations, but also data centers.
The data center approval pause also represents a major shift from last year, when Abbott called Texas the “epicenter” of artificial intelligence development as he courted megaprojects. He also called for more oversight this past June.
Abbott has seen support erode over concerns about data centers and extra-high-voltage transmission lines being built in rural areas.
Texas has not elected a Democratic governor in more than 35 years. But a Fox News poll released last week showed him leading Democratic challenger state Rep. Gina Hinojosa by only 1 percentage point, and other polls show Texas voters are firmly against data centers being built in their communities.
In a statement Monday, Hinojosa said Abbott’s move won’t do enough to protect Texans. She called instead for a moratorium on data centers until the state Legislature reconvenes.
“So nice to see another strongly worded letter from Abbott after he proudly made Texas the wild west of data centers,” Hinojosa said. “Abbott’s call for a ‘pause’ could be for one day — and no one buys it. He’s taken millions from data center CEOs while giving Texans lip service to non-existent restrictions.”
Residents across Texas have been voicing concerns about data centers, including to state lawmakers last week.
“The governor’s in a pretty hard spot, right? It’s a very politically contentious topic,” said Landon Lill, a partner involved in energy regulation issues at the Baker Botts law firm. “Politically, I think he feels like he needs to do something.”
But some data center critics said Abbott’s new directive will do little to protect residential ratepayers or communities from the explosion of data center growth the Lone Star State has seen — and is expected to see — in the coming years.
“It’s another Band-Aid,” said Adrian Shelley, the Texas director of Public Citizen consumer advocacy group. “The state has so many data centers already operating or on their way because Gov. Abbott’s approach is to roll out the welcome mat to corporate interests first and figure out how to protect the interests of working Texans later, if at all.”
Monday’s letter throws a massive wrench into ERCOT’s plans to bring data centers online.
ERCOT is working to bring data centers on to the grid in groups, the first of which is known as Batch Zero.
ERCOT had planned to notify data centers about whether they qualify for Batch Zero this Friday and to provide them with power allocation amounts by spring 2027. Officials estimate as many of 200 GW worth of projects could qualify, but 65 GW of that is the most likely to be built between now and 2032.
Data center developers have been eager to get into Batch Zero because those projects could get most of the power that’s available on the grid between now and 2032. Projects that are part of later batches may need to wait years for more transmission to be built.
ERCOT officials said Monday they were “postponing” the Batch Zero study process due to Abbott’s letter and were working with the PUC to implement Abbott’s directive.
Dan Diorio, executive vice president of state policy and government affairs for the Data Center Coalition, said in a statement that the group hopes the audit process and Abbott’s directive will separate responsible developers from bad actors. But he also called on the PUC and ERCOT to “move swiftly” in their studies.
“Done correctly, this review can showcase the good actors in the data center industry rather than delaying them unnecessarily, ensuring Texas will continue to be the national leader in economic development,” Diorio said.
Seeking safeguards
The letter from Abbott comes after the PUC and the Texas Water Development Board struggled to get data centers to respond to questions about their water usage.
Water board officials said at a state House Natural Resources Committee hearing in June that only 17 percent of data centers responded to a mandatory water use survey. Not responding can be a Class C misdemeanor.
The PUC also put out a voluntary study for data centers to report their water use, but it received a less than 30 percent response rate.
Abbott in June had sent another letter to the PUC and ERCOT, directing them to initiate action to reduce residential ratepayers’ transmission costs by July 31 and to send his office a memo of what the two agencies were doing to protect ratepayers and communities from data center growth.
The PUC and ERCOT responded to that request by sending Abbott a letter outlining steps they’ve taken to make more rules around data centers and legislation that could help them more effectively oversee the tech campuses.
But Monday’s directive from Abbott aims to go farther, essentially stopping all data center project development until an audit can be done.
Questions remain about how long that audit could take, whether the PUC would have to pass new rules in order to compel data centers to respond, whether lawmakers would want to act based on the data collected — and if any data centers could get grid approvals before all of the auditing is finished.
In a statement, Abbott’s campaign said the governor’s “goal is simple: lower the costs for Texans while ensuring data centers pay their own way.”
Calls have been growing for Abbott to call a special session to tackle data centers. Texas’ regular legislative will not convene again until January unless Abbott calls lawmakers to Austin sooner.
Critics of data centers are seeking to tap growing momentum to lock in stronger oversight, regardless of the outcome of this year’s governor’s race.
“AI has real promise, but it shouldn’t come at the cost of our water, our air, and our neighborhoods,” said Environment Texas Executive Director Luke Metzger in a statement. “Now that the state is asking the right questions, it needs to use the answers to develop safeguards that protect Texans.”
Larger data center players may not be too concerned with the pause, but the industry as a whole is worried about potential data center legislation in Texas, said Arushi Sharma Frank, principal at the Luminary Strategies tech angel investing firm.
“I’m very much in favor of a special session,” Frank said. “As an investor, I’m actually more keen to know earlier than wait until next February.”
She said larger projects that met the qualifications to be included in Batch Zero are already well financed, and they may be able to ride out the pause while the PUC and ERCOT conduct the audit.
But smaller projects have already started wavering after Abbott’s letter was published Monday.
Lill said one of his clients asked if it was too late to get a $50,000-per-megawatt fee back from the PUC if a project dropped out of Batch Zero this week. Lill said it’s too costly for smaller developers to keep the financing necessary to wait out the audit.
Lill said there likely won’t be clarity on how state lawmakers will actually react to data centers until after the November election cycle.
“Elected officials, are they actually anti-data center?” Lill said. “Are they actually just trying to pump the breaks slightly to get reelected? That’s probably the cynical view.”
