When Elon Musk brought xAI to Memphis, Tennessee, the company made a promise to locals worried that its data center would drain the local water supply: They would build a state-of-the-art water recycling plant, a national model for environmental best practices.
Two years later, Musk’s first data center dedicated to his AI chatbot is up and running, but construction has come to a screeching halt at the promised water recycling plant, designed to clean municipal wastewater for use in cooling the superpowered computing center.
The company announced it was stopping work on the water recycling plant in April, a month after its CEO touted it in a meeting with President Donald Trump. Now, Memphis residents are worried about their drinking water in an episode legal experts and scientists say is indicative of a broader pitfall of the data center boom.
“At the end of the day, if they are not required and don’t have any legal commitments to provide this, then it’s anyone’s guess if and when they will continue construction on this plant,” said Haley Gentry, assistant director at the Tulane Institute on Water Resources Law and Policy.
Musk, who owns xAI, posted on his social media site, X, that the company needs to “focus on finishing” a second data center in the area “and ensuring it is extremely stable, then we will build the water recycling plant.” Company representatives didn’t respond to requests for comment on why the project is delayed or whether it has a timeline for restarting construction.
Caught in the confusion are Memphis residents and their fragile drinking water source.
The community had been pushing for industrial water users, like the Tennessee Valley Authority, to use recycled water to protect the region’s aquifer — the sole source of Memphis drinking water. Scientists who have studied it say it is vulnerable to pollution, and city officials view a water recycling plant as a way to reduce strain on infrastructure and buffer against droughts.
Company executives promoted the water recycling plant amid repeated lawsuits and a congressional probe accusing it of skirting Clean Air Act requirements at its data centers. It sought federal permits for the recycling facility early on.
SpaceX CEO Gwynne Shotwell even touted the water reuse plant at a White House meeting with Trump in March, where xAI and other artificial intelligence executives agreed to build their own power generation in a bid to prevent electricity price increases for households. “It’s actually quite important,” Shotwell said, calling the future plant “state of the art.”
Some critics see ties to the upcoming stock market debut of xAI’s parent company, SpaceX, and a possible desire to tighten up on cost outlays or even a shift in focus to eventual space-based data centers, where water use wouldn’t be an issue.
The water reuse plant had been “the only goodwill proposition the company made toward the people of Memphis,” said KeShaun Pearson, executive director of Memphis Community Against Pollution, a grassroots environmental justice group that has campaigned against xAI over its use of gas turbines without appropriate Clean Air Act permits.
XAI promised to build such a facility that could be used by other customers, too. The company appeared committed to the project — breaking ground in October and receiving Clean Water Act permits in January. The company obtained new construction permits for the reuse facility in early March, according to local news.
Work abruptly stopped at the facility in April.
XAI project manager Mark Carroll told local news on April 8 that the pause surprised even him. The company had invested “millions” in the project and had a warehouse of custom-built equipment waiting to be installed when the stoppage occurred.
“XAI has invested substantially in this project. I mean, you’ve driven by the site, you’ve seen that this was not blowing smoke up anyone’s skirt,” he told The Daily Memphian. “We have been going at this project full bore. So this is not something where xAI promised something and didn’t intend to carry it through.”
Reached by phone, Carroll told POLITICO’s E&E News that he could not comment on the situation and was “under a strict gag order.”
Musk tweeted about pausing the project to allow xAI to finish its second data center location the next day.
We need to focus on finishing Colossus 2 and ensuring it is extremely stable, then will build the water recycling plant https://t.co/CHFUu50SGX
— Elon Musk (@elonmusk) April 9, 2026
The company’s official account also posted, “xAI is committed to building state-of-the-art water recycling plant in Memphis. This plant will protect billions of gallons of water each year. The team is currently prioritizing other more immediate projects at the site but our plans to build the water plant have not changed.”
Neither xAI site manager Brent Mayo nor xAI spokesperson Katie Miller responded to multiple emails asking questions about the projects.
Water utility Memphis Light Gas and Water declined interview requests and did not answer questions about why the project was paused and when construction might resume, deferring to xAI and the Memphis Chamber of Commerce. The chamber also declined to respond to questions about xAI’s plans. But the utility’s president and CEO, Doug McGowen, implied in a statement to local news last month that the decisions may have been due to xAI underestimating the cost of building the plant.
“The price tag shouldn’t have surprised anyone,” he told WREG News Channel 3 in mid-April. “In our very first conversation we shared that there was an estimate of probable cost of $200 million for the facility … the xAI team was optimistic it could be accomplished for $80 million.”
Mayor Paul Young has said he will keep pushing the company to restart the project, posting on social media “promises to this community are not optional.”
City officials have had “multiple recent conversations with company executives,” a representative for Young said in a statement, though his office declined to make him available for an interview.
“In those discussions, he stated that the water recycling facility is a priority and the company reiterated its plan to complete the project,” the statement said. “In response, the company has publicly stated that the pause is a matter of sequencing, and not a shift in strategy.”
IPO incoming
The delay comes as xAI’s parent company, SpaceX, is preparing to go public this summer.
“We see them backing out of that now, and we know it’s not happening in a vacuum, it’s happening as they are preparing for this IPO and what we see is that once again the people of Memphis are the first to be sacrificed,” said Pearson, with Memphis Community Against Pollution. ”Because xAI only sees this community as a place for extraction.”
SpaceX acquired xAI in February, a move that allows a higher potential valuation for the company, adds capital to the high-spending artificial intelligence arm and assumes xAI’s debts from its own previous acquisition of X, Musk’s social media company formerly known as Twitter.
“XAI is a very capital intensive company, and they have lost a lot of money — or invested a lot of money — without seeing any specific returns,” said Kathleen Curlee, a research analyst with Georgetown University’s Center for Security and Emerging Technology, who focuses on the space economy.
It’s not clear whether xAI would have made money from other industrial users of the water reuse plant, but Curlee said it makes sense that xAI would want to “tighten it up and make smarter investments” leading up to the IPO.
She also noted that SpaceX has been pushing to build data centers in space, where water reuse facilities would not be necessary.
“Continuing to invest in these terrestrial capabilities may be unnecessary for SpaceX in the long run because the orbital data centers will be naturally cold and powered by the sun,” she said. “They may want to offset these costs onto the people living in that area.”
Whatever the reasons for the delay, water resources experts said the situation is illustrative of how many technology companies treat water conservation as an afterthought. It also shows the need for communities to require water recycling if they want the technology to be used for data center cooling, experts said.
“Across the country, water reuse is widely discussed as a best practice, but in many places it remains optional rather than expected,” said Jeffrey Davis, a scientist and board vice president of the National Groundwater Association, a nonprofit trade organization that advocates for groundwater stewardship and science.
Though city officials said they are confident xAI is merely pausing the project and will revisit it, the company is under no legal obligations to do so. The city does have authority under a land deal with xAI to buy back land if substantial progress is not made, but only if construction has not yet begun. Already, “total in-ground investment to date is in the tens of millions,” per the mayor’s office.
“The City cannot mandate construction of the facility as it is a private development with no public incentives,” the statement said.
In the meantime, XAI’s drinking water impact will only expand. The company is actively working to complete its second Memphis data center and has announced plans for a third just across the state line in Mississippi. All of those data centers will be relying on municipal drinking water sources, drawing as much as several million gallons a day in total from the fragile Memphis Sand Aquifer.
“The change from either constructing the greywater facility or not is really important with regard to production, because of the amount of water we’re talking about,” said Daniel Larsen, an earth sciences professor at the University of Memphis. “At present, it would be much more desirable to see cooling done by a lower-quality water, such as a processed greywater.”
For their part, environmentalists say they fault Memphis officials for not getting a binding commitment for the water reuse facility and for not requiring the second and third data centers to use recycled water.
“This reuse facility was the only good thing this project had going for it, but our city officials didn’t do enough to hold them accountable,” said Protect Our Aquifer Executive Director Sarah Houston. “So now they can just say ‘never mind’ and all we can do is hope they will come back and finish the job after the IPO.”
An aquifer at risk
To aid in cooling the supercomputing chips they house, AI data centers can consume millions of gallons of water daily, with usage often peaking during hot summer months.
Some technology companies have promised to clean and reuse wastewater, rather than draw on a community’s water supply. Amazon.com, for example, announced last week that it would use recycled water to cool data centers in Mississippi. The concept can mitigate projects’ environmental impact — and community opposition.
The Trump administration has supported the idea, with EPA Administrator Lee Zeldin laying out plans in recent weeks to encourage water-guzzling industries to invest in recycled water that has been treated to remove pathogens and contaminants.
“Our nation’s water needs have to be top of mind,” Zeldin told a packed audience of water officials and lobbyists at EPA headquarters April 16. “Water reuse provides a solution that strengthens local freshwater and groundwater resources while delivering water for AI and data center operational needs.”
In Memphis, residents’ push for water reuse predates xAI’s arrival by a decade. There, environmentalists have raised concerns about the risk of arsenic seeping into the groundwater from coal ash ponds at a former Tennessee Valley Authority coal plant located near one of the wells drawn on by utility Memphis Gas Light and Water.
Many saw the recycling plant as a means to both negate the artificial intelligence company’s environmental impact and lessen overall draw on the aquifer.
That groundwater is separated from the actual aquifer by a thick layer of clay that lies under the groundwater and atop the drinking water source. But in recent years, scientists affiliated with the U.S. Geological Survey and the University of Memphis have discovered breaches in the clay layer that could allow pollutants to leak in. There are now six known breaches and 36 “suspected” ones, per a 2023 study from the University of Memphis and utility MLGW. The more water is pumped from areas close to the breaches, the greater the risk of groundwater contamination from shallow pollution sources, said Larsen of the University of Memphis. “If there’s an easy way for water to come in from the surface and replenish [the aquifer], it does so,” Larsen said. “Therefore, the more you produce in these areas where it’s sensitive, the more you can produce water quality problems.”
The issue came to a head in 2016 when TVA announced it would open a new gas-burning power plant near its old coal plant and planned to drill its own wells for cooling water, rather than relying on the local utility, MLGW. TVA’s wells would have been even closer to the coal ash pits, raising concerns that they could accelerate drinking water contamination.
Residents revolted and founded an environmental group, Protect Our Aquifer, which successfully pushed TVA in 2019 to only use MLGW water, which is drawn from wells farther from the coal ash pits. “We won the scientific argument that pulling all that water from right across the coal ash pond would bring those toxins into the aquifer,” Houston said.
In an emailed statement, TVA said that the aquifer has not been affected by its coal ash and that it is working on a restoration project in the area launched in 2023 that includes an onsite system to pump and treat groundwater.
“The Allen Restoration Project at the retired Allen Fossil Plant reflects TVA’s promise to the Memphis community: to protect the Memphis aquifer, safely and responsibly manage legacy coal ash, and restore the retired Allen site for future economic development,” Angela Austin, construction manager of the Allen Restoration Project, said in a statement.
Still, Larsen said he and other researchers lack up-to-date independent data on groundwater conditions near TVA’s old coal plant, the new gas plant and xAI’s data center. Protect Our Aquifer has also continued advocating for TVA and other industrial water users to embrace wastewater recycling for their water needs. So, the issue was top of local officials’ minds as they courted xAI to come to Memphis. XAI announced it would locate its first data center there after a series of closed-door meetings with the Memphis Chamber of Commerce, local utilities and the mayor. During those meetings, local officials suggested xAI build a water reuse plant to foster goodwill in the community.
McGowen of Memphis Light, Gas and Water, who responded to a few questions over email, said the utility had been “planning and designing” a water reuse facility “long before xAI arrived.”
“XAI offered to construct the facility because we asked them to, and because they were able to identify the capital resources to do it more quickly than the City and MLGW could identify the funding,” McGowen said in an emailed statement.
“They basically went in there, fresh from our TVA fight, and told xAI ‘The community will fight you if you try to drill a well, but if you build a water reuse facility, it will be good for both you and TVA,” Houston said.
The company listened, quickly committing to build a water reuse facility next door to its first planned data center in Memphis. The data center would be built first, then the water reuse plant.
Rather than drill its own well, xAI would purchase drinking water from MLGW until the reuse plant was ready in fall 2026.
The company has requested to use up to 3.7 million gallons of water a day, both at its original data center and second site a few miles away that will not draw from the planned reuse facility, MLGW said.
“We were cautiously optimistic,” Houston said. “But we weren’t celebrating anything until the water source shifted and they turned the pumps from this aquifer to the new facility.”
