Texas must protect residential consumers from paying for the infrastructure needed to power new data centers, Gov. Greg Abbott said in a June 10 order aimed at balancing the rapid growth of data centers with the needs of residents and communities.
The big picture
The governor directed state regulators to ensure data center companies do not pass infrastructure costs on to ratepayers, urging lawmakers to tighten regulations on data centers’ water use and repeal certain tax exemptions that benefit the industry.
Abbott’s order comes as Texas grapples with how to manage the data center boom amid climbing electric demand and looming water shortages. Texas is home to the fastest-growing data center market in the nation, and development shows no signs of slowing down, per a January report from Bloom Energy.
“The rapid scale of data center development requires oversight to ensure everyday Texans are not burdened with the costs of infrastructure driven by data center expansion,” Abbott wrote in a June 10 letter to the Public Utility Commission and the Electric Reliability Council of Texas.
What’s happening
State leaders have long touted Texas’ business-friendly policies as a key driver in attracting major technology companies, with Abbott recently calling the state “the epicenter of AI development.” Late last year, Abbott joined Google executives as they announced a $40 billion plan to build three new data centers in North Texas.
Abbott’s June 10 letter is the first time the Republican governor has publicly called to restrict data center growth. As communities across Texas consider new data center projects, some residents are pushing back, raising concerns about the large facilities’ water usage, potential strain on the electric grid and impacts on local neighborhoods.
ERCOT recently projected that demand on the Texas power grid would surpass 92 gigawatts this summer, breaking a current demand record. Hundreds of large data centers totaling about 410 gigawatts of electricity have asked to connect to the grid through 2032, although ERCOT officials have emphasized that not all of those projects will come to fruition.
Abbott ordered the PUC and ERCOT to create new policies to shield ratepayers from paying for data center infrastructure needs and reduce residential electric bills June 10. The state agencies must submit a memo to the governor’s office outlining their plans and potential roadblocks by July 17, then move forward with those plans by July 31, he said.
“Protecting Texas consumers by ensuring reliable, affordable electricity is our top priority,” PUC Chair Thomas Gleeson said in a statement to Community Impact. “Governor Abbott’s directive empowers the [PUC] and ERCOT to take important steps to strengthen these protections for Texans.”
A representative for the Data Center Coalition said the industry “looks forward to working collaboratively” with Texas officials, noting that the data center community already follows many of the governor’s recommended practices.
“It's important to recognize that data centers are a diverse industry serving a wide range of needs, and there is no one-size-fits-all solution when it comes to facility design, cooling technology, or regulation,” said Dan Diorio, vice president of state policy for the industry advocacy group. “The right approach in one community may not be the right approach in another, which is why siting and operational decisions are made in close coordination with local utilities, water providers, and management districts.”
Looking ahead
The governor also laid out six data center-related policies he wants lawmakers to consider during the 2027 state legislative session, which begins in January:
- Creating a state law that requires data centers to cover their own grid infrastructure costs
- Requiring new data centers to help boost Texas’ power generation capacity
- Mandating the use of water-efficient technology in new facilities
- Directing data centers to annual report their water and electric usage to the state
- Repealing large sales tax exemptions and other incentives designed to attract data centers to Texas
- Establishing standards to manage noise and other community concerns related to data centers
Abbott also pointed to
Senate Bill 6, a 2025 state law that he said “took meaningful steps” in data center regulation. That law directs large electric consumers, including data centers, to
supply backup power when connecting to the Texas grid and switch to those reserves during emergencies.
“More must be done to protect Texans, which is why I am implementing these directives,” Abbott wrote.
Lawmakers have held information-gathering hearings in recent months on data centers’ electric use and the cost to residents, Community Impact reported. Additional hearings on water use and the tax breaks are scheduled for this summer.
State Rep. Gina Hinojosa, an Austin Democrat challenging Abbott in the Nov. 3 election, slammed the Republican governor for “backtracking” on tax exemptions for data centers, which she said Abbott previously supported.
“Nice try. Data centers are moving to Texas because Abbott helped create the most generous tax dollar giveaway to data centers in the country so Texans would foot the bill,” Hinojosa said in a June 10 statement responding to Abbott’s directive.
At least one of the tax breaks was created in 2013, legislative records show. Abbott served as state attorney general at that time and was elected governor in 2014.
