Texas’ power grid operator and regulator have laid out their plans to regulate data centers that connect to the state grid and ensure data center companies, not residents, pay for the industry’s growth.
“I share your view that these projects must be managed in a way that protects residents by prioritizing affordability, reliability and the interests of Texas communities,” said Thomas Gleeson, Public Utility Commission of Texas chair, in a July 17 letter to Gov. Greg Abbott. “Equally important, the reliability of the electric grid must be preserved so that Texans can be assured that power remains available to them even as the system expands to serve new large loads.”
The PUC and the Electric Reliability Council of Texas outlined their data center policies in response to a June 10 order from the governor, although many of those projects were already in the works, according to agency documents.
What you need to know
To shield Texans from the negative impacts of data center growth, the PUC and ERCOT are:
- Prohibiting data centers from taking existing power resources off the grid
- Launching a new process to evaluate large projects looking to connect to the grid
- Creating standards that large consumers must meet before joining the grid
- Developing incentives for large consumers to reduce their energy use ahead of a grid emergency
- Requiring large companies to pay for the grid infrastructure needed to serve them
- Improving ERCOT’s process for projecting future demand
On June 18, the PUC approved ERCOT’s
batch study process, which will require that large projects seeking to connect to the Texas grid be evaluated in batches, rather than individually. Agency leaders have said the new process will help ERCOT determine how various developments in one area will impact one another and determine if enough power transmission resources are available to serve the planned ventures.
“This new process represents a fundamental shift in how ERCOT manages the significant growth of large load interconnection, providing a structured, transparent path forward that protects reliability for Texans while supporting the state's continued economic growth,” ERCOT CEO Pablo Vegas said in a June 18 statement.
The projects studied in the first phase of the process, known as “batch zero,” will be selected in August and a final report with plans for those projects will be published in fall 2027, according to ERCOT. If projects in that batch are approved to move forward, ERCOT said it expects that most of them will be operational in 2030.
The big picture
Overall power demand is also rising in Texas, and the grid survived a key test July 22 when demand soared past 91,000 megawatts with more than 20,000 additional megawatts of supply available.
This would break ERCOT’s demand record of 85,508 megawatts, which was set during an August 2023 heat wave. However, ERCOT spokesperson Trudi Webster cautioned that this week’s demand records are preliminary and official readings will be released through the market settlement process.
Energy experts have attributed the grid’s hardiness during extreme temperatures this summer to Texas’ investments in solar generation and battery storage. Data shows that Texas leads the nation in solar power capacity, and investments in solar have helped ERCOT power homes and businesses during the hottest parts of the day, according to state officials.
Nearly 5,000 megawatts of battery storage capacity, about 4,000 megawatts of solar power and 1,500 megawatts of natural gas have been added to the grid since last summer, ERCOT leaders said June 2.
More details
On June 10, Abbott directed the PUC and ERCOT 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.
State regulators recommended three other changes to state law in their July 17 letter:
- Requiring that data centers register with the PUCT and ERCOT and provide information about their electric and water use
- Clarifying state agency authority to regulate large consumers without a legislative mandate
- Expanding a state infrastructure protection law to include data centers
State lawmakers will return to Austin for their 90th legislative session in January, although some politicians have urged Abbott to call a data center-focused special legislative session this year. The governor has the sole authority to convene a special session at any time outside of the 140-day regular session, which runs from January through May in odd-numbered years.
State Rep. Gina Hinojosa, an Austin Democrat challenging Abbott in the Nov. 3 election, said Abbott should sign an executive order creating a moratorium on data center development until a special session or next year’s regular session.
“Data centers ... are guzzling up all our water, guzzling up all our electricity—and the people have no say,” Hinojosa said in a July 23 news release. “I’m calling for a moratorium until a legislative session that puts Texans first so that we don't have any more communities in Texas who are powerless against these global corporations.”
Agriculture Commissioner Sid Miller, who spoke at a Bastrop community meeting about data centers July 22, has also called for a data center moratorium and special session.
One more thing
Diode, a data center developer, recently withdrew its plans to build a data center in East Texas amid bipartisan pushback, saying in a July 22 email to Henderson County officials that the project did not meet “the higher standard we believe should guide data center development.”
Abbott pointed to his own directive as the reason Diode dropped the project, warning that “if other data center developments refuse to meet these standards, I expect them to do the same.”
