This summer, Texas is launching a new process to study the viability of data centers and other large projects seeking to connect to the state’s power grid. The process’ strict requirements, which were largely designed around data centers, could deter major industrial projects from coming to the state, experts warn.
The overview
The Electric Reliability Commission of Texas’ new rules will require that large projects be evaluated in batches, rather than individually, before they can start construction and connect to the grid. The Public Utility Commission of Texas approved the rules, known as the batch study process, in June.
Agency leaders said the batch process will help ERCOT analyze how multiple projects in one area will impact one another and determine if enough power transmission resources are available to serve the planned ventures. The first phase of the process, “Batch Zero,” will kick off later this year.
“[When] we look at all the projects that are going to be evaluated, it's going to identify gaps ... where there's not enough transmission capacity to serve these projects, so something new will have to get built,” ERCOT CEO Pablo Vegas told state senators during a July 29 hearing. “This will highlight what needs to get built, how much it will cost to do so, and at what point in time it can be done.”
The batch process was developed over the past year in response to Texas’ data center boom, which has driven record-breaking demand on the electric grid and garnered pushback from communities around the state over concerns about data centers’ water use, anticipated strain on the electric grid and potential environmental impacts. In June, there were about 474,000 megawatts of large projects seeking to connect to the grid, and more than 420,000 megawatts—or 90% of all large load interconnection requests—were data centers, Vegas said.
ERCOT created rigid requirements for projects to be admitted into the batch process, including hundreds of thousands or millions of dollars in financial commitments. This and other requirements were designed to help ERCOT manage data center growth and eliminate projects that are unlikely to be built.
All projects that would use at least 75 megawatts of electricity will be required to participate in the batch process—including industrial and hydrogen production facilities. However, large industrial and manufacturing projects operate differently and may not be able to meet some of the batch study requirements, industry representatives said July 29.
The dilemma
Warren Lasher, a consultant representing three industrial trade associations, told lawmakers that the new batch rules “may not be well-suited to traditional large loads.” This could make it harder for large industrial projects to get into future batch studies and compete with data centers, he said.
In a state that works to attract major companies and bills itself as business-friendly, that’s a concern, lawmakers said. At least 314 businesses moved their headquarters to Texas from other states between 2015-2024, Community Impact previously reported, including the likes of Chevron, Caterpillar, Tesla and SpaceX.
Large industrial projects often have “relatively inflexible development timelines” and have to operate at a specific location in coordination with their local utility provider, Lasher said. Data center companies, on the other hand, are more likely to be able to supply some power themselves and are more flexible based on which locations can serve them, he said.
He added that the hefty fees required for large load projects to commit to the batch process—$50,000 per megawatt of planned electric demand—could make Texas less attractive to companies than other states that do not charge similar fees.
“Large industrial customers that have made substantial capital investments for a project are unlikely to walk away,” Lasher added. “We should ensure that financial securitization requirements meant to discourage speculative project development do not affect the relative competitiveness of citing new industrial facilities in Texas as compared to surrounding states.”
Zooming in
Senators asked state grid officials how they plan to ensure industrial projects don’t get left behind in the batch process or land in other states that can accommodate them more quickly.
ERCOT documents show that the process will be slow-moving, at least at first: projects selected for “Batch Zero” will be notified in early August, and a final report with plans for those projects will be published in fall 2027. If projects in that group are approved to move forward, ERCOT officials said they expect most of them will be operational in 2030. Applications for Batch 1 are expected to open next summer.
“One of the concerns that we've talked about is Texas is trying to recruit another SpaceX or another Toyota or some other Caterpillar to Texas,” said Sen. Phil King, R-Weatherford. “Now, because they're a large load, they're thrown in the middle of this batch process, and they're being told, ‘Well, you might be able to be part of Batch 1 or 2, or whatever.’ Where are y'all at on trying to differentiate those types of traditional, enterprise, big commercial, large load projects?”
ERCOT and the PUC need to develop a “bifurcated process” that treats data centers and other large projects differently, PUC chair Thomas Gleeson said. He told lawmakers that could look like industrial projects working directly with transmission companies to determine electrical needs while data centers participate in batch studies, noting that conversations about such changes “are still in the very early stages.”
“This [process] may not work for all large loads,” Gleeson said at the July 29 hearing. “If it doesn't, we have to figure out a way to accommodate all of them, not just have a plan in place to deal with data centers and make others fit within that framework.”
King urged the PUC to issue an official statement outlining its intentions to meet industrial needs under the batch process, so lawmakers and economic development groups have something to point to if the industry has questions.
“I would really encourage you to put out there, in a very public statement, that you're working towards that so we don't scare off or deter anyone else, ... because it’s going to happen,” he told Gleeson.
Sen. José Menéndez, D-San Antonio, said lawmakers should take another look at the batch process during next year’s legislative session, which begins in January. The process and other rules aimed at managing data center growth and maintaining grid reliability were created under Senate Bill 6, a 2025 law authored by King.
“I hope that as we listen to the failures or shortcomings of the process, that we can decide to maybe revisit this process for the next upcoming year,” Menéndez said.
One more thing
Clift Pompee, the vice president of power and emissions for Dallas-based Compass Datacenters, told lawmakers he was concerned that projects that are unlikely to come to fruition were being let into the batch process, while other projects were being overlooked.
“Ghost and phantom loads are being given allocation while real projects get left out,” he said July 29. “That's wasting real resources on false demand and costing Texas communities real economic development opportunities.”
Pompee said Compass spent millions of dollars to prepare a planned data center project for the batch process, on top of the $6.5 million in financial commitments that he said the company was required to pay to show its commitment to the project and weed out speculative demand.
To participate in Batch Zero, companies were required to pay $50,000 per megawatt of planned demand to the utility company that would serve their project. This is used to pay for utility system upgrades needed to power the new demand and keep the grid reliable, according to ERCOT.
Pompee said Compass’ project was initially excluded from Batch Zero, and the company was unable to later claim a “good cause exemption” to join the batch process because its utility provider did not complete a required transmission study. He urged lawmakers to adjust the batch rules next legislative session to “put transmission providers on binding deadlines with real visibility into project status so that real developers know where their projects stand.”
“We understood the rules proposed by ERCOT for Batch Zero were to ensure legitimate and mature projects were provided an allocation,” Pompee said. “Unfortunately, as we sit today, that is not what ended up happening.”
ERCOT is scheduled to notify applicants if they have been accepted into Batch Zero by Aug. 7, according to agency documents. King said he was concerned that once that information is released, “there's going to be a bunch of lawsuits.”
“We don't want lawsuits, but I've been concerned that those who thought their project should have got in and it didn't, they're going to look for somebody to sue about it, because they spent a lot of money on it,” he said.
