Texas increases scrutiny of data centers amid surging power requests

Data center development in Texas has been put on hold until the Public Utility Commission and the Electric Reliability Council of Texas complete an audit of these projects. 

Gov. Greg Abbott has directed both agencies to conduct a comprehensive verification and audit of data centers through ERCOT’s interconnection process prior to greenlighting any further progress. Any development that does not comply with PUCT and ERCOT standards won’t be allowed to connect to the Texas energy grid. 

The moratorium follows increasing concerns with data center development and operation in the state, especially as prospective companies continue requesting grid connectivity. Currently, ERCOT is considering roughly 474 gigawatts of requests for grid connections – five times more than Texas’ peak electricity demand. Data centers account for around 90 percent of those requests, resulting in a level of demand that could severely impact the grid’s reliability and stability for the foreseeable future. 

“Our top priority is to protect Texans’ safety and quality of life,” Gov. Abbott said. “Any project that fails to comply with the requirements set forth by the PUCT and ERCOT, and by state law, must be denied connection to the Texas grid. Simply put, Texans must come first.” 

In a recent letter, Gov. Abbott directed the PUCT and ERCOT to obtain certain information from data center projects to determine whether they will be allowed to move forward. That information includes: 

• Whether data centers will fund their own operations or leverage state financial assistance in the form of tax incentives, grants, cuts or abatements. 
• How much power the data centers will generate on their own or draw from the ERCOT grid. The authorities should ascertain projected annual and peak electricity consumption alongside any plans to either build or procure on-site electrical generation or other measures to mitigate demand on the Texas grid. 
• The extent to which data centers will invest in water sources and reuse versus using water needed by local communities. Relevant information should include projected annual and peak water consumption, anticipated water supply sources and any information regarding cooling technologies implemented. 
• How data centers will deploy measures to reduce impacts on neighbors, including noise mitigation, light controls, setbacks, traffic improvements, emergency response coordination and other solutions. 
• Information detailing the ownership and controlling interests in the project. 

Data centers have seen a tremendous boom in investment, soaring to hundreds of billions annually. Four major tech companies alone anticipate sinking around $720 billion into data center buildout this year, further buoyed by both state and federal support for rapid expansion. 

Despite Texas’ overall positive outlook for data center development, Gov. Abbott’s announcement puts the brakes on progress for the time being. The latest directive builds on a June 10 announcement that urged the PUCT and ERCOT to institute protections for consumers against rising data center infrastructure costs. 

ERCOT had already begun evaluating data centers among other large users seeking to connect to the grid through its Batch Zero process. With the governor’s latest directive, however, ERCOT has placed that initiative on hold until further notice. It’s unclear whether projects that have already progressed through Batch Zero will require audits and comprehensive reviews through the new directive. 

These announcements indicate an increased focus on holding data centers accountable and ensuring their development does not conflict with the prosperity and quality-of-living of Texas residents. Data center development has a history of opaque operations, limiting insight into construction processes and operational costs and impact. Lawmakers are working to increase transparency into these facilities’ electricity use, water use and access to tax incentives as the state tightens its regulatory control over the industry. 

Photo by Brett Sayles from Pexels