Texas Governor Greg Abbott has called for data centre regulation that would require operators to carry more of the cost of their growth, as state officials face pressure over power demand, water use, and local opposition tied to AI development.
In a letter to state regulators on Tuesday, Abbott set out proposals for the Legislature to consider in its 2027 session. The measures would require new data centres to add generation to the state grid, pay their own interconnection and infrastructure costs, use closed-loop water systems, report electricity and water use each year, meet standards on issues such as noise, and lose some tax exemptions and incentives.
Abbott wrote that the scale of data centre development required oversight so that Texans were not left to pay for infrastructure linked to data centre expansion. He also said residential electricity bills should not be affected when data centres connect to the Electric Reliability Council of Texas grid.
The proposals mark a shift in tone from a governor who has often promoted Texas as a business destination. Abbott has described the state as the centre of AI development, while also acknowledging concern about pressure on resources and quality of life.
The Data Center Coalition said it welcomed the proposals and said many of the practices were already used by the industry. Dan Diorio, the group’s vice-president of state policy, said data centres served a range of needs and that a single approach would not suit each project. He said decisions on sites and operations were made with utilities, water providers, and management districts.
Abbott also directed the Public Utility Commission of Texas to act by 31 July to reduce residential transmission costs. He told the commission to require data centres to pay the costs linked to power infrastructure for their operations, so that residential ratepayers would not carry those costs.
The governor also asked the commission and ERCOT, the main grid operator in Texas, to submit a joint memorandum by 17 July setting out what they had done to prevent data centre development from creating risks or added costs for Texans.
The intervention comes as resistance to data centre projects grows in parts of Texas. Community groups have raised concerns about water use, noise, land use, and pressure on local infrastructure. A March Quinnipiac poll found that 65% of Americans opposed construction of an AI data centre in their community.
The Texas Tribune reported this year that Texas is set to lose $3.2bn in sales tax revenue over the next two years because of a sales tax exemption. A Tribune analysis also found that close to 60% of data centres planned or under construction would be in Republican state House districts that voted for Donald Trump.
ERCOT reported in May that large projects seeking grid connections totalled 439 gigawatts of power capacity. That figure is five times the record peak demand on the Texas grid. About 89% of those projects are data centres, although energy analysts have said many are unlikely to be built.
ERCOT chief executive Pablo Vegas has called the rise in connection requests “an unprecedented change in the pace of growth”.
A Tribune analysis found that Texas has 335 existing data centres and more than 248 planned or under construction. As of March, only Texas and Virginia had more than 100 active projects under way, according to Aterio, a company that tracks industrial development. Virginia has led the US data centre market in recent years.
Abbott’s proposals did not include expanded local control over data centre development. That absence will matter to counties that say they lack authority over projects in rural and unincorporated areas, where zoning restrictions often do not apply. Some state officials have shown interest in giving counties more power over data centres.
The Tribune reported last week that eight projects had been proposed over 10 months in rural Hood County, where local officials had no power to reject them. Attempts by lawmakers to slow development have faced threats from state Senator Paul Bettencourt, a Houston Republican, and lawsuits from data centre developers.
Abbott’s recommendations follow interim charges in both chambers of the Legislature. Lawmakers have been asked to study data centre development and examine total water use by data centres in Texas.
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