Industry Regulatory Watch
Texas Data Center
Regulatory Watch
Navigate the most complex regulatory environment in data center history. 230 gigawatts in ERCOT's interconnection queue. Multi-agency oversight. Rulemaking through 2026.
The Regulatory Challenge
Texas has become the most significant — and most complex — data center market in America. ERCOT's large load interconnection queue has ballooned to 230 gigawatts, up from 63 GW just one year ago. More than 70% of these requests are data centers.
The 89th Texas Legislature responded with sweeping new requirements. SB 6 fundamentally changed how large loads connect to the grid. Battery storage laws now apply to data center UPS systems. Foreign ownership restrictions affect site selection and vendor relationships. And the PUC is still writing the rules — through at least December 2026.
This isn't a one-time compliance exercise. It's an ongoing regulatory relationship that requires monitoring rulemaking, engaging with agencies, and navigating local government approvals — often simultaneously.
Rules Being Written Now — Shape the Outcome
PUC rulemaking extends through December 2026. Early engagement with agencies shapes implementation. Don't wait until the rules are final.
Critical Legislation
The 89th Legislature enacted multiple bills affecting data center development and operations. These are now law — but agency implementation determines how they apply to your project.
Large Load Interconnection
Effective: June 2025 / Dec 2025
75MW+ facilities: $100K+ study fees, cost-sharing, mandatory curtailment equipment, 50% backup generation disclosure. New interconnections after Dec 31, 2025 subject to remote disconnect.
Critical Infrastructure & Foreign Ownership
Effective: September 1, 2025
Restricts foreign entity participation in Texas electricity market. Increases administrative penalties. Requires due diligence on ownership and vendor relationships.
Battery Storage Decommissioning
Effective: May 29, 2025
Financial assurance requirements for battery storage 1MWh+. PE-certified cost estimates by year 10, bonds posted by year 15. Applies to data center UPS systems.
Battery Storage Fire Safety
Effective: January 1, 2027
NFPA 855 and UL 9540A compliance required. Site-specific emergency operations plans. State Fire Marshal oversight and inspection authority.
Foreign Property Ownership
Effective: September 1, 2025
Prohibits China, Iran, North Korea, Russia citizens/entities from owning Texas real property or leases >1 year. Criminal penalties for violations.
Electricity Supply Chain Reliability
Effective: September 1, 2025
Grid reliability requirements affecting large loads. ERCOT and PUC oversight of supply chain vulnerabilities.
Active PUC Rulemaking
The PUC is implementing SB 6 through multiple dockets. Final rules will determine interconnection costs, forecasting requirements, and cost allocation methodology. Participating in these proceedings can shape outcomes.
SB 6 Implementation - Interconnection Standards
Establishes uniform standards for large load interconnection, site control requirements, study fees, and emergency curtailment obligations.
Timeline: Ongoing through 2026
Large-Load Forecasting Criteria
Defines "large load customer" (10MW+), documentation requirements, and how load forecasts affect ERCOT transmission planning.
Timeline: Adoption early 2026
Voluntary Demand Reduction Programs
Creates voluntary demand reduction program for large loads. Allows data centers to participate in grid reliability programs.
Timeline: Scoping January 2026
4CP Transmission Cost Allocation Review
Reviews whether current 4CP methodology fairly allocates transmission costs given large load growth. High stakes for data center economics.
Timeline: December 31, 2026
Participate in Rulemaking
Texas agencies must follow the Administrative Procedure Act, which requires public notice, comment periods, and hearings before rules are finalized. Businesses that engage during these windows can provide industry perspective and potentially shape implementation.
JD Key Consulting helps clients identify rulemaking opportunities, draft comments, and build relationships with agency staff.
Agencies You'll Work With
Data center projects require navigating multiple state agencies, each with distinct jurisdiction and processes. Building relationships and understanding each agency's priorities is essential for efficient approvals.
Public Utility Commission
Electric utility regulation
ERCOT
Grid operations
Texas Commission on Environmental Quality
Environmental permits
State Fire Marshal
Fire safety
Comptroller of Public Accounts
Tax administration
Groundwater Conservation Districts
Water rights (varies by location)
Local Government Landscape
State law doesn't preempt all local regulation. Cities and counties retain significant authority over zoning, permitting, and local utility agreements. Local governments are increasingly scrutinizing data center projects, with some considering or enacting moratoriums.
Zoning & Permitting
- •Conditional use permits (CUPs) required in many jurisdictions
- •Planning commission and city council approval processes
- •Public hearing requirements with community input
- •Building permits subject to battery storage fire codes
Recent Local Activity
- •Irving: Considering CUP requirements for data centers
- •San Marcos: $1.5B project restarting after zoning stalemate
- •Rural counties: Growing scrutiny of water usage
- •National moratorium movement gaining attention
Early Engagement Is Critical
Local opposition can derail projects regardless of state permits. Understanding community concerns, building relationships with local officials, and proactive engagement with stakeholders significantly increases approval success rates.
Water: The Other Constraint
Data centers using evaporative cooling can consume significant water resources. The Houston Advanced Research Center estimates Texas data centers could account for 6.6% of total state water usage by 2030. TCEQ now reviews water use plans for facilities exceeding 5MW.
Groundwater permits vary by conservation district, with some areas facing declining aquifers and drought restrictions. The Texas Water Development Board is working to better track data center water usage, though comprehensive data won't appear in state planning documents until 2032.
Regulatory Touchpoints
- •TCEQ water use plan review (5MW+ facilities)
- •Groundwater conservation district permits
- •Municipal water supply agreements
- •Wastewater discharge permits
Emerging Solutions
- •Liquid immersion cooling systems
- •Air cooling in suitable climates
- •On-site water recycling and treatment
- •Heat reuse partnerships
Tax Incentives & Economic Development
State Sales Tax Exemption
Qualified data centers can receive sales tax exemption on certain equipment purchases.
- •Minimum 20 qualifying jobs in county
- •$200 million capital investment over 5 years
- •Comptroller certification required
JETI Program (Chapter 403)
Replaced Chapter 313 in 2024. Property tax abatements for qualifying projects.
- •50% abatement standard
- •75% in federal opportunity zones
- •Job creation requirements (cannot be waived)
Local Property Tax Abatements
Individual counties also offer property tax abatements to data center developers. Terms vary significantly by jurisdiction. Early engagement with county officials and economic development corporations can identify available incentives and structure optimal agreements.
Key Dates & Deadlines
| Date | Event | Impact |
|---|---|---|
| May 29, 2025 | HB 3809 effective | Battery decommissioning requirements begin |
| June 20, 2025 | SB 6 signed | Large load provisions take immediate effect |
| September 1, 2025 | SB 17 & SB 2368 effective | Foreign ownership restrictions apply |
| December 31, 2025 | SB 6 curtailment deadline | New interconnections subject to remote disconnect |
| Early 2026 | Project 58480 adoption | Large-load forecasting rules finalized |
| January 1, 2027 | HB 3824 effective | Battery fire safety standards apply |
| December 31, 2026 | 4CP review deadline | Cost allocation methodology must be resolved |
December 2026 Deadline. Early Engagement Matters.
Cost allocation rules will govern data center economics for years. Don't miss the window.
Why This Requires Ongoing Representation
Rulemaking Is Ongoing
PUC rulemakings extend through December 2026. Rules adopted now will govern data center economics for years. Participating in these proceedings requires sustained engagement.
Multi-Agency Navigation
A single project may require approvals from PUC, ERCOT, TCEQ, State Fire Marshal, local governments, and more. Coordinating across agencies requires relationships and understanding of each agency's priorities.
Local Government Complexity
State preemption doesn't solve local issues. Zoning, CUPs, and community relations require ongoing local engagement. Opposition can emerge at any stage.
Proactive Monitoring
The regulatory landscape is shifting. New legislation in the 90th session, agency interpretations, and local ordinances require continuous monitoring to identify risks and opportunities.
Frequently Asked Questions
What state approvals does a data center need in Texas?
Data centers in Texas face a multi-agency approval process. For facilities 75MW or larger, you need ERCOT large load interconnection approval under SB 6, which includes study fees starting at $100,000 and cost-sharing agreements. You may need TCEQ permits for water usage (especially if exceeding 5MW), groundwater permits from local conservation districts, and State Fire Marshal compliance for battery storage systems. The Public Utility Commission oversees interconnection standards and curtailment requirements.
How does SB 6 affect data center interconnection in Texas?
SB 6, signed by Governor Abbott in June 2025, significantly changed interconnection for large loads. Data centers 75MW and above must pay upfront study fees (minimum $100,000), share transmission infrastructure costs, disclose backup generation capacity (at least 50% of demand), and install remote disconnect equipment allowing ERCOT to curtail load during emergencies. The PUC is implementing these requirements through multiple rulemakings extending through December 2026.
What are the battery storage requirements for Texas data centers?
Texas has two key laws affecting data center battery systems. HB 3809 requires financial assurance (bonds or guarantees) for decommissioning battery storage facilities 1MWh or larger, effective May 2025. HB 3824 establishes fire safety standards based on NFPA 855 and UL 9540A, requiring site-specific emergency operations plans and State Fire Marshal oversight, effective January 2027. Both apply to data center UPS and backup battery systems.
What local government approvals do data centers need in Texas?
Local approvals vary significantly by jurisdiction. Many Texas cities and counties require conditional use permits (CUPs) for data centers, with public hearings and zoning commission approval. Some jurisdictions have enacted or considered moratoriums on data center development. Building permits must comply with fire safety codes for battery storage. Water supply agreements with municipal utilities or water districts are often required. Early engagement with local officials is essential.
Can foreign-owned companies build data centers in Texas?
Texas has enacted restrictions on foreign involvement in critical infrastructure. SB 2368 restricts foreign entity participation in the electricity market. SB 17 prohibits citizens and entities from China, Iran, North Korea, and Russia from owning Texas real property or holding leases longer than one year. The Lone Star Infrastructure Protection Act prohibits agreements granting Chinese-controlled businesses access to critical infrastructure. Data center operators should conduct thorough ownership and vendor due diligence.
What tax incentives are available for Texas data centers?
Texas offers a state sales tax exemption for qualified data centers that commit to creating at least 20 jobs and investing $200 million over five years. The JETI program (Jobs, Energy, Technology, and Innovation Act) replaced Chapter 313 and provides property tax abatements of 50-75% for qualifying projects. Individual counties also offer property tax abatements. The Comptroller's office administers these programs and determines eligibility.
How much water do Texas data centers use?
Data center water usage varies significantly based on cooling technology. The Houston Advanced Research Center estimates Texas data centers will use 49 billion gallons by end of 2025, rising to 399 billion gallons by 2030 (potentially 6.6% of state total). TCEQ now reviews water use plans for facilities exceeding 5MW. Many groundwater conservation districts require permits. Alternative cooling technologies like liquid immersion are being explored to reduce water dependency.
What PUC rulemakings affect data centers in 2025-2026?
The PUC has multiple active rulemakings implementing SB 6: Project 58317 covers interconnection standards (discussion draft December 2025), Project 58480 addresses large-load forecasting criteria (adoption early 2026), Project 58482 creates voluntary demand reduction programs (scoping January 2026), and Project 58484 reviews the 4CP cost allocation methodology (due December 2026). Data centers should consider participating in these proceedings to shape implementation.
Navigate Texas Data Center Regulation
JD Key Consulting provides government relations expertise for data center developers and operators navigating Texas's complex regulatory environment — from PUC rulemaking to local government approvals.