Texas Data Center Policy: What Has Changed And What To Watch

Key Takeaways

• Texas is increasing scrutiny of large data center projects. Governor Abbott’s August 3^rd directive adds another layer of review to an already evolving large load interconnection process.
• The policy conversation is expanding beyond grid connection. Transmission, infrastructure costs, water, tax policy, private property and community impacts are increasingly part of the discussion.
• The 2027 legislative session will be important for the industry. Developers, owners and other stakeholders should stay engaged as the PUCT, ERCOT and Texas Legislature consider policies that could shape the future of data center development in Texas.

Texas’ approach to data center development continues to evolve.

As Butler Snow previously reported, Governor Greg Abbott’s August 3, 2026, directive called for additional review of data centers seeking to connect to the ERCOT grid, adding to an already changing regulatory landscape for large electric loads in Texas. Since that directive, legislative hearings and discussions surrounding major transmission projects have provided further insight into the issues likely to shape the state’s approach to data center growth.

The conversation is increasingly extending beyond interconnection and grid reliability to include transmission, infrastructure costs, water, tax policy, private property and community impacts. For companies developing, financing or supporting data center projects in Texas, these developments provide an important indication of the policy issues that could receive increased attention as the state approaches the 2027 legislative session.

What Changed

On August 3, 2026, Governor Abbott directed the Public Utility Commission of Texas and ERCOT to conduct a comprehensive review of data centers seeking to connect to the ERCOT grid. The directive called for additional scrutiny of proposed projects, including their electricity and water demands, infrastructure requirements, tax incentives, ownership and potential community impacts.

As Butler Snow has previously discussed, the directive builds on changes already underway through Senate Bill 6 and ERCOT’s evolving process for reviewing large electric loads.

Since then, policymakers have continued to examine the broader implications of rapid data center growth.

At an August 19, 2026, hearing of the Texas House Committee on State Affairs, lawmakers considered data center development alongside implementation of Senate Bill 6, grid reliability, workforce needs, community planning and proposed 765-kilovolt transmission infrastructure.

The discussion suggests that the state’s focus is broadening from whether and how large loads connect to the grid to the infrastructure and policy consequences that follow.

Why It Matters

Data center development can require significant new electric infrastructure, including generation and transmission investment. Those projects can also raise questions regarding who bears infrastructure costs, how quickly new facilities can receive power, water availability, private property impacts and the role of state and local economic development incentives.

Transmission is becoming particularly important. Large new loads can increase the need for grid investment, while new transmission projects bring their own questions involving cost allocation, land acquisition, siting and community impacts.

For developers and investors, these issues can affect project timing, site selection, costs and ultimately whether a proposed Texas project can move forward as planned.

What to Watch

Heading toward the 2027 legislative session, several issues are likely to remain at the center of the Texas data center debate:

• implementation of Senate Bill 6 and large load interconnection requirements;
• transmission development and allocation of infrastructure costs;
• water availability and reporting;
• tax incentives and economic development policy;
• on-site and co-located generation;
• private property and community impacts; and
• additional action by the PUCT, ERCOT and the Texas Legislature.

The lead-up to the 2027 Texas legislative session will be an important period for the state’s rapidly growing data center industry. Developers, owners, utilities, investors and other stakeholders should remain engaged as the PUCT, ERCOT, and Texas Legislature continue shaping the regulatory and policy framework governing large-scale digital infrastructure development.