Texas Governor Greg Abbott has introduced a series of regulatory recommendations aimed at managing the rapid expansion of data centers across the state. As artificial intelligence-driven development surges, so do concerns about power demands, water usage, and infrastructure costs. Abbott’s proposals, directed at the upcoming 2027 legislative session, seek to ensure that data centers bear the costs of their growth rather than Texas ratepayers.

The recommendations come at a time when Texas is experiencing an unprecedented influx of data center projects, driven by the state’s favorable business environment and growing AI industry. However, this growth has also sparked community opposition and raised questions about the strain on local resources and infrastructure.

Key Proposals for Data Center Regulation

Abbott’s letter to state regulators outlines several key priorities for data center regulation. These include:

  • Power Generation RequirementsNew data center facilities must contribute to the state’s power grid.
  • Infrastructure CostsData centers should cover their own grid interconnection and infrastructure expenses.
  • Water UsageMandating closed-loop water systems that reuse water over time.
  • Annual ReportingAll data centers must report their electricity and water usage annually.
  • Community StandardsEstablishing best practices to address concerns like noise and land impact.
  • Tax IncentivesRepealing sales tax exemptions and other outdated incentives for data centers.

The Texas Tribune reported earlier this year that the state stands to lose $3.2 billion in sales tax revenue over the next two years due to existing exemptions. Abbott emphasized the need for oversight to prevent everyday Texans from bearing the costs of data center expansion.

Industry and Political Reactions

The Data Center Coalition welcomed Abbott’s proposals, stating that the industry already follows many of the recommended practices. Dan Diorio, the organization’s vice president of state policy, highlighted the diversity of data centers and the need for tailored solutions in different communities.

At the Texas GOP convention in Houston, reactions to Abbott’s recommendations were mixed. While some members agreed with repealing sales tax exemptions, others called for more immediate action. Rep. Cody Vasut of Angleton suggested expanding counties’ authorities to address local concerns, while Hood County GOP Chair Greg Harrell urged Abbott to call a special session to tackle the issues promptly.

In response to growing concerns, Abbott directed the Public Utility Commission of Texas to reduce residential transmission costs by July 31 and required data centers to cover their infrastructure costs. He also asked the PUC and the Electric Reliability Council of Texas (ERCOT) to submit a joint memorandum by July 17, summarizing their efforts to mitigate risks and added costs from data center development.

The Growing Opposition to Data Centers

Opposition to large-scale data center projects is mounting across Texas. Community groups have organized against proposed developments, citing concerns about water use, noise, land impacts, and strain on local infrastructure. A March Quinnipiac poll found that 65% of Americans oppose the building of an AI data center in their community.

A Texas Tribune analysis revealed that nearly 60% of planned or under-construction data centers are in red state House districts that voted for President Donald Trump. As of May, ERCOT reported that large projects requesting to connect to the grid totaled 439 gigawatts of power capacity, with about 89% of these projects being data centers. ERCOT CEO Pablo Vegas described the influx of requests as an unprecedented change in the pace of growth.

The state currently has 335 existing data centerswith more than 248 in the works. Only Texas and Virginia have more than 100 active projects underway, according to Aterio, a company that tracks industrial development.

Notably absent from Abbott’s priorities was any proposal to expand local control over data center development. Counties across Texas argue they lack the authority to regulate projects in rural, unincorporated areas where zoning restrictions do not exist. Efforts by lawmakers to slow development have been met with threats and lawsuits from data center developers.

Abbott’s recommendations follow interim charges in both legislative chambers, tasking lawmakers with studying data center development and examining their total water usage in the state.