The rapid expansion of data centers in Texas has raised significant concerns about the state’s ability to manage the associated demands on its infrastructure. The primary issue is the lack of comprehensive data regarding the actual energy and water requirements of these projects, as well as the potential returns on the tax breaks offered to attract them.
At first glance, this might seem like a straightforward data collection problem. However, the persistent gaps in information suggest a more deliberate strategy by developers to maintain flexibility while leaving the public to plan based on unverified promises.
The Electricity Demand Conundrum
The Electric Reliability Council of Texas (ERCOT) has a queue of large-load requests totaling approximately 439 gigawatts with data centers accounting for nearly 90% of these requests. To put this into perspective, the highest electricity demand ever recorded in Texas was 87,403 megawatts on July 21 of this year. The current queue is more than five times this peak demand. However, the actual capacity that data centers have connected and are currently drawing is closer to 7.5 gigawatts.
For years, developers could join the queue with minimal financial commitment and no obligation to build. This inflated queue created a sense of inevitability, pressuring the grid to expand ahead of actual demand. Texas has recently started addressing this issue by requiring large-load applicants to provide real financial security and prove land control before their requests are counted. While this is a step in the right direction, it only addresses one aspect of the problem.
The Water Usage Enigma
Water consumption is another critical resource for data centers, used for cooling servers and powering the plants that supply them. Despite the state’s requests for the industry to report water usage, fewer than a third of the companies queried responded. The Texas Water Development Board’s mandatory survey also saw a low response rate, with only 17 percent of data centers complying in 2026. This lack of data makes it impossible for the state to price, cap, or regulate water usage effectively.
The vagueness surrounding water usage is not an oversight but a strategic advantage for developers. By withholding this information, they maintain leverage in negotiations and avoid meaningful regulation. This asymmetry in information benefits the developers at the expense of the public.
The On-Site Generation Loophole
Developers have found a way to bypass scrutiny by building their own power plants on-site, with approximately 38 gigawatts of such projects in development. While these plants require air permits, the permits only measure pollution emissions, not the viability of the data center projects they serve. This loophole allows developers to avoid questions about the real need for these plants and who will bear the cost of the infrastructure if the projects do not materialize.
The smoke from these plants is measured, but the financial gamble remains hidden. This lack of transparency shifts the risk from developers to ratepayers, who may end up footing the bill for speculative projects.
Governor Abbott’s Mixed Messages
Governor Greg Abbott recently wrote to state regulators about data center costs, highlighting a mix of immediate actions and long-term promises. The Public Utilities Commission (PUC) has been tasked with making data centers fund their own infrastructure and filing a joint memo with ERCOT by July 31. However, issues related to water reporting, water-efficient cooling, and outdated tax incentives have been pushed to the next legislative session in January 2027.
This delay in addressing water-related issues suggests a lack of urgency, despite the existing mandatory water survey that has seen poor compliance. Governor abbott has also touted the withdrawal of a controversial East Texas data center project as a sign of his administration’s effectiveness in regulating the industry.
Lessons from Ohio and the Oil Industry
Texas can learn from Ohio’s experience, where regulators required binding contracts backed by real collateral for data center interconnection requests. This move reduced the queue from roughly 30 gigawatts to 5.6 gigawatts demonstrating the effectiveness of firm commitments. Similarly, Texas has dealt with the consequences of unsecured costs in the oil and gas industry, where orphaned wells have become a financial burden for the state.
By requiring real disclosure and making developers bear the risk of speculative projects, Texas can avoid similar pitfalls. This approach does not require predicting the future but ensures that the public is not left holding the bag for failed ventures.
The data center boom is real, and Texas has reason to want it. However, the state must ensure that the promises made by developers are backed by firm commitments and transparent data. Only then can the public be confident that the benefits of this growth outweigh the risks.
