Texas Governor Greg Abbott is pushing for new rules that would make data centre companies shoulder more of the financial burden tied to their rapid expansion. The move comes as state leaders face growing public concern over surging electricity and water demands, along with local backlash linked to the AI boom.
In a letter sent to state regulators on Tuesday, Abbott outlined a series of proposals for lawmakers to consider during the 2027 legislative session. These include requiring new data centres to bring their own power generation onto the grid, cover all interconnection and infrastructure expenses, adopt closed-loop water cooling systems, annually report their electricity and water consumption, comply with standards on issues like noise pollution, and forgo certain tax breaks and incentives.
Abbott emphasized that the sheer scale of data centre growth demands stronger oversight to ensure ordinary Texans aren’t stuck footing the bill for infrastructure built to serve these facilities. He also stressed that household electricity rates should remain unaffected when data centres plug into the Electric Reliability Council of Texas (ERCOT) grid.
This stance represents a notable shift for a governor who has long marketed Texas as a top destination for business. While Abbott has previously hailed the state as the epicenter of AI innovation, he’s now openly acknowledging worries about strain on natural resources and everyday quality of life.
The Data Center Coalition responded positively to the proposals, noting that many of the suggested practices are already standard across the industry. Dan Diorio, the group’s vice president of state policy, explained that data centres support a wide variety of services and that a one-size-fits-all regulatory approach wouldn’t work. He added that site selection and operational decisions are typically made in coordination with utilities, water suppliers, and local management districts.
Abbott also instructed the Public Utility Commission of Texas to take action by July 31 to lower transmission costs for residential customers. He directed the commission to ensure data centres fully cover the expenses related to power infrastructure needed for their operations—so homeowners don’t end up subsidizing corporate energy needs.
Additionally, the governor asked both the commission and ERCOT—the state’s primary grid operator—to deliver a joint report by July 17 detailing steps they’ve taken to prevent data centre growth from creating reliability risks or added costs for Texas residents.
This intervention arrives amid rising community resistance to data centre projects across parts of the state. Residents have voiced concerns about excessive water consumption, noise pollution, land conversion, and strain on local roads and services. A March Quinnipiac University poll revealed that 65% of Americans oppose building an AI data centre in their own neighborhood.
According to the Texas Tribune, Texas stands to lose $3.2 billion in sales tax revenue over the next two years due to existing tax exemptions for data centres. The outlet also reported that nearly 60% of planned or under-construction data centres are located in Republican-held state House districts that supported Donald Trump in recent elections.
ERCOT disclosed in May that large-scale projects seeking grid connections totaled 439 gigawatts of capacity—five times the Texas grid’s all-time peak demand. While about 89% of these applications are from data centre developers, energy experts caution that many may never actually be built.
ERCOT CEO Pablo Vegas described the surge in connection requests as “an unprecedented change in the pace of growth.”
A Tribune analysis found Texas currently hosts 335 operational data centres, with more than 248 either planned or under construction. As of March, only Texas and Virginia had over 100 active data centre projects nationwide, according to Aterio, an industrial development tracking firm. Virginia has historically led the U.S. in data centre activity.
Notably, Abbott’s proposals did not grant expanded authority to local governments over data centre siting—a key issue for counties that say they lack legal power to block projects in rural or unincorporated zones where zoning laws often don’t apply. Some state legislators have expressed interest in giving counties greater control.
The Tribune reported last week that eight separate data centre proposals had emerged in just 10 months in rural Hood County, where local officials had no authority to reject them. Efforts by state lawmakers to slow the pace of development have been met with legal threats from Senator Paul Bettencourt, a Houston Republican, and lawsuits from data centre developers.
Abbott’s recommendations align with interim study directives issued by both chambers of the Texas Legislature. Lawmakers have been tasked with examining the overall impact of data centre growth, including total water usage across the state.
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