New Texas Data Center Buildout Uncertainties Rile Big Law Clients
Texas politicians have adopted a cautious approach to data center development, prompting Governor Greg Abbott to order an audit of projects seeking grid connection and a freeze on new approvals. This shift has created uncertainty for developers and increased the demand for legal counsel, with some firms' clients exploring opportunities in other states. The Public Utility Commission of Texas has set a December 10 deadline for the project review, amidst proposals for stricter regulations by the Attorney General.
Texas's once data-center-friendly political landscape is now causing uncertainty for developers due to a new cautious stance from state leaders. Governor Greg Abbott ordered an audit of data center and crypto-mining projects in the state's electric grid interconnection queue, alongside a freeze on new approvals until a review is complete. This shift, driven by voter sentiment and concerns over grid stability following events like Winter Storm Uri, has led to increased demand for legal counsel as developers navigate the changing regulatory environment.
The Public Utility Commission of Texas and the Electric Reliability Council of Texas (ERCOT) have set a new deadline of December 10 for the project review, which now requires property ownership documents, site access, and contracts. Texas Attorney General Ken Paxton has also proposed stricter measures, including limits on data centers near residential areas and requirements for companies to fund their own power infrastructure. This evolving regulatory landscape is making the Texas market less attractive for some developers, particularly non-hyperscalers, who are now exploring opportunities in other states.
Law firms like Norton Rose Fulbright, Bracewell, and Baker Botts are actively advising clients, with some recommending hiring lobbyists to monitor regulatory meetings. While larger companies like Crusoe, Meta, OpenAI, Microsoft, and Amazon support the audit, many developers are facing increased costs and delays, with some considering reallocating capital due to unclear timelines. The shift emphasizes the need for developers to adapt quickly, with some now prioritizing projects with independent power generation.