After courting data centers, Texas confronts who pays the cost

Texas state leaders are re-evaluating the financial implications of the state's booming data center industry, focusing on who bears the cost of the extensive infrastructure required to power these facilities.

Governor Greg Abbott has directed the Public Utility Commission of Texas (PUCT) and the Electric Reliability Council of Texas (ERCOT) to develop policies aimed at shifting the cost of connecting large electric users, including data centers, from residential customers to the companies building them. In response, the agencies announced they have already implemented initial measures and are seeking clearer legislative authority, including expanding the Lone Star Infrastructure Protection Act to require qualifying data centers to register with both PUCT and ERCOT.

Concurrently, the Texas Senate Finance Committee is scheduled to hold public hearings to scrutinize the state's sales tax exemptions for qualifying data centers. These incentives, established in 2013 and expanded in 2015 to attract technology investment, are now projected to cost the state over $1 billion in fiscal year 2025 and $1.75 billion annually by 2030, a substantial increase from earlier estimates.

Following calls from Governor Abbott to eliminate these exemptions, the committee will examine their fiscal effects and determine whether they should be scaled back or entirely limited before the next legislative session. These regulatory changes and legislative review signify a broader shift in Texas's strategy, moving from primarily attracting data center investment to ensuring the industry's rapid growth does not burden taxpayers and residential electric customers.