Texas halts data center connections to power grid amid overwhelming demand

The AI boom has led to additional consequences for Texas. A data center tax break that originally passed with bipartisan support in 2014 has ballooned into more than $1 billion in tax breaks annually for data center developers—and The Texas Tribune reported the state government estimates it could lose $3.2 billion in sales tax revenue over the next two years. The new directive from Abbott requires audits of data center projects that include how much data centers would depend on the ERCOT grid for power, along with obtaining projections of data centers’ annual and peak electricity consumption. The directive further requires information on how much individual data center projects depend on state financial assistance, along with details on each data center project’s ownership and controlling interests. Abbott also directed state regulators and grid operators to discover the extent to which data centers’ cooling systems and water usage may draw upon local water supplies needed by local communities. However, the governor’s directive does not mention the fact that data centers often use much more water through their power generation sources than directly through their cooling systems—a fact highlighted by researchers like Shaolei Ren at the University of California, Riverside. Texas communities like Corpus Christi have already been grappling with a yearslong drought. But their water woes have been compounded by both climate change and large energy and chemical companies’ operations that have “sucked the region dry,” according to San Antonio News. A Sierra Club report looking at federal data showed how Texas natural gas plants used 56 billion gallons of water in 2024, while coal plants consumed an additional 34 billion gallons, and nuclear plants used 26 billion gallons. By comparison, Texas data centers directly used 8 billion gallons of water for cooling purposes, but many such data centers rely on water-intensive power generation sources. Abbott’s change of tune on AI data centers comes as the incumbent governor has “seen support erode over concerns about data centers and extra-high-voltage transmission lines built in rural areas,” E&E News reported. It also pointed to polls showing Texas voters generally opposing data centers in their communities—part of a national trend among Americans—and Democratic challenger Gina Hinojosa running just one percentage point behind Abbott in a recent Fox News poll. In a statement describing Abbott’s pause as inadequate, Hinojosa called for Abbott to issue a full moratorium on data center development until the state legislature can pass stricter rules. She and Democratic US Senate nominee James Talarico have both called for tighter regulations on Texas data centers. Community concerns about data centers include local environmental impacts and rising electricity bills. State regulators have been working with utility companies to prevent residential ratepayers and small businesses from shouldering the burden of paying for the power infrastructure upgrades necessary to accommodate data center demand. The Trump administration has touted its Ratepayer Protection Pledge signed by major US tech companies, but an Ars analysis previously highlighted how that agreement lacks any meaningful enforcement mechanism. Multiple state legislatures have introduced and debated moratoriums on data center development, including lawmakers in Virginia, which currently hosts the largest US data center market. On July 14, New York Democratic Governor Kathy Hochul announced a yearlong ban on data center construction to give the state time to work out standards for data center development.