Texas lawmakers are intensifying scrutiny of the state’s rapidly expanding data center industry, raising concerns about its potential impact on electricity costs, grid reliability and water resources.
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During a lengthy legislative hearing, officials questioned grid operators, energy companies and developers about whether the surge in data center construction could drive up utility bills for residents and strain infrastructure across Texas.
The debate reflects mounting pressure on policymakers as the state emerges as one of the fastest-growing data center markets globally, fueled by demand for artificial intelligence and cloud computing.
Lawmakers pressed regulators over new policies aimed at managing the influx of large-scale energy users, including proposals such as nonrefundable interconnection fees designed to deter speculative projects.
In one exchange, state representatives challenged grid officials over a reported $30 million deposit required from a developer before receiving clarity on power availability.
“How do you justify that?” lawmakers asked, underscoring frustration with the current process.
Despite concerns, data center developers argued their projects are essential to maintaining U.S. competitiveness in emerging technologies.
“Data centers have become this physical thing to be mad about if you're afraid of AI,” said Haynes Strader, chief development officer at Skybox Data Centers. “I'm not saying you shouldn't be. There's a lot of scary stuff having to do with it.”
“But the reality is … we want the U.S. to lead in that. And frankly, we want it here in Texas being regulated. If it's happening in China and you can't control it in any way, it's going to happen with or without us,” Strader said.
Utility companies also pointed to potential benefits, including infrastructure upgrades funded by new industrial customers.
“If we have an opportunity to have new customers coming to the state pay for that, we'll have done some really good work,” said Brian Lloyd, vice president of regulatory policy at Oncor Electric Delivery.
Regulators acknowledged that while recent increases in electricity bills are not directly tied to data centers, future costs could rise as Texas plans billions of dollars in transmission infrastructure.
Public Utility Commission of Texas Chair Thomas Gleeson said the state is working to rebalance how transmission costs are distributed, noting that households currently bear a disproportionate share.
“I honestly don't think on the generation side you're going to see a large increase in costs at this point, because we have so many renewables and batteries on the system,” Gleeson said.
The commission is also collaborating with the Electric Reliability Council of Texas to develop rules encouraging data centers to supply their own power, reducing strain on the grid during peak demand.
ERCOT CEO Pablo Vegas highlighted existing safeguards, including the ability to require data centers to shut down during emergencies.
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“If we had a hurricane take out a lot of the infrastructure in the state, and that created a scarcity of power, then that scenario could apply, where data centers would have to come off of using the grid so that it wouldn't burden the grid further,” Vegas said.
Water usage emerged as another key issue. While data centers have historically relied on water-intensive cooling systems, industry representatives said newer technologies significantly reduce consumption.
“It’s important to ensure that … you're not just singling out one industry that has a perception of high water use, but the actual story is far different,” said Dan Diorio of the Data Center Coalition.
Still, some lawmakers and environmental advocates expressed skepticism, noting the lack of comprehensive data on water consumption amid ongoing drought concerns.
“I just don't see anybody that is looking at the big picture for the state, or any region of the state, saying, ‘Wait a minute, where are we on water 30 years down the road, or 50 years down the road?” one lawmaker said.
As Texas continues to attract billions in data center investment, the outcome of these policy discussions could shape how infrastructure, energy pricing and environmental resources are managed for years to come.
Originally reported by Claire Hao, Staff Writer in Houston Chronicle.
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