TEXAS — Governor Greg Abbott released regulatory recommendations for data centers in June 2026, which the Texas Legislature will consider during its 2027 session. The proposals require new data center facilities to contribute power generation to the state's grid and to cover their own grid interconnection and infrastructure costs.
Abbott's recommendations mandate that data centers use closed-loop water systems. They also require annual reporting by all data centers on their electricity and water use. The proposals establish best-practice standards to address community noise concerns. Additionally, Abbott recommends repealing sales tax exemptions and other incentives for data centers.
State officials project a loss of $3.2 billion in sales tax revenue over two years due to existing data center sales tax exemptions. The Electric Reliability Council of Texas (ERCOT) reported in May that large projects requesting grid connection totaled 439 gigawatts of power capacity. This requested capacity is five times higher than the state's all-time peak grid demand, with approximately 89% of these requests coming from data center projects.
Abbott also directed the Public Utility Commission of Texas (PUCT) to take action to reduce residential transmission costs by July 31. He further directed the PUCT to require data centers to pay for all costs associated with constructing power infrastructure for their own operations. Abbott asked the PUCT and ERCOT to submit a joint memorandum by July 17, summarizing actions to prevent data center development from increasing costs for residents.
Abbott's recommendations did not include a proposal to expand local control over data center development. County officials in Hood County reported that eight data center projects have been proposed there over a 10-month period, but local officials lack the authority to reject them. State Senator Paul Bettencourt has indicated possible legislative efforts to slow data center development, and data center developers have filed lawsuits against such legislative actions.
Dan Diorio, vice president of state policy for the Data Center Coalition, said, "It's important to recognize that data centers are a diverse industry serving a wide range of needs, and there is no one-size-fits-all solution when it comes to facility design, cooling technology, or regulation. The right approach in one community may not be the right approach in another, which is why siting and operational decisions are made in close coordination with local utilities, water providers, and management districts."