Texas has quickly become one of the nation's most prominent data center markets. A recent report by real estate firm JLL predicts that Texas could have the most data centers worldwide by 2030. In brief, data centers are facilities designed to house racks of computer servers that process and store data — every internet search, streaming request, and cloud transaction runs through one. While there are already hundreds of data centers in Texas, the growth of AI has significantly increased demand for expanded and upgraded facilities. Texas, with its vast landscape, independent grid, and business-friendly environment, has become a leading destination for data center development, and many anticipate broader economic benefits for the state will follow. The debate came into sharp focus last week when Texas House lawmakers held a committee hearing, questioning grid officials, data center developers, and energy companies on the industry's growing demands on the state's power and water infrastructure.

As Texas continues to attract significant data center investment, the Legislature is actively studying the industry's power and water requirements to ensure the state's infrastructure keeps pace with growth. Various counties have requested Attorney General opinions on whether counties have the authority to impose a moratorium on data centers. 

The Texas Legislature has taken note.  In recently released interim charges, the Lieutenant Governor and Speaker of the House have instructed their respective bodies to study certain aspects of data centers this year in preparation for the 90^th Legislative Session that begins in January 2027.  Committee meetings are starting now to address these critical issues. 

Senate Interim Charges

Senate Finance Committee:
Data Center Investment and State Fiscal Effects: Since the passage of House Bill 1223, 83rd Legislature, in 2013, the state cost of providing a sales tax exemption to qualifying data centers has grown from an estimated $14.6 million for the 2014-15 biennium to a projected $3.3 billion for the 2028-29 biennium. Study the cost and consequences of the sales tax exemption provided to data centers under Tax Code Sections 151.359 and 151.3595. Make recommendations providing safeguards to ensure that Texans benefit from data center investment.

Senate Business & Commerce Committee:

Managing Data Center Growth: Study the adequacy of current statutory, regulatory, and infrastructure frameworks to meet the rapidly increasing demand from large electric loads, such as data centers. Recommend ways to balance economic development benefits of this growth against the impacts on landowners, private property rights, water infrastructure, and community integrity. 

Senate Water Agriculture & Rural Affairs Committee:
Assessing the Water Demands of Energy-Intensive Technologies: Examine the current water consumption rates for high-consumption cooling technologies, including data centers. Make recommendations to improve transparency for local water providers and ensure industrial growth does not compromise the affordability of water for Texas residents and agricultural producers.

House of Representatives Interim Charges

House Committee on Natural Resources:

Data Center Water Use and Conservation: Examine the total water usage of data center operations in Texas, including direct and indirect uses. Evaluate regulatory, permitting, and infrastructure considerations for water-efficient data center development, particularly in water-stressed regions. Consider policy options to optimize water resources and enhance water stewardship in the data center sector.

House Committee on State Affairs

Data Centers: Study the development of data centers in Texas, including its importance to global competitiveness and national security. Evaluate the direct and indirect economic growth potential fostered by in-state data center development, including growth multiplier effects and economic diversification. Identify existing secondary and post-secondary education and training opportunities and recommend pathways to satisfy increasing labor demands. Review the existing regulatory framework governing data center development and recommend proposals to streamline regulations while enabling communities to plan and manage growth responsibly. Study the implementation of SB 6 and the Large Load Batch Study Process proposed by the Electric Reliability Council of Texas, as it relates to data centers, and identify how grid-connected data center facilities and co-located resources can support grid resilience and reliability.  

What’s Next?

The policy landscape surrounding data center development in Texas is evolving rapidly and drawing increasing attention. Last week's committee hearing made clear that lawmakers are hearing from both sides: residents concerned about power costs and water usage, and tech companies pressing for certainty on grid connections and investment incentives. How those competing interests are resolved in these interim proceedings will shape what legislation looks like when the 90th Legislative Session begins.

Gray Reed’s government affairs subsidiary (GRPR), led by registered lobbyist Adam Leggett, is actively monitoring these interim proceedings and working to ensure stakeholders are informed and engaged as committee hearings advance and recommendations take shape. In addition, Gray Reed’s real estate team is currently representing landowners who have been approached by data center developers, giving them firsthand insight into how these legislative developments are playing out on the ground.

Stay tuned as GRPR and Gray Reed attorneys work hand in hand to provide updates as the legislative process unfolds.

About Gray Reed

Gray Reed is a full-service Texas law firm with a comprehensive range of litigation and transactional practices. With more than 160 attorneys, the firm focuses on understanding its clients' businesses and industries to deliver practical, strategic legal solutions for companies and high-net-worth individuals. Through its subsidiary, Gray Reed Advisory Services, the firm also provides strategic business consulting tailored to each client's objectives. Learn more at grayreed.com and grayreedadvisory.com.