In a significant development for the Texas data center industry, Governor Greg Abbott has directed the Public Utility Commission of Texas (PUC) and ERCOT to require data center facilities to bear the full cost of their electricity infrastructure, ensuring that ratepayers pay none of the construction or interconnection costs. According to the Governor's letter, issued this morning, the PUC and ERCOT shall submit a joint memorandum no later than July 17, 2026, to the Office of the Texas Governor, summarizing actions taken under existing authority, identifying statutory limitations, and recommending legislative proposals necessary to implement these objectives.  Additionally, the PUC shall initiate action to reduce residential ratepayer transmission costs by July 31, 2026.

The letter also outlined six priorities for the upcoming session, which convenes in January 2027:

• Codify the PUC’s actions to require data centers to pay for their own electric infrastructure costs, resulting in lower residential ratepayer costs;
• Ensure data centers add to Texas’ electric capacity, not just its electric demand;
• Require that all new data centers be built with water-efficient technologies such as closed-loop cooling systems;
• Require large data centers to annually report electricity and water usage data to the PUC;
• Repeal sales tax exemptions and other outdated or unnecessary incentives for data centers; and
• Require data centers to reduce impacts on local communities by implementing best practices such as setbacks, noise-reduction technology, and other measures that take into account the concerns of neighbors.

What This Means

This directive, along with its timeline, and the legislative priorities represent some of the most significant policy developments affecting the Texas data center industry to date. Companies with existing or planned data center operations in Texas should assess how these changes could affect their cost structures, permitting timelines, water systems and tax planning. Landowners concerned about data center development—particularly its impact on water usage and noise—will also want to pay close attention to this directive and the Governor's stated legislative priorities, which directly address community-level concerns around resource consumption and quality-of-life impacts.

What's Next?

Attorneys from Gray Reed's GRIDS Initiative are actively monitoring the PUC and ERCOT directive and its potential impact on businesses involved in data centers. Stay tuned for more alerts and guidance, as needed. 

If you would like to actively monitor legislative developments related to data centers or want to have a voice on any of the six priorities outlined by the Governor, whether to support, oppose or shape how they are implemented, contact Adam Leggett, Managing Director of Government Affairs of GRPR, Gray Reed Advisory's government relations division.

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.