After years of courting data center investment in Texas, state leaders are confronting a new question: Who should pay for the enormous amount of infrastructure needed to power them? State regulators are moving to shift more of the cost of connecting large data centers and other major electric use rs onto the companies building them rather than residential customers. At the same time, lawmakers are preparing to examine whether billions of dollars in state sales tax incentives for qualifying data centers still provide enough benefit to justify their growing cost. On Thursday, Governor Greg Abbott announced new measures aimed at protecting residential electric customers from bearing the costs of data center growth in the state. Abbott directed the Public Utility Commission of Texas (PUCT) and the Electric Reliability Council of Texas (ERCOT) in June to develop policies aimed at shifting more of those costs onto the companies building large electric loads instead of residential customers. In a joint response released Thursday, the agencies said they have already: Changed how utilities forecast future large electric customers to improve transmission planning. Adopted safeguards intended to prevent existing electric generation from being redirected to new data centers if doing so would threaten grid reliability. Began studying how transmission costs should be assigned as data centers drive demand, with recommendations that large electric users pay more of the infrastructure costs. Changed how ERCOT studies data centers by moving toward a batch system to improve planning. The agencies also said they are working to: Shift more of the costs of connecting large electric users to the grid onto the companies developing them. Shift the cost of interconnecting large loads onto data centers. PUCT and ERCOT are creating a program where large users could voluntarily reduce electricity use before a grid emergency. The agencies also asked lawmakers to give PUCT clearer authority over large electric users, including expanding the Lone Star Infrastructure Protection Act to require qualifying data centers to register with PUCT and ERCOT. The announcement comes days before the Senate Finance Committee is scheduled to examine whether Texas’ lucrative sales tax exemptions for qualifying data centers continue to provide enough benefit to justify their growing cost. How the exemption works: Texas created the data center sales tax exemption in 2013 to attract technology investment, including data centers that support cloud computing and artificial intelligence. Under the law, Texas exempts qualifying data centers from paying sales taxes on many of the items used to build and operate a facility, including servers, cooling equipment, backup generators, networking equipment and electricity, provided the projects meet state requirements. A separate incentive created in 2015 established more generous requirements for large data center projects. The Texas Comptroller estimates the value of the combined exemptions will exceed $1 billion in fiscal year 2025 and grow to about $1.75 billion annually by 2030. In 2020, the Texas Comptroller estimated the data center exemption would cost the state about $29 million in fiscal year 2025. Five years later, the agency estimated its value at more than $1 billion. A report from Bloom Energy claims Texas could soon become the leading data center market in the country. Texas has become one of the country’s fastest-growing markets for data center development. The Texas Comptroller’s office lists 143 registered data center projects receiving or eligible for the state program, including 85 classified as qualifying large data center projects and 58 under the original qualifying data center category. The Senate Finance Committee will hold public hearings on Monday to scrutinize the exemptions following calls from Gov. Abbott to eliminate them. The committee will study the fiscal effects and determine whether the exemptions should be scaled back or limited entirely before the next legislative session. Together, the regulatory changes and legislative review signal a broader shift in Texas’ approach to data centers. After years of using tax incentives and other policies to attract investment, state leaders are increasingly focused on ensuring the industry’s rapid growth does not shift costs onto taxpayers and residential electric customers. This story uses functionality that may not work in our app. Click here to open the story in your web browser. ...read more read less