On Sept. 21, 2026, Texas Gov. Greg Abbott directed the Texas Commission on Environmental Quality (TCEQ) to halt permits sought by data center projects until the Electric Reliability Council of Texas (ERCOT) completes a statewide audit of data centers undergoing the ERCOT interconnection process. Per the letter, no state agency may move forward with regulatory approvals related to data center development until the Public Utility Commission of Texas (PUCT), Texas Water Development Board (TWDB), and ERCOT have obtained and reviewed the ERCOT audit needed to assess projects’ impacts.
The directive continues a broader state review of data center development. On June 10, 2026, Gov. Abbott directed the PUCT and ERCOT to review the impact of data centers on electric infrastructure and residential ratepayers. On Aug. 3, 2026, Gov. Abbott issued a further directive pausing Batch Zero large-load interconnections. On Sept. 14, 2026, he directed TWDB to enforce Texas water-use reporting requirements and conduct an audit of data center water consumption in coordination with ERCOT. According to the governor, state agencies must first obtain information regarding the impact of data centers on grid reliability, grid security, residential ratepayers, and local water resources before additional permitting decisions move forward.
The governor instructed the PUCT to require that data centers fully fund the electric infrastructure needed to support their operations and to prevent those costs from being passed on to residential customers.
The Governor directed TWDB to compel compliance with Texas water-use survey requirements; pursue enforcement actions for past and future reporting failures; and coordinate with ERCOT to obtain additional information regarding water consumption, water supply sources, and water-efficiency measures. The governor’s office stated that data centers that fail to comply with required reporting obligations may face statutory penalties.
TCEQ is required to align its permitting decisions with the governor’s directives and the information developed through the ERCOT and TWDB audits. TCEQ must provide the governor’s office with a compliance update by Oct. 19, 2026. The directive does not establish a fixed end date for the permitting halt; the timing of future approvals will depend on completion of the audits and subsequent agency action.
Taken together, the governor’s directives and announced policy objectives indicate that data center projects in Texas may see heightened scrutiny of their electric load, water use, and local community impacts. In particular, projects should consider preparing to:
- Comply with new interconnection standards that require non-refundable contribution in aid of construction payments, the posting of considerable financial security, and ultimately, contracts with long-term minimum billing requirements that aim to avoid increasing residential electricity costs;
- Provide information required for ERCOT and TWDB audits, reviews, and related reporting processes;
- Report electricity and water usage as required by applicable law, regulation, or agency request;
- Address potential impacts on local water resources, including the source, availability, and efficiency of proposed water use; and
- Monitor and comply with any applicable or subsequently enacted setback, noise-mitigation, or other community-protection requirements.
Gov. Abbott also indicated that he intends to work with the state legislature to codify these protections and pursue additional measures that would affect data center development. Potential legislative initiatives identified in the announcement include phasing out certain tax incentives for data centers, requiring water-efficient cooling systems, mandating reporting of electricity and water usage, establishing setback and noise-mitigation requirements, and encouraging data centers to bring generation capacity to offset incremental demand on the grid.
In the near term, industry participants should monitor forthcoming recommendations from the PUCT, ERCOT, and TWDB that may impact the cost, design, permitting, and operation of data centers in Texas. They should also monitor potential Texas legislation in the upcoming 90th legislative session, which opens Jan. 12, 2027.