Texas regulators and grid operators are confronting a rapid, technology-driven surge in electricity demand as AI data centers multiply across the state, forcing a fundamental rethink of utility planning, cost allocation, and grid reliability standards. The Electric Reliability Council of Texas (ERCOT), which manages roughly 90% of the state's grid, projects peak summer demand could approach 145 GW by 2031, up from 85 GW in 2024, according to the Belfer Center for Science and International Affairs. Data centers account for 46% of that projected growth, according to ERCOT's April 2025 Long-Term Load Forecast Report.
Background
Texas has long attracted data center investment through competitive electricity prices, tax incentives, and fast interconnection speeds. The Dallas-Fort Worth area has emerged as one of the largest data center markets in the United States, drawing operators with state sales and use tax exemptions on servers, cooling equipment, backup energy, and other hardware. The scale of new demand, however, is without precedent. In September 2024, ERCOT tracked 56 gigawatts in large-load interconnection requests; that figure nearly quadrupled to 205 gigawatts within a single year.
Hyperscale projects are accelerating the trajectory. The Stargate data center campus near Abilene-owned by OpenAI, Oracle, and SoftBank-went online with its first phase in September 2025. The 1,100-acre campus will eventually comprise eight buildings totaling up to 4 million square feet, with full completion expected in fall 2026. Google separately announced in November 2025 plans to build three additional data centers in Texas at a cost of $40 billion.
Legislative and Regulatory Response
In June 2025, Texas enacted Senate Bill 6 (SB 6) in direct response to grid pressure. The bill addressed concerns over fairness in cost recovery, the risk of large loads remaining uncurtailed during emergencies, and the potential for speculative interconnection requests to shift infrastructure costs onto smaller customers. The law directs the Public Utility Commission of Texas to establish interconnection standards for large power users exceeding 75 megawatts and requires them to share in the costs of maintaining the state's transmission system. It also grants ERCOT authority to require large-load customers to deploy on-site backup generation or curtail usage during declared energy emergencies.
Specifically, SB 6 requires facilities to maintain on-site backup generation capable of meeting 50% of their demand and to make that generation available to ERCOT during grid emergencies, according to the bill's provisions. Under SB 6, data centers exceeding 75 MW must submit interconnection requests through their interconnecting utility and comply with requirements including disclosure of similar requests, reporting of on-site backup generation, and payment of a minimum $100,000 transmission screening study fee.
The legislation is not without controversy. While SB 6 aims to prevent stranded infrastructure costs and improve reliability, its reliance on regulatory mandates over market incentives has raised concerns about long-term competitiveness. ERCOT's most recent six-year demand forecast showed a quadrupled peak by 2032, which the Public Utility Commission of Texas rejected as inflated and returned for revision.1U.S. Hyperscale Data Center Development: Power, Permitting & Infrastructure Challenges | MMCG
Infrastructure Technology Shifts
The physical demands of AI workloads are also reshaping data center construction practices. Data centers require continuous cooling to maintain optimal operating temperatures, and traditional air-based systems are reaching their limits as AI workloads push power densities to unprecedented levels. A standard server rack typically draws 7-10 kilowatts; an AI-capable rack can demand 30 kW to over 100 kW.
The industry is undergoing a fundamental shift from air to liquid cooling. Approximately 22% of data centers now use liquid cooling techniques, and that share is expanding rapidly. Microsoft has announced that all new data center designs will incorporate advanced liquid cooling systems, signaling the technology's transition from experimental to essential. Modern uninterruptible power supply (UPS) systems also now support grid-interactive capabilities, enabling data centers to shift loads or participate in demand response programs by temporarily supplying power from stored energy.
Operators are increasingly pursuing energy independence alongside these hardware upgrades. Some developers are securing co-located generation and long-term energy contracts to ensure reliability while reducing strain on the broader grid. In West Texas, grid limitations have made on-site power options popular, often centered on areas with ample natural gas supply, such as the Permian Basin.
Consumer Cost and Policy Outlook
Residential and commercial ratepayers face direct exposure to these infrastructure costs. Austin Energy's current peak load is approximately 3 GW serving 570,000 customers, while ERCOT projects an additional 70.5 GW of new load by 2028, driven primarily by data centers. The Electric Power Research Institute projects that data centers will account for over 10% of all Texas power consumption by 2030.
Policy shifts such as SB 6 signal the likelihood of further regulatory intervention to address local concerns over reliability and affordability. As data center infrastructure continues to expand, effective regulatory frameworks become critical. The Belfer Center noted that policy decisions in this area will shape U.S. technological competitiveness for decades-and that while overregulation could hinder AI development, insufficient regulation risks grid instability and rising consumer costs.
ERCOT is expected to deliver a revised load forecast in the coming weeks. The Public Utility Commission of Texas is simultaneously working to finalize the interconnection standards mandated under SB 6, a process that will set the framework for how the state manages large-load growth for the foreseeable future.
