Texas decided to temporarily stop the approval of new data centers that need to connect to its electrical grid, fearing that the rapid growth of artificial intelligence will put the stability of the system at risk and end up transferring costs to homes and small businesses.

Gov. Greg Abbott ordered the Public Utility Commission of Texas and grid operator ERCOT to review pending projects before authorizing new connections. The measure does not ban all data centers, but suspends the advancement of those that do not pass an audit of their electricity and water consumption and their effects on communities.

The decision marks an important change for Texas, one of the states that has attracted the most technological investments in recent years due to its availability of land, energy and tax benefits.

How much electricity do data centers want to consume?

The main alarm is in the magnitude of the requests received by ERCOT. According to Abbott, the agency is studying projects that, together, could demand around 474 gigawatts of electricity. About 90% of this demand would correspond to data centers, many of them linked to artificial intelligence services.

The figure is equivalent to more than five times the historical maximum electricity consumption recorded in Texas. However, not all requested projects will necessarily be built or begin operations at the same time.

ERCOT had already reported in June that it was tracking more than 438,000 megawatts of requests from large consumers and that almost 89% came from data centers. The operator designed a special process called “Batch Zero” to collectively study projects of 75 megawatts or more and determine how much the grid can support.

That analysis has now been put on hold while the audit ordered by the governor is carried out.

Why AI data centers need so much energy

Data centers house large numbers of servers that store, process and transmit digital information.

Artificial intelligence systems require especially high computing power. In addition to powering the equipment, these facilities need cooling systems to prevent the servers from overheating.

Some complexes can consume an amount of electricity comparable to that of a city, especially when they bring together thousands of processors dedicated to training and operating AI models.

The problem is not only how much energy they use, but the speed with which they want to connect. Building power plants, substations and transmission lines can take years, while technological demand grows rapidly.

What companies must report

The audit will require developers to provide detailed information before being authorized to connect to the network.

Among the required data will be:

Projects that do not demonstrate viability or do not meet the requirements may be rejected.

Abbott has also asked that companies finance the electrical infrastructure necessary to operate, with the goal that those costs are not passed on to residential users.

Could electricity bills go up?

That is one of the main concerns of state authorities.

Connecting a large data center may require building new lines, transformers or substations. If these expenses were incorporated into the general rates, households and small businesses could end up financing part of the expansion.

Abbott directed regulators to make data centers fully pay for the infrastructure they need and not to increase transmission costs for residential consumers.

The measure does not mean that electricity bills will automatically rise for data centers, but it seeks to prevent financial risk from falling on residents.

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Water consumption is also under review

Electricity is not the only resource under discussion. Many data centers use water in their cooling systems. Consumption can generate opposition in rural communities or areas with recurring droughts and limited supplies.

The governor called for new projects to incorporate efficient technologies, such as closed-loop cooling systems, that reuse water instead of disposing of it after each cycle.

The debate has already reached different communities in Texas. In Hill County, officials approved a one-year pause on new data centers in unincorporated areas after residents raised concerns about water, electricity and noise usage.

In Laredo, officials are working on permanent standards for high-consumption industries because the city depends on a limited source of water.

A project has already been withdrawn in East Texas

Regulatory pressure has already had consequences. The Diode company decided not to proceed with a proposed data center near Cedar Creek Lake in Henderson County after concluding that the project did not meet the conditions laid out by Abbott and the community's expectations.

The governor said the facilities must protect natural resources, reduce their effects on neighborhoods and provide new electrical capacity rather than simply increasing consumption.

Texas did not completely close the door to the industry

The order does not represent a general ban or rejection of artificial intelligence. Facilities that generate their own electricity and operate without a direct connection to ERCOT could be excluded from part of the interconnection process, although they would still be subject to other state and local requirements.

There may also be opportunities for projects that agree to temporarily reduce their consumption when the grid faces difficulties. ERCOT had provided a mechanism to allow certain large customers to be disconnected or limited during periods of stress.

The industry supported the review, believing it could separate serious developers from those submitting speculative applications without concrete land, financing or energy plans.

What can happen now

The audit does not yet have a definitive public deadline. While the review lasts, ERCOT and the Public Utilities Commission will need to check which projects are real, what infrastructure they need, and whether they can operate without compromising system reliability.

Texas could also modify its tax benefits for data centers and require annual reporting on electricity and water consumption. Abbott announced that he will seek to turn those conditions into law during the next legislative session.

The decision reflects a dilemma that is beginning to be repeated in the United States: data centers promise investments, jobs and technological development, but their growth can exceed the capacity of electrical networks and generate conflicts over water, costs and the use of territory.

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