The “But For” Dilemma – How Proposed Texas Public Utility Commission Large Load Interconnection Rules Impact Government Incentives Strategies

Companies seeking governmental incentives for expansion or relocation projects, such as tax abatements or state-level grants, must typically demonstrate that the project would not be viable “but for” the receipt of those incentives.

The Public Utility Commission of Texas (PUCT) has proposed Rule 16 TAC §25.194, which mandates early-stage financial commitments, site control, and transparency for projects requiring a large load interconnection request (75 MW or larger). Entities seeking incentives for large load projects will need to be mindful of these requirements to make a strong and clear “but for” case.

Below is an analysis of how these proposed requirements fundamentally shift the timing and disclosure landscape for expansion and relocation project development.

1. The Site Control Conundrum: Early Documentation vs. Incentive Negotiation

Under the proposed rule, a large load customer (75 MW or greater) cannot even begin an ERCOT interconnection study without first executing what is termed an Intermediate Agreement. A mandatory component of this agreement is proof of site control, which must be demonstrated through a deed, a signed lease (minimum five-year term), or a signed purchase/lease option.

Impact on Incentives: Many incentive programs require that a company not be “committed” to a location before an incentive is granted. By requiring developers to execute and disclose site control documentation at the very start of the interconnection process, the PUCT rule may create a paper trail that governmental bodies could use to argue that the project was already moving forward regardless of the incentive and thereby does not qualify for an incentive. 

2. The Financial Commitment Signal ($50,000 per MW)

The rule requires the customer to post a financial security of $50,000 per megawatt before the project’s technical feasibility is even fully studied.

The “Commitment” Risk: Such a significant non-refundable or high-forfeiture commitment (where 80 percent of the balance is forfeited if the project is withdrawn) signals a high level of project maturity and intent. Entities seeking incentives must be prepared to explain why this multi-million dollar regulatory “cost of entry” does not constitute a final investment decision that precedes the incentive award.

3. Disclosure of “Substantially Similar” Projects: Transparency vs. Leverage

A critical and novel requirement of Senate Bill 6 (SB 6) and the proposed rule is the mandatory disclosure of “substantially similar” requests elsewhere.

Mandatory Disclosure: Customers must reveal if they are pursuing another interconnection request that could result in “materially changing, delaying, or withdrawing” of a request. This includes disclosing the ERCOT serial number, location, and demand for parallel requests.

The “But For” Opportunity: On one hand, this disclosure provides a developer with documented proof that it has competitive alternative sites, which is both key to and the cornerstone of a “but for” incentive case.

The Competitive Risk: While the rule prohibits utilities from sharing this information with third parties (other than the PUCT or ERCOT), the existence of a formal disclosure that a project at Site B would cause the withdrawal of Site A may provide more insight into a company’s future plans that may normally be expected as part of the incentives process.

4. Timing Conflicts: The 30-Day Interconnection Agreement Deadline

The proposed rule requires that an Interconnection Agreement be executed within 30 days of the completion of the ERCOT study. Failure to do so results in the cancellation of the request.

Compressed Timeline: The timeline for local incentive negotiations (which can take months) may not align with this strict 30-day regulatory window. Developers may find themselves forced to sign a final Interconnection Agreement, and pay a non-refundable of $50,000 per megawatt, before their incentive package is finalized, potentially nullifying their “but for” leverage.

Strategic Recommendations for Clients

Structure Site Options Carefully: Ensure that site control documentation is structured as an option rather than a deed or firm lease wherever possible to maintain the legal argument that the final decision remains contingent on various factors, including incentives.

Audit Disclosure Language: While a party may anonymize “competitively sensitive details” in initial disclosures, ERCOT can still request that information. Coordinate your incentive applications and utility disclosures to ensure they present a consistent narrative regarding your site selection process.

Engage Before the April 17 Deadline: The PUCT is seeking comments on these rules, affording companies and their site selection representatives to weigh in on the impact of these proposed rules on future, competitive large load projects considering Texas. It is therefore critical for interested parties to engage very soon.

About Foley’s Economic Development and Government Incentives Group

Foley & Lardner’s Government Solutions and Economic Development & Government Incentives (EDGI) team advises clients on the full lifecycle of U.S. state and local incentive programs, including identifying available incentive opportunities, negotiating incentive agreements in the lead position, and managing post-award compliance. Foley’s experience includes negotiating and administering a broad range of incentive types, including state and local tax credits and abatements, tax increment financing, workforce development and training incentives, redevelopment agreements, Opportunity Zone incentives, infrastructure support, environmental remediation credits, and other performance-based economic development tools.

About Foley’s Texas Government Solutions Group

Foley & Lardner’s Texas Government Solutions team provides clients with deep experience providing legal and legislative representation and counseling. The attorneys and lobbyists manage legislative and regulatory proposals at the Texas Capitol and before state agencies. The group counsels clients regarding key governmental processes and areas of law based upon decades of collective legal or governmental experience. Our Austin office is also home to a unique federal, state, and local government enforcement defense and investigations (GEDI) and litigation defense team, as well as several members of Foley’s national State Attorneys General practice.