Governor Abbott Pauses Texas Data Center Interconnections And Calls For Verification and Audit; What Data Center Developers Need to Know Now
On August 3, 2026, Governor Greg Abbott issued a directive to the Public Utility Commission of Texas (PUC) and the Electric Reliability Council of Texas (ERCOT) mandating a “comprehensive verification and audit” of all data center projects currently advancing through the ERCOT interconnection process. This action effectively imposes an immediate pause on approvals, requiring that this audit be completed before any additional data center projects are permitted to move forward.
The Governor’s directive is a response to unprecedented load growth—with data centers representing approximately 90 percent of the 474 gigawatts of new power requests—and aims to protect grid reliability, water resources, and community interests. Projects that fail to comply with the audit’s transparency requirements or state law will be denied connection to the primary Texas grid.
What Data Center Developers Need To Know:
Broad Application: The directive applies to all data centers in the ERCOT queue, regardless of their specific type (e.g., AI processing, crypto-mining, or cloud storage) or load size.
“Batch Zero” Postponement: ERCOT has announced through a spokesperson that it will halt its “batch zero” transmission planning study until the verification and audit is fully completed, halting the first phase of the new large-load approval process. ERCOT’s contemplated batching process is designed to more orderly and expeditiously review interconnection requests of 75MW or more.
Mandatory Audit Disclosures: To pass the audit, developers must be prepared to provide detailed information on:
- Financial Assistance: Including all state and local tax incentives, grants, or abatements received;
- Power & Water Usage: Projected peak/annual consumption and details on cooling technologies (e.g., air-cooled vs. water-efficient closed-loop systems);
- Power Generation: The contemplated source of power, including whether on-site power will be constructed in order to reduce grid demand;
- Community Impact: Mitigation plans for noise, light, and traffic; and
- Ownership: Clear documentation of all ownership and controlling interests.
Potential Exceptions: Projects located in the approximately 50 Texas counties outside the ERCOT region (such as El Paso, portions of the Panhandle, and Far East Texas) or those utilizing purely “behind the meter” on-site generation and not interconnecting through ERCOT may not be subject to this specific directive.
Refunds for Withdrawing Projects: For developers considering dropping out of the delayed “batch zero” process:
- Current Draft Rules: Under proposed PUC rules for large loads (75MW+), a withdrawing project must pay all incurred utility costs and is currently only eligible for a refund of 20% of the remaining “per megawatt” financial security balance; the other 80% is retained to benefit ratepayers.
- Anticipated Revisions: There has been significant legislative and stakeholder pushback on this 20% refund cap. Given the state’s goal to pare down the interconnection queue, the PUC may revise these rules to allow for more substantial refunds for exiting projects.
- Lenders and Investors: No one knows how long the audits will take. Lenders should underwrite the possibility of open-ended approval delays and focus on audit status, contingencies, cost-overrun protection, funding conditions tied to key milestones, and step-in rights in project contracts.
- Considerations for Other Stakeholders:
- Landowners: A queue position does not guarantee development. Landowners should focus on exclusivity duration, development milestones, the full project footprint (including generation, substations, and easements), community impacts, and compensation for disruption and lost opportunities.
- Equipment Manufacturers: Equipment packages may help demonstrate a project can secure capacity. Suppliers should expect diligence on emissions, performance in Texas conditions, permit pathways, delivery milestones, warranties, and Texas service support.
Next Steps: Because formal rulemaking could significantly delay the audit process, stakeholders should engage now to advocate for a streamlined verification process that avoids further open-ended delays.
About Foley’s Data Center Team
Foley’s Data Center team advises developers, operators, investors, lenders, power providers, and other stakeholders on all aspects of data center development and operations. Leveraging experience across real estate, construction, energy, finance, regulatory, tax, and environmental matters, the team helps clients navigate the complex challenges and opportunities shaping the future of digital infrastructure.
About Foley’s Texas Government Solutions Group
Foley’s Texas Government Solutions team provides clients with unparalleled 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.
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Foley’s Energy & Infrastructure team provides clients with strategic legal counsel across the traditional and renewable power, oil & gas, infrastructure, and energy transition sectors. The team advises on the development, financing, acquisition, operation, and regulation of energy and infrastructure projects, helping clients navigate an evolving energy landscape and capitalize on emerging opportunities.
