Public Utility Commission of Texas Issues Proposed Rules for Large Load Interconnections; What Data Center and AI facility Developers Need to Know
1. Statutory Mandates: The Foundation of SB 6
Senate Bill 6, which was enacted in June 2025 (89th Legislature), requires the PUCT to establish formal standards for interconnecting large load customers within the ERCOT power region. These standards must be designed to support state business development while maintaining grid reliability and minimizing the potential for “stranded infrastructure costs” which would be borne by the rate payers.
Under the new Section 37.0561 of the Utilities Code, the PUCT is required to establish standards for any new or expanded interconnection where total demand at a single site exceeds 75 MW. The law mandates that these standards include:
- Demonstrated Site Control: Proof of ownership, lease, or legal interest.
- Fixed Study Fees: A flat screening study fee of at least $100,000.
- Uniform Financial Commitments: Security provided on a dollar-per-MW basis and contributions in aid of construction (CIAC).
- Mandatory Disclosures: Transparency regarding backup generation and “substantially similar” interconnection requests elsewhere.
2. The Intermediate Agreement: The Mandatory First Step
The proposed rule introduces an “Intermediate Agreement” – a preliminary contract that must be executed with the utility before a project can be submitted to ERCOT for a formal study.
To execute this agreement, customers must provide:
- Proof of Site Control: A deed, a signed lease (minimum 5-year duration from the target energization date), or a signed purchase/lease option.
- Upfront Financial Security: $50,000 per MW of requested peak demand.
- Study Fees: Study fees of $100,000 to $300,000 depending on the size of the project.
- Detailed Project Maturity Data: Plans for site studies (geotechnical, water, gas), regulatory approvals (air/water permits), and phased energization schedules.
3. The Cost of Entry: Financial Obligations & CIAC
Financial requirements intensify following the completion of the interconnection study. Within 30 days of the study’s conclusion, the customer must execute a final Interconnection Agreement and fulfill the following:
- Non-Refundable Interconnection Fee: A payment of $50,000 per MW of contracted peak demand. Any balance from the initial security posted during the Intermediate Agreement will be applied toward this fee.
- No Interconnection Allowances: Large loads must pay 100% of direct interconnection costs (radial lines, substation upgrades) through a CIAC. Utilities are prohibited from offering allowances to offset these costs, and CIAC payments are non-refundable.
- Eligible Security Forms: Security must be cash, a corporate/parental guaranty (requires a BBB-/Baa3 rating), or a letter of credit from a major U.S. bank (rated A-/A3 or higher).
4. Transparency and Operational Risk
The rule seeks to eliminate speculative “line-jumping” through rigorous disclosure mandates:
- “Substantially Similar” Disclosures: At the Intermediate Agreement state, customers must disclose if they are pursuing similar requests elsewhere that could result in materially changing, delaying (by 1 year+), or withdrawing the current request.
- Grid Reliability & Curtailment: Customers must disclose on-site backup generation capable of serving at least 50% of demand. In energy emergencies, ERCOT may direct these customers to deploy backup generation or curtail their load.
5. Forfeiture and Refund Framework
The financial stakes for failing to reach or maintain operations are significant. The proposed rule adopts a graduated forfeiture and refund structure tied to project performance and follow-through:
- 80% Withdrawal Penalty: If a project is withdrawn or fails to meet milestones (within a 6-month grace period), the utility will draw down the security to cover costs. After costs are covered, only 20% of the remaining balance is refunded; the other 80% is forfeited to the utility’s rate base.
- The 5-Year Sustained Operation Rule: A full refund of the remaining financial security is only available after the customer sustains operations at the contracted peak demand for five years.
Overall Significance
Taken together, the proposed rules represent a material shift in ERCOT large‑load interconnection policy; from a relatively light‑touch queue access to a model emphasizing early commitment, financial discipline, and transparency. The PUCT has emphasized that the rule is still in draft form and expressly invited stakeholder comment, underscoring that details around the intermediate agreement and forfeiture mechanics remain active points of debate.
Action Items
- Evaluate Portfolios: Audit existing site control and queue positions for potential non-compliance under the new disclosure rules.
- Adjust Pro Formas: Finance teams must account for the $50,000/MW non-refundable fee and the 5-year operational requirement for capital recovery.
- Engage in Rulemaking: Consider submitting comments by the April 17 deadline regarding the impact of these financial commitments on project viability.
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