Texas Gov. Greg Abbott Calls for Sweeping Legislative Action on Data Centers

Texas Gov. Greg Abbott has called for sweeping legislative action on data centers for the Texas Legislature to pass in the upcoming 2027 Texas legislative session. In a letter to the chairman of the Public Utilities Commission of Texas (PUC), the governor called on state regulators at the PUC of Texas, to utilize their existing regulatory authority to ensure that "residential electric bills are not negatively affected" by data centers tapping into the Texas grid and passing on the cost of increased transmission infrastructure to everyday ratepayers. The governor's action joins efforts occurring nationwide to balance the growth of data centers and the potential local impacts new data centers may create.

Additionally, the governor pledged his political capital to urge the state legislature to:

• codify the PUC's actions to require data centers to pay for their own electric infrastructure costs, resulting in lower residential ratepayer costs
• ensure data centers add to Texas' electric capacity, not just its electric demand
• require that all new data centers be built with water-efficient technologies such as closed-loop cooling systems
• require large data centers to annually report electricity and water usage data to the PUC
• repeal sales tax exemptions and other outdated or unnecessary incentives for data centers
• require data centers to reduce impacts on local communities by implementing best practices such as setbacks, noise-reduction technology and other measures that consider the concerns of neighbors

Considerations for Industry Stakeholders

Data centers are drawing increased attention from Texas policymakers, local officials and residents as communities evaluate their potential economic benefits alongside concerns about electric reliability, water use, local infrastructure and neighborhood impacts. As these issues continue to develop, the industry should expect closer scrutiny of data center projects, including potential changes to cost-allocation rules, tax incentive programs and local siting requirements.

With the next regular Texas legislative session scheduled to begin in January 2027, companies should consider engaging with policymakers, regulators and industry groups during the last half of 2026, when many legislative proposals will be developed and refined. Early engagement may provide opportunities to educate decision-makers about the operational, economic and community impacts of proposed legislation and help stakeholders prepare for potential regulatory and legislative changes.

Industry participants may benefit from experienced Texas counsel to help navigate the evolving regulatory and legislative landscape. If you have any questions or need assistance with a specific matter, contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.