Texas spent the past two years selling itself as the center of American AI infrastructure. On Sept. 21, Gov. Greg Abbott ordered the Texas Commission on Environmental Quality to stop issuing permits sought by data center projects statewide and his office said he will work with the Legislature next session to eliminate any financial incentives for the industry.
“Simply put, Texans must come first,” Abbott said in a statement. “Data centers must pay their own way, protect our grid and water, and complete the ERCOT and TWDB audits. Until they do, TCEQ will issue no permits sought by data center projects.”
The order caps a seven-week escalation. On Aug. 3, Abbott directed the Public Utility Commission of Texas and the Electric Reliability Council of Texas to audit every data center in the interconnection queue, citing more than 474 gigawatts of requests, roughly five times the grid’s all-time peak demand, about 90% of it attributable to data centers. On Sept. 14, he directed the Texas Water Development Board to enforce water-use reporting. The TCEQ freeze applies regardless of whether a project sits in the ERCOT queue, which reaches developers who planned to generate their own power and bypass the grid entirely.
TCEQ must report to the governor’s office on compliance by Oct. 19. ERCOT expects to complete its audit in mid-December.
Underneath the politics is a question the industry was already asking about its own numbers.
“ERCOT’s interconnection requests now total more than 470 gigawatts, and that number includes filings with no tenant, no financing, and no serious developer behind them, which inflates demand projections in a way that makes for alarming headlines but isn’t consistent with reality,” said Jess Heck, Director of Texas Government Affairs at the Data Center Coalition.
The association has pointed to Senate Bill 6, the 2025 large-load law that established the Batch Zero framework, as the mechanism for sorting real projects from placeholders through study requirements, fixed timelines and financial commitments. Heck said those standards move serious developers through a queue that is not clogged with projects that were never going to be built.
Speaking on Sept. 16 before the TCEQ order, JLL Vice Chairman Curt Holcomb drew a line between projects that have broken ground and those still waiting on power.
“Projects already under construction have most likely received the necessary approvals and permits, so it is unlikely recent regulatory actions will change the direction of those developments,” Holcomb said. “Projects still in the interconnection queue are different. Typically, projects would not close or begin construction until they receive a firm commitment from ERCOT and the transmission service provider on how much power will be allocated to the site.”
The Sept. 21 directive reaches further than the grid pause did. Because it covers permits, amendments and renewals rather than interconnection alone, projects already vertical can encounter it and so can projects that never needed ERCOT approval to begin with.
Water is the newer pressure point. A January white paper from the Houston Advanced Research Center estimated Texas data centers consumed roughly 25 billion gallons in 2025, about 0.4% of total state water use when direct cooling and the water used to generate their electricity are combined. HARC projected that share could reach 0.5% to 2.7% by 2030. The report also noted that the State Water Plan relies on historical use rather than forecasts, meaning a facility that opened in 2025 will not appear in the plan until 2032. Under the TWDB directive, a project that fails to return its water-use survey commits a criminal offense and becomes ineligible for TCEQ permits.
“Our members are ready to comply and much of what the audit asks for is information that responsible operators already share with the local officials and utilities with whom they work side-by-side to ensure responsible development,” Heck said. “Annual water reporting, paired with site-specific watershed evaluations, is reasonable and in line with industry standards.”
For economic development offices, the stakes are measurable. Heck cited a PwC study putting the industry’s 2024 contribution at more than $65 billion in state GDP, 103,000 direct jobs and $4.5 billion in state and local tax revenue. JLL’s midyear report placed Texas at 26 gigawatts existing and under construction, ahead of Virginia.
Texas is not moving alone. A Troutman Pepper Locke analysis published in May found that of the 38 states offering data center incentives, 28 were weighing legislation to end or curtail them, and that more than 100 localities nationwide had enacted construction moratoriums over the prior year.
“Texas lawmakers understand that predictability drives investment,” Heck said. “Retroactive changes, on the other hand, do the opposite and can send negative signals that discourage investment.”
Holcomb argues the case for the asset class has not been made well enough at the local level.
“One story that is not being told enough is the economic opportunity data centers can create for local communities through tax generation,” he said. “A large-scale data center can significantly expand a community’s tax base and provide funding for infrastructure and other local improvements. That impact can be a game changer for communities.”
Three dates now govern the market: Oct. 19, mid-December and January, when the 90th Legislature convenes.
