Texas has temporarily halted approvals for new data center connections to its electric grid, a major shift in the state’s approach to one of the country’s fastest-growing tech markets. Governor Greg Abbott has directed regulators to audit proposed data center projects before they can move forward.

The order requires the Public Utility Commission of Texas (PUCT) and the Electric Reliability Council of Texas (ERCOT) to conduct a comprehensive review of every data center seeking interconnection to the ERCOT grid. Projects that fail to meet the state’s new verification requirements could be denied access to the grid.

Texas has become a preferred destination for hyperscale data centers because of its abundant land, competitive energy costs, tax incentives and light regulatory environment. Those advantages have helped the state to challenge Virginia as the nation’s largest data center market. But the explosion in AI development has also driven unprecedented growth in projected electricity demand.

ERCOT’s interconnection queue currently contains more than 1,800 projects with approximately 474 gigawatts of requested capacity, according to the governor’s office. That total exceeds five times the state’s record peak electricity demand, with data centers accounting for roughly 90 percent of the proposed new load.

Regulators Collecting Detailed Information

Regulators have been instructed to collect detailed information on each project’s projected annual and peak power demand, reliance on the ERCOT grid versus on-site generation, expected water consumption, cooling systems, ownership structure and financial incentives received from state or local governments.

Developers must also outline measures intended to reduce impacts on surrounding communities, including noise, lighting, traffic and emergency response planning.

Legislators have expressed frustration that relatively few developers participated in previous state surveys designed to gather data on electricity and water usage, limiting regulators’ ability to assess the cumulative impact of large AI facilities.

Water has become a high-profile issue as data center construction accelerates. While cooling systems consume significant amounts of water, there are also indirect water demands associated with electricity generation. Several Texas communities already face persistent drought conditions, heightening concern over projects that require major water resources.

The pause applies only to projects seeking connection through ERCOT. Developers pursuing behind-the-meter power generation can continue moving forward. That approach has become common among hyperscale AI operators, with companies deploying dedicated natural gas generation rather than waiting for traditional grid connections.

Some projects have turned to combined-cycle gas turbines, while others are evaluating aeroderivative turbines or temporary mobile gas generators to speed up deployment.

The governor’s order has delayed ERCOT’s Batch Zero review process, the first stage of the state’s revised large-load interconnection framework. The postponement could affect project schedules and financing decisions while developers consider the additional compliance requirements.

Polling has shown many Texas residents oppose data center construction in their communities, citing concerns over electricity costs, water availability and local environmental impacts. Several local governments have attempted to restrict data center development through zoning changes or temporary moratoriums, although some efforts have faced legal challenges.

Despite the pause, some experts say the audit could ultimately benefit responsible developers by distinguishing viable projects from speculative proposals that have inflated interconnection requests.