Highlights
- Gov. Greg Abbott's directive and an upcoming Texas Senate Finance Committee hearing signal increased scrutiny of policies and incentives that have fueled the state's rapid growth in data center investment.
- Texas lawmakers are evaluating potential changes to sales tax exemptions, electric infrastructure cost allocation, water-use requirements and other regulations that could affect future data center development.
- Data center developers, owners and investors should monitor these developments closely and consider engaging in the legislative process as Texas shapes its future regulatory framework.
Texas Gov. Greg Abbott's June 10, 2026, directive letter to the Public Utility Commission of Texas (PUC) and Electric Reliability Council of Texas (ERCOT), combined with an upcoming Texas Senate Finance Committee hearing on July 27, 2026, signal that Texas is setting the stage to revisit the regulatory and tax framework that has made the state a leading destination for data center investment.
Gov. Abbott's June 10, 2026, Directive
As discussed in Holland & Knight's previous alert, Gov. Abbott issued a directive letter to the PUC and ERCOT on June 10, 2026, signaling a notable shift in the state's posture toward data center development. The directive called for greater oversight of data center expansion and directed the agencies to develop recommendations on infrastructure costs, electric reliability and potential legislative changes, with a joint memorandum due to the governor by July 17, 2026. Gov. Abbott also outlined several proposals he intends to pursue with the Texas Legislature, including changes to tax incentives, infrastructure cost allocation, water-use requirements and community-impact measures.
Senate Finance Committee Hearing Scheduled July 27
The Senate Finance Committee, chaired by Sen. Joan Huffman, will hold a public hearing on July 27, 2026, at 10:30 a.m. in the Finance Room (E1.036). One of the interim charges to be addressed is "Data Center Investment and State Fiscal Effects." The committee will study the cost and consequences of sales tax exemptions provided to data centers, noting that the exemption's cost has grown from an estimated $14.6 million for the 2014-2015 biennium to a projected $3.3 billion for the 2028-2029 biennium.
Potential Implications for Data Center Stakeholders
These developments suggest the Texas Legislature may pursue significant changes affecting data center projects, including elimination or reduction of existing sales tax exemptions that have driven data center investment, new cost-allocation frameworks requiring data centers to fund transmission and distribution infrastructure, mandatory on-site generation or capacity requirements, water usage restrictions and reporting obligations, and local land use requirements such as setbacks and noise mitigation.
Many data center developers and owners are already good stewards of Texas' resources and have proactively implemented best-in-class technologies – including water-efficient cooling systems, renewable energy procurement and community engagement practices – that address many of the concerns raised in Gov. Abbott's directive. These industry leaders should consider engaging in the legislative process to ensure policymakers understand the measures already being taken voluntarily and impact that policy changes may have on the industry.
At the same time, policymakers should be mindful that curtailing the tax incentives and regulatory framework that have historically made Texas attractive for data center investment could reduce the state's competitiveness relative to other jurisdictions actively courting these projects. Striking the right balance will be critical to ensuring Texas continues to benefit from data center development while accounting for community and ratepayer concerns.
The lead-up to the 2027 Texas legislative session will be pivotal for the Texas data center industry. Developers and owners should stay engaged as the PUC, ERCOT and Texas Legislature shape the future regulatory landscape.
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