Texas Senate Scrutinizes Data Center Water Usage

Highlights

• Texas lawmakers are considering new requirements for data center water usage, cooling technology, reporting and local community impacts as they prepare for the 90th legislative session.
• Industry stakeholders should anticipate multiple data center-related bills addressing water, power, local regulatory authority and tax incentives, with increased scrutiny of development practices and community engagement.

The Texas Senate Committee on Water, Agriculture, and Rural Affairs met September 1, 2026, for an interim hearing centered on data center water usage. This hearing was the latest and strongest signal that water consumption, local community impacts and grid-related infrastructure demands will remain central issues for the industry in the 90th legislative session.

Water Use, Reporting and Cooling Technology

The hearing focused heavily on how much water data centers use, their water sources, and whether potable and non-potable sources, such as brackish or produced water, should be treated differently by future regulations. Committee members suggested mandatory reporting requirements for volumes withdrawn from water systems, specific water sources, consumption, discharge and a potential shift from annual to monthly reporting for more refined data.

One of the clearest policy signals emerged when Chairman Charles Perry stated that no developer "has any business" using evaporative cooling systems in a state with such fragile water sources and infrastructure. Chairman Perry expressed confidence that such water-inefficient technology would be prohibited by law after the legislature adjourns next session.

Survey Responses, Batch Zero and the Governor's Community Impact Audit

Notably, Senate Committee on Business and Commerce Chairman Charles Schwertner attended the meeting as a guest participant and the Senate's subject matter expert on power and electrical grid interconnection. Chairman Schwertner's presence underscored the interrelated nature of power and water as the data center debate proceeds in Texas.

In response to questions from Chairman Schwertner, representatives from the Texas Water Development Board and Public Utilities Commission of Texas stated that responsiveness to their agencies' water use surveys has become a de facto prerequisite for future state interconnection approvals, particularly the Batch Zero process, on the basis of the governor's August 2026 directive to state regulators to audit data center community impact.

Local Government Authority

Chairman Perry invited county-level government officials as witnesses who described a common tension: County residents are demanding regulatory protections from their governments, but counties lack the authority to impose them under current Texas law unless a developer enters a tax abatement. Under those abatements, however, local taxing entities forgo substantial sums of tax revenue. These officials were virtually unanimous in requesting authority to impose reasonable residential buffer zones, protection from sound and light pollution, mandatory community hearings and water studies.

Legislative Outlook

Chairman Perry made clear that he intends to carry a "standalone" water bill. This is the strongest evidence yet that the industry should anticipate several bills regulating data center development rather than a single "omnibus" bill addressing all aspects of development, including power, water, tax incentives, local regulatory authority and others.

The committee discussion signaled legislative intent to prohibit evaporative cooling; require monthly water-use reporting, water-source disclosures, drought contingency plans and survey compliance; increase groundwater district and county authority to require community hearings, buffer zones, sound and lighting standards; and repeal Texas' data center sales tax exemption.

Chairman Perry plainly stated that companies who appear unwilling to communicate with state and local officials, whom he dubbed "bad actors," should anticipate a reciprocal level of communication from lawmakers as they continue to consider regulatory changes for the data center industry. The practical message for developers and operators is that companies that can document responsible water sourcing, reduced potable water demand, transparent engagement with state and local officials, thoughtful siting, community infrastructure investment and realistic project plans will be better positioned as lawmakers distinguish responsible projects from those viewed as speculative, opaque or locally disruptive.

Considerations for Industry Stakeholders 

Recognizing the rapidly shifting political and regulatory environment facing the industry, Holland & Knight's Austin-based Texas Government Advocacy Team has established the Texas Data Center Association, a trade association dedicated to effectively representing the industry before Texas policymakers and helping ensure that data center companies have a coordinated voice in the debates already underway.

Clients and other stakeholders with current or planned Texas data center interests should engage now.

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