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A recent Texas House Committee on State Affairs interim meeting marked a significant moment in Texas’ evolving approach to infrastructure, energy policy, and economic development.
Lawmakers convened to examine the rapid expansion of data centers across the state, including their implications for grid reliability, water supply, and long-term planning. What emerged from the hearing was not a single consensus, but a clear recognition of scale.
Texas is no longer preparing for growth in data centers. It is already experiencing it at a pace that is forcing policymakers, regulators, and communities to respond in real time.
ERCOT Says Data Centers Driving Unprecedented Demand
The most consequential testimony came from ERCOT, which provided a stark picture of what lies ahead.
The grid operator is currently tracking approximately 410 gigawatts of large-load interconnection requests, with roughly 87% tied to data centers. This level of demand far exceeds the current operational footprint of the Texas grid and represents a pipeline that could fundamentally reshape energy planning in the state.
Transmission providers reinforced this trend. Oncor alone reported 650 large-load requests totaling 273 gigawatts, with the overwhelming majority associated with data center development.
The challenge is not simply volume. It is timing.
Large-load projects can move forward quickly, while generation and transmission infrastructure often take years to develop. This mismatch creates pressure on system reliability and exposes limitations in existing planning frameworks. ERCOT’s proposed transition to a batch study process reflects an attempt to adapt, but it also underscores how rapidly the system is being pushed beyond its original design.
Senate Bill 6 and the Regulatory Response
Much of the hearing focused on the state’s policy response, particularly the implementation of Senate Bill 6 (SB 6), authored by State Sen. Phil King (R-Weatheford, and passed in the 89th Legislative Session (2025).
The final version of SB 6 establishes a framework for large-load interconnection, requiring major electricity users to contribute to interconnection costs, meet financial commitment requirements, and comply with new planning standards.
At a high level, the bill is intended to bring structure to a system that historically handled large loads on a case-by-case basis. However, testimony and supporting materials revealed a key limitation. The framework is still evolving and not yet fully aligned.
Projects can advance through interconnection processes without clear assurance that transmission infrastructure will be built in time to support them. At the same time, planning, interconnection, and regulatory processes remain only partially integrated.
The result is a system that is more structured than before, but not yet cohesive.
Infrastructure Costs and Cost Allocation Take Center Stage
One of the most important policy questions raised during the hearing was who should bear the cost of infrastructure needed to support this growth.
Expanding transmission, upgrading substations, and accommodating large loads require significant investment. SB 6 attempts to address this by requiring large-load customers to contribute to interconnection costs and demonstrate financial commitment, but the implementation details matter.
If cost recovery mechanisms are incomplete or structured in ways that shift risk back onto utilities or ratepayers, the system still results in cost socialization. That risk was a central concern raised throughout the broader policy discussion.
When costs are not fully aligned with demand, market signals become distorted. This can lead to inefficient investment decisions, overbuilding, and long-term financial exposure for taxpayers and ratepayers.
Public Comment Reveals Growing Local Opposition
While expert testimony focused on technical and economic issues, public comments submitted to the committee revealed a very different perspective.
Across hundreds of submissions, Texans raised concerns about water usage, electricity demand, environmental impact, and the limited number of long-term jobs created by data centers.
Many commenters expressed frustration over perceived lack of transparency and local control. Others called for moratoriums or stricter regulations, particularly in rural areas facing drought conditions or infrastructure constraints. These concerns reflect a growing political tension.
At the state level, data centers are often framed as drivers of economic growth and technological leadership. At the local level, they are increasingly viewed as resource-intensive developments with uncertain benefits.
Demand Is a Signal, Not the Problem
Texas Policy Research (TPR) submitted written testimony to the committee offering a distinct framework for evaluating the issue.
The organization’s position begins with a simple premise. Rising demand from data centers should be understood as a signal of economic growth, not a problem to be constrained. Texas has historically responded to growth by expanding supply. That approach has supported a competitive energy market and sustained long-term economic development. From that perspective, the policy focus should be on enabling infrastructure to scale, not restricting demand.
At the same time, TPR raised concerns about how current policy responses are being structured.
During the legislative session, the organization opposed SB 6 encouraging lawmakers to vote against it unless specific amendments were adopted, citing concerns about cost allocation, regulatory complexity, and the risk of distorting market incentives.
The concern is not that the state is responding, but that it may be responding in ways that undermine the principles that made Texas successful.
The Pro-Growth Case for Data Centers
It is important to clarify what this debate is, and what it is not.
Texas Policy Research does not view data centers as a threat to Texas’ economy. The organization shares the view that data centers represent a natural extension of Texas’ growth, supporting modern infrastructure, technological development, and economic activity.
Demand for data centers is real, and it is driven by broader shifts in how the economy operates. Restricting that demand does not eliminate it. It shifts it elsewhere. On that point, there is broad agreement across many stakeholders.
Where TPR diverges is on how policy should respond.
Subsidies, tax abatements, and cost-shifting mechanisms introduce distortions into the market. They can transfer financial risk away from developers and onto taxpayers, while encouraging investment decisions that may not reflect underlying economic viability. The organization’s position is that growth should occur, but it should occur under conditions that preserve market discipline.
Those creating demand should bear the cost of serving that demand. Infrastructure investment should be driven by market signals, not political incentives. Regulatory frameworks should provide clarity and predictability without creating unnecessary barriers or artificial advantages.
This is not a debate between growth and opposition. It is a debate about how growth is structured.
Build Supply or Constrain Demand?
The State Affairs Committee hearing ultimately revealed a clear divide in policy approaches.
Some stakeholders favor restrictions, moratoriums, or stronger regulatory controls to limit the impact of data centers. Others argue that the better approach is to expand supply, improve coordination, and allow markets to respond.
Texas Policy Research falls firmly in the latter category.
The organization’s position reflects a continuation of Texas’ historical model: meet demand with expanded supply, not constrained growth, but it also emphasizes that this model only works when costs are aligned and markets are allowed to function properly.
Texas Must Choose How It Responds to Growth
The recent interim hearing of the House Committee on State Affaors made one thing clear.
Texas is not deciding whether data centers will expand. That decision is already being made by the market. The real question is how the state will respond.
Public testimony reflects legitimate concerns about water, electricity, and local impact. Those concerns require attention, transparency, and better coordination. At the same time, policies that restrict growth or push investment out of state carry their own risks. Texas Policy Research’s position offers a path forward.
Texas should build supply to meet demand. It should maintain policy predictability and ensure that those creating demand bear the associated costs, and it should avoid subsidies and regulatory distortions that undermine long-term efficiency.
Data centers are not the problem. They are a signal.
How Texas responds to that signal will determine whether it continues to lead in economic growth or begins to constrain it in ways that carry lasting consequences.
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