Texas data center directive pauses ERCOT grid-connection progress pending audit

Texas Governor Greg Abbott issued a directive on August 3, 2026, to the Public Utility Commission of Texas (PUCT) and the Electric Reliability Council of Texas (ERCOT), ordering a comprehensive verification and audit of all data centers advancing through ERCOT’s interconnection process (Directive). The PUCT and ERCOT must complete the audit before any data center project advancing through ERCOT’s interconnection process can proceed. Any project that fails to comply with the requirements set forth by the PUCT and ERCOT, by state law, must be denied connection to the Texas grid.

The Directive comes amid recent attention to data center expansion in Texas. Governor Abbott stated that ERCOT is currently considering approximately 474 gigawatts (GW) of requests to connect to the Texas grid – more than five times the state’s record peak electricity demand – with approximately 90 percent of those new power requests coming from data centers. The Directive builds on Governor Abbott’s June 10, 2026 directive (June Directive), which required data centers to fully fund the costs of electric infrastructure needed to serve their operations, preventing those costs from being passed on to residential ratepayers.

The June Directive focused primarily on cost allocation, requiring data centers to fully fund their electric infrastructure costs and ensuring that data center interconnections do not negatively affect residential electric bills. The June Directive also directed the PUCT and ERCOT to submit a joint memorandum by July 17, 2026, summarizing actions taken, identifying statutory limitations, and recommending legislative proposals.

The August Directive pauses all data center interconnection advancement pending the completion of a comprehensive audit. While the June Directive addressed cost allocation and ratepayer protection, the Directive introduces mandatory disclosure requirements across five categories:

• Financial assistance
  
  
• Power consumption and on-site generation
  
  
• Water use and cooling technology
  
  
• Community impact mitigation
  
  
• Ownership and controlling interests

For data center developers, investors, utilities, large energy users, and host communities, the Directive could affect project timing, interconnection strategy, cost allocation, and community engagement.

Key takeaways

The Directive orders the PUCT and ERCOT to conduct a comprehensive verification and audit of all data centers advancing through ERCOT’s interconnection process before any data center project moves forward. Per the Directive, projects that fail to comply with the requirements set forth by the PUCT and ERCOT, by state law, must be denied connection to the Texas grid.

In response, ERCOT has stated that it will work with the PUCT to implement the Directive, including the postponement of the Batch Zero transmission planning study, a framework approved in June 2026 to manage data center power demands through a batch evaluation process. Batch Zero applications were due July 10, 2026, and ERCOT had been scheduled to announce how each submitted Large Load is classified in the Batch Zero process on August 7, 2026, before the postponement was announced.

As part of the audit, each data center project must disclose:

• The extent to which the project is self-funding, or receiving or expecting to receive public financial assistance, including all state and local tax incentives, grants, abatements, or other public financial assistance received or expected to be received
  
  
• Projected annual and peak electricity consumption, and any efforts to construct or procure on-site electric generation or other measures to reduce demand on the ERCOT grid
  
  
• Projected annual and peak water consumption, anticipated sources of water supply, and information about the cooling technology that will be utilized, including whether the facility will employ air-cooled, closed-loop, or another water-efficient cooling system
  
  
• Measures to reduce impacts on neighboring property owners and communities, including noise mitigation, light controls, setbacks, traffic improvements, emergency response coordination, and other community protection measures
  
  
• Ownership and controlling interests in the project

Implications for data center projects

The Directive immediately affects ERCOT’s interconnection queue, as ERCOT has already announced it will postpone its Batch Zero transmission planning study while conducting the audit, meaning projects expected to advance through the Batch Zero evaluation process could face uncertain delays.

Developers with projects in the ERCOT interconnection pipeline may wish to evaluate the scope and timing of the required disclosures and assess whether they can satisfy the Directive’s requirements. Project sponsors may also consider the impact of the audit on project schedules, due diligence assumptions, financing timelines, offtake agreements, and interconnection planning.

Additionally, the Directive’s focus on tax incentives and public financial assistance may affect economic development strategies. The Directive adds to ongoing policy discussions regarding Texas data center incentives, as Texas lawmakers have been evaluating potential changes to data center sales tax exemptions. These exemptions have grown from an estimated USD14.6 million for the 2014–2015 biennium to a projected USD3.3 billion for the 2028–2029 biennium. The Texas Senate Committee on Finance also held a hearing on data center investment and state fiscal effects on July 27, 2026.

The Directive’s required disclosures include measures to reduce impacts on neighboring property owners and communities, which may affect how developers document proactive engagement with local stakeholders and community-impact mitigation in their project development strategy.

Grid-cost exposure also remains a key consideration. Under the June Directive, the PUCT was ordered to require data centers to pay for all electric infrastructure costs necessary to serve their load. The PUCT and ERCOT responded with several actions, including requiring data centers to contribute toward reducing residential electric bills, adopting rules to prevent large data centers from diverting existing power away from the ERCOT grid, implementing a new interconnection screening process, and developing enhanced standards that data centers must meet before connecting to the grid.

Sponsors may wish to evaluate the impact of the Batch Zero postponement on project timelines, particularly for projects that had been expected to advance through ERCOT’s batch evaluation process. Changes to the expected timing of Batch Zero may affect contract planning that a sponsor or developer has in place or is currently negotiating, including power purchase agreements, equipment supply agreements, construction contracts, and lease arrangements.

ERCOT will seek a good cause exemption from the PUCT for deviating from the previous PUCT-approved Batch 0 timelines, including the August 7 classification announcement date. Developers and large-load customers may wish to monitor PUCT proceedings relating to interconnection reform, cost allocation, and ratepayer protection measures. Those proceedings may inform whether and how data centers are required to bear grid-upgrade, resource adequacy, and renewable energy procurement costs.

Looking ahead

The Directive indicates continued state-level attention to data center development in Texas, encompassing grid reliability, water use, tax incentive policy, and community impact. Data center developers may wish to evaluate whether additional public-facing disclosures will be required or requested regarding energy and water use, tax incentives received, and community impacts. Governor Abbott has indicated he will work with the Texas Legislature in the next session to codify protections, including requiring data centers to use water-efficient cooling technologies, reporting electricity and water usage, repealing certain tax exemptions, and adopting community protection practices.

For market participants, the Directive is an immediate development in interconnection and may inform future statutory regulation. Those affected by the Directive may wish to consider project-specific audit compliance, energy and water impact analyses, tax incentive exposure, interconnection cost planning, community-benefit strategy, and monitoring how state agencies implement the Directive alongside any forthcoming legislative proposals.

For more information, please contact the authors.