Texas has welcomed massive investments in artificial intelligence and cloud-computing facilities. Now lawmakers and regulators are deciding whether data centers—or the public—should pay for the new transmission infrastructure they require.
KATY, TX — Texas is rapidly becoming one of America’s largest destinations for artificial-intelligence and cloud-computing data centers. These projects can bring billions of dollars in investment, construction jobs and new tax revenue, but they also require extraordinary amounts of electricity.
That growth has created an urgent question for Texas residents: Who will pay for the power plants, substations and transmission lines needed to serve these facilities?
As of July 31, 2026, the honest answer is that Texas is changing its rules, but the final protections for residential and small-business customers have not yet been completed.
Under the existing ERCOT system, the direct equipment connecting a data center to the grid may be charged to the developer. However, larger transmission improvements that strengthen the regional grid are generally placed into a systemwide cost pool and recovered from electricity customers.
Senate Bill 6, passed in 2025, directed state regulators to change that arrangement and make large electricity users contribute more toward the infrastructure built for them.
How Much Electricity Could Texas Data Centers Require?
The numbers being submitted to the Electric Reliability Council of Texas are unprecedented.
An April 2026 ERCOT presentation showed transmission providers reporting approximately 228,420 megawatts of potential non-cryptocurrency data-center demand by 2032. That is not a prediction that every proposed project will be constructed. It is a collection of requests and potential projects submitted through utilities.
For comparison, ERCOT’s all-time systemwide peak demand is approximately 85,500 megawatts.
ERCOT’s new “Batch Zero” review is evaluating more than 450 gigawatts of total large-load requests, including data centers and other industrial projects. ERCOT initially expected roughly 100 gigawatts or more to qualify for additional consideration as mature or study-ready projects. The process is intended to separate serious projects from speculative or duplicate requests. ERCOT’s June 2026 report explains the Batch Zero process.
These numbers should not be treated as guaranteed future demand. Some companies may submit requests in several locations before selecting one site, while other projects may be delayed, reduced or canceled.
Nevertheless, even a fraction of the requested demand would require major investments in generation, transmission and distribution infrastructure.
What Texas Laws Have Been Created?
Several Texas bills have shaped the current data-center debate.
| Legislation | Status | What it does |
|---|---|---|
| House Bill 1223 — 2013 | Became law | Created temporary state sales-and-use-tax exemptions for qualifying data centers, including exemptions on electricity, servers, cooling systems and other essential equipment. |
| House Bill 5066 — 2023 | Became law | Expanded the state’s ability to consider existing and forecasted electricity demand when approving transmission projects. It was not exclusively a data-center law, but it helped establish the planning framework now affected by large-load growth. |
| Senate Bill 6 — 2025 | Became law June 20, 2025 | Established Texas’s main regulatory framework for data centers and other electricity users of 75 megawatts or more. |
| House Bill 3970/Senate Bill 1942 — 2025 | Did not become law | Proposed an expedited interconnection program for large users willing to curtail demand or use on-site generation during emergencies. HB 3970 passed the House but stalled in the Senate. |
| Senate Bill 2888 — 2025 | Did not become law | Proposed making data-center tax incentives conditional on energy-efficiency measures such as liquid cooling, rack-based cooling and Energy Star-certified servers. |
Senate Bill 6 Is the Main Data-Center Grid Law
Senate Bill 6 was authored in the Senate by Sens. Phil King and Charles Schwertner and sponsored in the House by Rep. Ken King. It took effect immediately after Gov. Greg Abbott signed it on June 20, 2025.
The law applies primarily to new or expanded large loads reaching at least 75 megawatts, although the Public Utility Commission of Texas may establish a lower threshold.
Among its major provisions, SB 6:
- Requires large-load customers to contribute toward the utility’s interconnection costs.
- Establishes an initial transmission-screening fee of at least $100,000.
- Requires proof of site control and stronger financial commitments before projects advance.
- Requires companies to disclose substantially similar Texas interconnection requests that could cause them to cancel or delay a project.
- Requires disclosure of major on-site backup generation.
- Allows certain large loads to be ordered to reduce consumption or activate backup generation during severe grid emergencies.
- Requires ERCOT to evaluate arrangements in which a new data center seeks to consume electricity directly from an existing power plant.
- Directs the PUCT to reconsider how transmission costs are divided among customers.
- Requires the PUCT to amend its transmission-cost rules by December 31, 2026.
The complete requirements are available in the enrolled version of Senate Bill 6.
How Does the Public Pay for Transmission?
Texas generally uses a “postage-stamp” system for ERCOT transmission expenses. Once approved transmission costs enter a utility’s transmission cost of service, they are broadly allocated across the ERCOT system.
The PUCT’s June 2025 transmission order listed approximately $5.447 billion in annual ERCOT transmission cost of service then in effect. That money is ultimately recovered through electric utilities, retail electric providers and the delivery charges paid by homes and businesses. The PUCT order lists the approved transmission-cost total.
The existing allocation system is known as the four coincident peak, or 4CP, method. It measures each distribution provider’s demand during ERCOT’s highest 15-minute interval in June, July, August and September.
Large industrial customers that can predict those peaks may temporarily reduce their electricity consumption during the likely 4CP intervals. That lowers their assigned share of transmission expenses.
Residential customers usually cannot respond as precisely. Homes continue using air conditioners, appliances and other equipment during the hottest periods.
PUCT staff concluded that flexible industrial operations—including certain data centers and cryptocurrency facilities—can reduce their calculated transmission obligation even though the grid must still maintain enough infrastructure to serve their full demand during the rest of the year.
That creates the possibility of cost shifting: a data center may help cause the need for a new transmission project but reduce its assessed share by lowering consumption during a few carefully selected intervals.
Direct Connections Versus Regional Grid Improvements
Not every transmission expense associated with a data center is automatically passed to the public.
Direct interconnection costs include radial lines, transformers, substations and other equipment used primarily to connect one customer. These are sometimes called “driveway costs.”
Regional system upgrades include larger transmission lines and improvements that move electricity across an area or relieve broader grid limitations. These are sometimes described as “highway costs.”
Direct costs can be assigned to the data-center developer through a contribution in aid of construction. Broader system improvements have traditionally been placed into the ERCOT transmission-cost pool because the infrastructure may eventually benefit multiple users.
The problem arises when an extremely large project causes regional upgrades and then never reaches its promised demand, closes early or uses the current 4CP system to reduce its contribution. Other customers could be left paying for underused infrastructure designed around that project.
Texas Proposes a 20-Year Large-Load Commitment
On July 9, 2026, the PUCT approved the publication of a major proposed rule under Project No. 58000. It is not yet a final rule, and comments are due August 11.
The proposal would:
- Replace the four summer peaks with a 12 coincident peak system, using one 30-minute peak interval from every month.
- Require large-load transmission billing to begin when the reserved capacity becomes available—even if the facility has not started operating or is using only part of that capacity.
- Establish a minimum billing demand equal to the greatest of the customer’s contracted peak demand, its highest non-coincident demand during the previous year or its measured 12-month coincident-peak demand.
- Require the large customer to make 240 consecutive monthly payments, representing a 20-year commitment.
- Require the large-load customer to pay direct transmission and distribution interconnection costs.
- Use interconnection fees and forfeited financial security to offset transmission providers’ revenue requirements.
- Update customer-class allocation factors annually so rapid industrial growth is reflected sooner instead of shifting costs to other classes.
PUCT staff’s earlier modeling found that changing from 4CP to 12CP would reduce the residential class’s average share of allocated transmission costs by approximately 3.137 percentage points, while increasing the share assigned to coincident-peak-billed customers by approximately 3.294 percentage points. The calculation represents a change in cost allocation, not a guaranteed reduction of a particular household’s bill. The PUCT’s transmission-cost evaluation contains the modeling.
The proposed transmission-cost rule may still be revised before final adoption.
Could Transmission Add $100 or More to Annual Electric Bills?
There is no official PUCT estimate showing exactly how much data-center growth alone will add to an average household’s electric bill.
Transmission projects are being planned for several overlapping reasons, including population growth, industrial development, oil-and-gas electrification, reliability needs, new power plants and data centers. It is therefore difficult to assign every dollar of a regional transmission line to a single industry.
A January 2026 analysis by Life:Powered, an initiative of the Texas Public Policy Foundation, projected that annual ERCOT transmission costs could exceed $12 billion by 2033. The organization estimated that approved and anticipated transmission construction could eventually add at least $100—and potentially more than $200—to an average household’s annual bill.
Those figures are an outside policy organization’s projection, not an official PUCT household-rate forecast. They demonstrate the potential scale of the issue but should not be described as a confirmed data-center surcharge. The organization’s transmission-cost report explains its assumptions.
Texas Is Also Reconsidering Data-Center Tax Breaks
The Legislature is also reviewing whether Texas should continue providing sales-tax exemptions to large data centers.
Under the program created by HB 1223, a qualifying data center can receive a 10- or 15-year exemption from the state’s 6.25% sales tax. A qualifying large data-center project can receive an exemption lasting 20 years.
Eligible purchases may include electricity, cooling systems, emergency generators, servers, data-storage equipment and software. Local sales taxes generally remain due. The Texas Comptroller lists the current eligibility requirements.
The Senate Finance Committee’s July 27, 2026, interim charge stated that the estimated state cost of the exemption has grown from approximately $14.6 million for the 2014–15 biennium to a projected $3.3 billion for the 2028–29 biennium.
The hearing did not itself repeal the exemption. Texas is between regular legislative sessions, so lawmakers are studying recommendations for legislation that could be filed in 2027.
What Gov. Abbott Wants the Legislature to Consider in 2027
Gov. Abbott has directed the PUCT and ERCOT to prevent data centers from shifting infrastructure costs to residential customers.
He has also announced plans to work with lawmakers on proposals that would:
- Require data centers to pay their electric-infrastructure costs.
- Require new data centers to add electric capacity instead of only adding demand.
- Require water-efficient technology such as closed-loop cooling.
- Require annual reporting of electricity and water consumption.
- Repeal outdated or unnecessary data-center tax incentives.
- Establish community protections involving setbacks, noise reduction and other local impacts.
PUCT and ERCOT have separately recommended requiring large data centers to register with the state, expanding the Lone Star Infrastructure Protection Act to cover them and clarifying ERCOT’s authority to impose reliability requirements.
As of July 31, 2026, these are recommendations for the next legislative session—not enacted laws. The governor’s June directive outlines the proposed legislative priorities.
What This Means for Katy-Area Customers
A data center does not have to be located in Katy to affect Katy-area electricity customers. Because ERCOT transmission costs are allocated across the system, major infrastructure constructed elsewhere may eventually appear in delivery charges throughout the competitive electricity market.
For many Katy-area customers in CenterPoint Energy’s service territory, transmission and distribution charges are passed through the customer’s retail electric provider. Changing retail companies does not eliminate PUCT-approved delivery expenses.
At the same time, properly structured data-center development could increase the number of customers sharing fixed grid expenses. That could benefit residents if the projects are completed, operate for many years and pay a fair share of the infrastructure built for them.
The greatest risk comes from speculative projects, special cost exemptions or facilities that reserve enormous amounts of capacity without making long-term financial commitments.
The Bottom Line
Texas has taken an important first step through Senate Bill 6, but the state has not yet completely resolved who will pay for the data-center boom.
The strongest consumer protections are presently contained in proposed PUCT rules that would move Texas to 12 monthly transmission peaks, charge large customers when capacity becomes available and require a 20-year minimum billing commitment.
Until those rules are finalized and tested, claims that residential customers are fully protected should be treated cautiously.
The question is no longer whether Texas will need new electricity infrastructure. The question is whether the companies creating unprecedented demand will pay the costs—or whether those expenses will be spread across millions of Texas power bills.
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