Written by Jake Lehrer

When the cotton gin and the tractor were each created, they revolutionized the agricultural industry by allowing farmers to be more efficient with their work. Instead of relying on workers or horses to separate seeds or plow fields, these technologies allowed one to complete the work of many in a smaller time frame. Motor vehicles provided faster transport, and the internet broke down physical barriers across the world for information, commerce, and community.

AI is the next stage in the evolution of enterprise that companies and the government are going to use to stay competitive, whether that is economic or global. Work, contracts, projects, goals, etc. – whether that be research, political, economic, education, legal, scientific, and more – that would require multiple people and layers to complete, can now be streamlined by one person in little time.

Human society will always look towards how we can get more done in as little time as possible: effectiveness and efficiency. Valuable skills are how one can do something better, faster, and create more.

AI is happening whether we want it or not, whether it leads to our advancement or downfall.

Governor Abbott has stated, “Texas is the epicenter of AI development, where companies can pair innovation with expanding energy…We must ensure that America remains at the forefront of the AI revolution, and Texas is the place where that can happen.”

The economic growth for communities that comes with AI Data Centers is driven by “local tax revenue. Real and personal property taxes on facilities and equipment provide funding for essential services like schools, emergency response, and infrastructure improvements,” according to the Texas Economic Development Council.

Plus, there will be job creation, but it may not be as straightforward as we would think. What AI Data Centers bring is a transition in what types of skills and jobs will be valuable. The construction jobs of a data center are temporary until it is built. But then there will be jobs in different sectors that AI might encompass, such as finance, research, modernizing and creating new infrastructure, facility management, IT, and more.

To make AI better, you need data centers to compute all the information flowing into it. There will need to be larger, more efficient data centers. But with more companies competing with AI, and America competing with its global competition, well, of course, you’re going to have more data centers to manage and advance that AI.

Then you need the land on which those data centers will sit.

Welcome to Texas.

Texas has one of the strongest economies in the world. Better business policies and tax incentives, along with comparatively cheap land and energy, make Texas a flame to a moth.

The rapid-fire planning and building of data centers comes with the fact that “Texas exempts qualifying data centers from the 6.25 percent state sales tax on major operating and construction costs, including electricity, water, and equipment purchases,” The Texas Observer reports. Now the State is repealing those benefits.

Many Texans are right now working with their local governments and trying to reach their Legislators on slowing down the development of data centers in Texas. Already, almost 300 data centers are in operation, with over 100 under construction and over a hundred more planned.

Issues with data centers developing in Texas are energy and resource usage/costs. Calls for regulation have the state and local governments trying to figure out what to do.

With the environment, there are issues of wildlife and noise pollution if you live by a data center, but the main issue is water. Already, data centers in use consume 25 billion gallons of water annually. But that is from what we know. Not all AI data centers have shared how much water they use.

According to a research paper by UT Austin: Water Use Requirements for Data Centers in Texas: A White Paper on the Evolving Demands of Water Use in Data Center Infrastructure in Texas, “AI computing and hyperscale cloud infrastructure pack enormous power into ever-smaller hardware, converting nearly all input energy into heat. As component densities rise, extreme heat fluxes demand sophisticated cooling solutions that are often heavily reliant on water.”

“Texas’ State Water Plan does not include projected demand growth for data centers,” the Houston Advanced Research Center reports. “Because there are already unmet needs, including the current 4.8-million-acre-foot shortage as determined by the Texas Water Development Board (TWDB), data centers’ unknown unmet needs are poised to place unprecedented stress on local water supplies across the state.”

There needs to be standardized reporting of water usage. If not, it will be difficult to be accurate about the amount of water being used by a data center, not just for cooling, but also to produce energy. This is the indirect water use from the amount of energy that data centers need. Power plants also need water for cooling. If they are ramping up production to provide data centers the necessary energy they need, which is a lot, then power plants will need a lot of water to cool themselves.

According to UT Austin, water will remain central to the development and sustainability of data centers. Meaning they need to be very serious about water consumption and sustainability. “With forecasted total capacity surpassing 70 GW by 2030, Texas data centers will consume electricity equivalent to tens of millions of homes, accentuating the immense scale of these operations.”

Then there is the energy component. The Electric Reliability Council of Texas is expecting a double-peak demand on the state’s power grid. 87% of the projects that ERCOT received for approval to connect to the grid are for data centers. “[Pablo] Vegas [ERCOT CEO] stressed that the next two to three years are an essential window during which new power infrastructure must be built, as Texas’ power grid lacks the generation and transmission capacity to absorb that demand.”

Additionally, ERCOT has had to change its method for how it ties projects into the state grid. Used to, it would do so on a first-come, first serve bases. But now, with so many projects planned, but not yet developed, ERCOT is only prioritizing projects that are proving that they will develop. According to Data Center Knowledge: “ERCOT is now moving to evidence-based queue management with readiness tests – such as site control, permits in progress, financing plans, equipment orders, and realistic power-use forecasts – to separate committed loads (projects with a high likelihood of being built and energized) from aspirational requests.”

In the meantime, Governor Abbott has directed the Public Utility Commission of Texas to ensure data center connections to the grid result in reduced residential electric bills, that data centers must pay for all their electric infrastructure, and that the PUC and ERCOT review their existing authority to identify actions to safeguard Texans, their property, and resources.

The PUC and ERCOT are to “take into consideration measures to prevent data centers from shifting development risks and costs onto Texans, to require sustainable resource management, and to minimize adverse impacts on local communities.” The PUC and ERCOT have until July 17th to create a memorandum for the government on how to accomplish these tasks.

Governor Abbott states he will work with the Legislature to:

• Codify the PUC’s actions to require data centers to pay for their own electric infrastructure costs, resulting in lower residential ratepayer costs; and
• Ensure data centers add to Texas’ electric capacity, not just its electric demand; and
• Require that all new data centers be built with water-efficient technologies such as closed-loop cooling systems; and
• Require large data centers to annually report electricity and water usage data to the PUC; and
• Repeal sales tax exemptions and other outdated or unnecessary incentives for data centers; and
• Require data centers to reduce impacts on local communities by implementing best practices such as setbacks, noise-reduction technology, and other measures that take into account the concerns of neighbors.

In the meantime, some Data Centers are focusing on making sure they have power before development, partnering with oil and gas companies to build their own power infrastructure. To the data centers, this is “paying their way” while also avoiding overregulation, even though it is more costly. Some of them are planning for both natural gas and renewables. Also, some differ on being completely independent from the state grid, or tying into the state grid, and having their own power as backup in case of overdemand on the state grid.

With all this in mind, as data centers are popping up around Texas, there is not much local governments can do. If they are developed outside of city limits, it falls under the authority of the County. However, County Commissioners are unable to regulate data centers as people would want them to.

The sheriff’s office of Tom Green County explains it well: “…. most county regulations are limited to areas the state has authorized, such as subdivision development, floodplain management, on-site sewage systems (septic systems), and certain public health or emergency orders like burn bans during dangerous fire conditions.” Outside of what they are allowed to do by the state, counties enforce state laws, rather than make regulations.

Some say the State Legislature should produce legislation that gives counties the ability to regulate more. But we might not see county expansion of authority on this issue. The fear may stem from the fact that counties may restrict, halt, or deny data center expansion.

With regulation seemingly falling to the state, it won’t be until the Legislature meets in 2027 that we will see meaningful legislation on AI data centers, which might not take effect until 2028. Lt. Governor Dan Patrick has coordinated for various committees to look over different aspects of data centers and their impact on the economy, environment, and energy.

The question arises as to how Texas will protect ratepayers, energy and water resources, and the environment, while also making sure overregulation does not stall or take away the promise of economic and job growth that data centers bring with them.

Data centers are like the oil/gas or petrochemical industry in that they are large facilities consuming massive amounts of electricity, resources, and land. In a two-part series about AI Data Center Development in Texas, the Texas Policy Research group discussed the issue of Texas needing to focus on building energy and water infrastructure to support the industries it wants to host, if it wants economic and job growth.

The Texas Policy Research group also warns against targeted overregulation of data centers based on political mandates. They advise a more nuanced approach based on a data center’s impact on ratepayers, energy, and resource usage, within a regulatory framework across all heavy industries. Because then how do you justify putting a disparate regulation on a data center that only uses 200 MW of energy, and not on a petrochemical plant using 500 MW of energy, because it’s not a data center? Data centers require more extensive cooling than other facilities, but there is a difference between a data center that uses 200 MW of energy and a data center that uses 1 GW of energy.

Additionally, Texas Policy Research points out: “If state officials believe infrastructure costs are being shifted onto residential customers, they should clearly identify which costs, under what circumstances, and why existing mechanisms are inadequate. Otherwise, “pay their fair share” risks becoming more of a political slogan than a policy diagnosis.” By focusing more on power and resource usage, plus an accurate impact on ratepayers in different areas, you have a more business-friendly policy rather than a politically targeted one.

Dan Dorio, Vice President of State Policy for The Data Center Coalition, claims, “It’s important to recognize that data centers are a diverse industry serving a wide range of needs, and there is no one-size-fits-all solution when it comes to facility design, cooling technology, or regulation. The right approach in one community may not be the right approach in another, which is why siting and operational decisions are made in close coordination with local utilities, water providers, and management districts.”

This is the age of data centers looking to develop; the policy and decisions that the state of Texas makes will define whether data centers will come to Texas and bring with them their economic benefits or look elsewhere. It is a balance, but one that Texas could rise to if the right policies are enacted this upcoming legislative session or in a special session.

By Jake Lehrer
Staff Writer