Lawmakers Propose Data Center Regulations to Protect Power Grid

Texas lawmakers are trying to figure out how the state’s already-strained power grid can possibly keep up, when OpenAI’s first Stargate project and some of the other data centers that want to come to the state consume enough electricity to power hundreds of thousands of homes.

Their primary solution is Senate Bill 6, a wide-ranging bill enacting new regulations on data centers and other large electricity users. Designated by Lt. Gov. Dan Patrick as a priority, SB6 unanimously passed in the Texas Senate last week and is now pending in the House.

The bill’s goal, first and foremost, is to prevent a repeat of the deadly outages of 2021, when power plants on the isolated Texas power grid couldn’t generate enough electricity amid freezing temperatures to meet demand.

It also directs state regulators to study how to protect everyday residents and small businesses from massive electricity rate hikes, as utilities build new infrastructure so the power grid can accommodate more data centers and other power-hungry facilities.

But some conservatives have slammed the bill, arguing that it’s Texas’ minimal regulations that have attracted so much business to the state in the first place.

The Electric Reliability Council of Texas (ERCOT) stunned lawmakers last year when it revealed that peak power demand could shoot up to more than 150 gigawatts by 2030, compared to the current peak demand record of 85.5 gigawatts. At the time, a few legislators even floated banning new data centers and crypto currency mines from coming to the state.

Since then, lawmakers have softened their stance in hopes of attracting huge investments such as the $500 billion Stargate initiative. They’ve also realized a big problem: Not even ERCOT is confident in the shocking 150-gigawatt figure, which likely includes many speculative projects that won’t be built.

To strengthen ERCOT’s forecasts, SB6 would require companies seeking to develop power-hungry facilities to pay a fee of at least $100,000 to apply to connect to the power grid, so those not serious about building are weeded out.

In addition, the aging power grid will need substantial infrastructure overhauls to meet electricity demand growth, such as thousands of miles of new power lines crisscrossing the state. Without reform, lawmakers are concerned that Texas residents and small businesses, instead of large electricity users, could be saddled with much of the cost of these upgrades.

To address this, SB6 directs state regulators to evaluate existing rate-making mechanisms to ensure they “approximately assign costs.” A previous iteration of the bill went even further by directly implementing new rates on certain large electricity users.

The most controversial sections of SB6 were written with the February 2021 freeze in mind. If rotating outages did happen again, the bill ensures large electricity users also share in that burden, Sen. Phil King, the bill’s lead author, said during a February committee hearing.

Several provisions in SB6 address potential power scarcity issues. For example, the bill would create a new voluntary program that pays large electricity users to reduce power consumption, with at least 24-hour notice, when the grid might be strained.

Large facilities with significant back-up generators would have to register those units with their local utility. The bill gives ERCOT the authority to require, “after reasonable notice,” that facilities switch to their back-up generators or curtail power usage when there is a grid emergency.

If the situation escalates and ERCOT needs to order rotating outages, utilities would confer with large electricity users to shut down “to the extent feasible.” This “kill switch” provision has exceptions for critical industrial and natural gas facilities.

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