Texas Politicians Weigh In on Data Center Policies

At a city council meeting in Fort Worth last week, residents and developers clashed over plans to build a sprawling data center near a residential neighborhood that would stand more than a hundred feet tall and suck up enough electricity to power thousands of homes.

It’s just the latest tension point as developers in Texas and around the country rush to build data centers to serve an increasingly digitized economy that is fast embracing electricity-hungry artificial intelligence platforms.

From the Federal Energy Regulatory Commission in Washington to city councils and state legislatures in places like Texas, politicians are weighing new regulations on data center development to protect against stressing their power grids and water resources.

“As the impacts accumulate, people are stepping back and saying we need to get our arms around this,” said Bill Hollaway, a Washington energy attorney. “At some point we can’t serve all this need. Because these data centers don't need five megawatts, they need 300 megawatts, and that's something we haven't seen before.”

At issue is the fact a query posed to an artificial intelligence platform like ChatGPT uses about 10 times the energy of a standard search engine. On top of that the servers powering AI also require a large volume of water to keep from overheating, with tech giant Microsoft reporting a 34 percent spike in its water use last year, which scientists say is largely attributable to its AI work.

In Washington, discussions about what to do about the data center boom are ongoing, with politicians torn between wanting to stay ahead of China and other nations developing artificial intelligence, while also protecting the power grid.

Earlier this month, the Biden administration, which has identified AI as crucial to the future of the U.S. economy and national security, met with technology and energy executives from companies including Amazon and Meta, to announce the creation of an interagency task force that would, “advance datacenter development operations in line with economic, national security and environmental goals.”

That middle-of the-road move drew cheers from technology firms, who are pushing back against the wave of new regulations under discussion, arguing that growing power demand is good for the economy, and utilities and regulators simply need to adjust.

“This is a critical moment that requires data-driven decision-making and collaboration,” Josh Levi, president of the trade group Data Center Coalition, said in a statement. "The data center industry is leaning in as a collaborative partner with utilities, grid operators, policymakers, regulators and other stakeholders at this transformative moment to advance and accelerate grid modernization and energy infrastructure.”

Consulting firm McKinsey and the International Energy Agency estimate that power load for data centers, which currently consume 4 percent of the power on the U.S. grid, will double by the end of the decade.

In places like northern Virginia and North Texas, which have the highest concentrations of data centers in the country, the growth could be even higher.

Earlier this year, ERCOT released a forecast power demand could reach more than 150 gigawatts by 2030 — compared to a peak power demand of almost 86 gigawatts this summer.

In a call with financial analysts last month, the power utility Oncor, which serves North and West Texas, said it had seen a surge in connection requests for large power loads over the past 12 months, of which more than 70 percent were data centers. While the bump could mean big profits for power companies, they're finding it difficult to get enough new generation and transmission lines to meet the demand, said Mark Bell, president of the trade group Association of Electric Companies of Texas.

In Pennsylvania, Constellation Energy, a Baltimore-based power company, announced last week it would restart the infamous Three Mile Island nuclear plant, which suffered a partial meltdown in 1979, to provide electricity to data centers operated by Microsoft.

"The challenge is syncing the interconnection timelines and the building of the data centers," Bell said. "We want to serve load. We want to provide service."

In Texas, legislators are eager to enjoy the economic benefits of data centers, which are fast becoming large sources of tax revenue. In Fort Worth, for instance, the towering new data center drawing opposition from neighbors is expected to deliver $14 million in additional revenue to the city and local school district.

But at the same time, state lawmakers are growing increasingly uneasy about putting additional load on the grid, especially after widespread power outages during Winter Storm Uri in 2021 and then again during Hurricane Beryl this summer.

Ahead of the January legislative session, some politicians have raised the idea of putting limits on data center development, in line with new regulations approved in Fairfax County, Va., earlier this month that blocks data centers from being built close to residential neighborhoods or within a mile of a commuter rail station.

“Can we just say, ‘No, you can't come?’” state Sen. Donna Campbell, R-New Braunfels, said of data centers at a hearing in June. “Too many pigs at the table who just run out of food. If they don't come with their own trough full of food, can we just say no?”

Texas regulators may also face the question of who will pay for all the grid upgrades necessary to serve the data centers, which have typically been spread evenly across new and existing customers. In Ohio, the utility giant AEP, which also operates in Texas, is requesting the state utility commission shift the cost of building out the grid to new customers like data centers, in what is widely viewed as a test case for other utilities.

Members of the Texas Business and Commerce Committee are scheduled to sit down in Austin next month to discuss how to manage increasing power demand “related to population growth and energy intensive technologies such as electric vehicles and data centers.”

“It’s all so volatile and up in the air,” said Doug Lewin, an energy consultant in Austin. “It would be stunning if the state said we don’t want this huge source of economic growth because we don't have the load. We can serve that load if we have smart energy policy, but that's a big ‘if.’”

Any move to limit data center growth is likely to draw pushback from Texas business interests, including the state’s powerful oil and gas sector. Data centers require constant energy 24 hours a day, seven days a week, something that natural gas-fired power plants, of the type the Texas Legislature recently put aside $10 billion to build, could be contracted to provide.

At a gas conference in Houston last week, Chevron CEO Mike Wirth homed in on the Biden administration’s efforts to ensure data center growth doesn’t impinge on efforts to reduce greenhouse gas emissions.

“AI’s advance will depend not only on the design labs of Silicon Valley, but also on the gas fields of the Permian Basin,” he said. “Natural gas is driving down carbon emissions worldwide as more countries displace coal in electricity generation, and natural gas will help power the rapid growth of artificial intelligence with its insatiable demand for reliable electricity.”

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