Texas slams brakes on data center projects as Abbott orders sweeping industry audit

As data centers continue to sprout up around the country, some leaders have begun reassessing and responding to many communities’ concerns about their impact.

On Monday, Governor Greg Abbott (R-Texas) announced a comprehensive data center audit as concerns grow around many of the projects.

‘Our top priority is to protect Texans’ safety and quality of life.’

Abbott directed the two relevant Texas agencies, the Public Utility Commission of Texas and the Electric Reliability Council of Texas, to conduct a full audit on all data center projects, pausing all projects until they successfully complete the process.

The audit itself demands that these data centers demonstrate their impact on local communities. The audit will specifically require answers regarding water and electricity usage, as well as solutions to reduce noise and light pollution, among other concerns.

“Our top priority is to protect Texans’ safety and quality of life,” said Abbott. “Any project that fails to comply with the requirements set forth by the PUCT and ERCOT, and by state law, must be denied connection to the Texas grid. Simply put, Texans must come first.”

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While these concerns have been repeatedly raised by citizens across the country, Abbott is also requiring data centers to provide information on ownership and controlling interests and, crucially, how they are paying for the construction and maintenance.

The audit will require data centers to show the extent to which they are “paying their own way” or relying on cushy tax breaks.

Texas has positioned itself as one of the best states for data center projects, due in large part to the tax incentives granted as an investment by the state. These incentives, however, are under increased scrutiny as data center projects have skyrocketed in the state.

Earlier this year, the Texas Tribune reported, citing the Texas comptroller’s office, that Texas stands to lose out on $3.2 billion in sales tax revenue over the next two years from this tax break alone.

The governor’s press release reports that 90% of new power requests, totaling a massive 474 gigawatts in capacity, came from new data center projects, yet doubt has been cast on these projects holding up their side of the bargain.

In a July 27 Texas Senate Committee on Finance hearing on data centers, Brad Reynolds, chief revenue estimator for the comptroller’s office, gave testimony that of 138 new data centers that have come in for certification but are not yet verified for the sales tax exemption, only 20 of them have been audited.

What’s more, according to Reynolds, six of the 20 were found to be noncompliant with the requirements for the tax exemption.

In June, Abbott set in motion a plan to reexamine the legal framework and incentives in place, specifically pledging to work with the legislature to “repeal” sales tax exemptions and other “outdated” incentives for data centers.

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