Data Center Site Selection in Texas: Grids, SB 6, Water and Incentives

The first screening question in Texas is which grid a parcel sits in. ERCOT, the Electric Reliability Council of Texas, serves about 90% of the state’s electric load and covers about 75% of its land.¹ The remaining areas belong to other systems: El Paso and far West Texas are in the Western Interconnection, the Panhandle and South Plains connect through the Southwest Power Pool, and parts of Northeast and Southeast Texas are in the Eastern Interconnection. Four vertically integrated utilities serve those areas: El Paso Electric, Southwestern Public Service, Southwestern Electric Power Company and Entergy Texas.²

The distinction is not academic. Inside ERCOT, retail competition, the PUCT’s SB 6 rules and ERCOT’s large-load study process govern the path to power. Outside it, the local utility plans generation and transmission for its own territory, and the Federal Energy Regulatory Commission has jurisdiction over wholesale power and transmission rates because those systems trade across state lines.² Map the utility service territory before anything else, then read the matching regional guide: ERCOT, SPP or MISO.

Senate Bill 6, signed on June 20, 2025, directed the PUCT to set standards for interconnecting large loads in ERCOT in a way that supports growth while protecting reliability and limiting stranded infrastructure costs for other ratepayers.⁵ The standards apply to new or expanded interconnections where demand at a single site exceeds 75 MW. They include proof of site control and a screening study fee of at least $100,000.⁵

SB 6 also changed how large loads behave once connected. It requires curtailment capability for noncritical large loads during firm load shed events, requires disclosure of on-site backup generation, and lets ERCOT direct loads with backup generation to reduce demand or run that generation during emergencies.⁶ Net-metering arrangements that pair a new large load of 75 MW or more with an existing stand-alone generator need PUCT approval, which can carry conditions.⁶ Our separate guide to Texas Senate Bill 6 covers the statute in detail.

The PUCT proposed its implementing rule, 16 TAC §25.194, on March 12, 2026.⁵ On September 18, 2026, it issued the rule standardizing interconnection requirements, capital contributions and financial security for loads of 75 MW or more in ERCOT, including a requirement to post $50,000 per MW of requested capacity before interconnection studies.³ For a 300 MW request, that is $15 million of security posted before the first study, which changes how early a developer commits capital to a specific parcel.

Demand for ERCOT interconnection has outrun the old process. In August 2026 the governor’s office cited about 474 GW of pending large-load requests, more than five times the state’s record peak demand, with about 90% of new requests attributed to data centers.⁴ For scale, ERCOT reported an unofficial all-time peak of about 91 GW on July 22, 2026.¹¹ Most queued megawatts will never be built, but every request competes for study time and transmission headroom.

ERCOT’s answer is a batch study process. Under the transitional “Batch Zero” framework, pending projects are sorted into loads that are already mature enough to proceed, loads that need study and a capacity allocation, and loads that wait for a future batch. Developers had to submit full project information through their transmission or distribution provider by July 15, 2026, and ERCOT expects to tell each Batch Zero project in spring 2027 how much capacity can be reliably allocated to it.⁷

On August 3, 2026, Governor Abbott directed the PUCT and ERCOT to verify and audit data center projects in the interconnection process before more of them advance. The directive asks for project-level information on public incentives, whether power is self-supplied or grid-supplied, annual and peak electricity use, water use and cooling technology, community impact mitigation and ownership.⁴ For site selection, that means water and community information now sit inside the power process, not beside it. Treat any ERCOT energization date as uncertain until the audit’s effect on Batch Zero is clear.

Non-ERCOT Texas works like most of the country: one regulated utility plans supply for its territory and negotiates service directly with the customer. That can be an advantage where the utility is willing to build for a large load. In El Paso, the utility proposed a 366 MW gas-fired plant adjacent to Meta’s planned data center campus to serve the project’s growth.¹² The same structure also means the utility’s resource plan, not a statewide market, decides how much new load it can take and when.

The Panhandle draws large-campus proposals because of land, gas and transmission across the SPP seam. Fermi America’s HyperGrid project near Amarillo, on about 5,800 acres, received preliminary approval from the Texas Commission on Environmental Quality for an initial 6 GW of off-grid natural gas generation.¹³ Projects like this rely on behind-the-meter supply, which shifts the screening questions toward gas laterals, air permits and water. Our guide to on-site generation and bridge power covers those trade-offs.

East Texas sites in MISO or SPP territory are often overlooked because the state’s data center conversation centers on ERCOT. For loads that fit a utility’s near-term plan, they can be worth screening alongside neighboring Oklahoma and Louisiana sites.

Texas splits water law by source. Surface water belongs to the state, and beyond domestic and livestock use it requires a permit from the Texas Commission on Environmental Quality.⁸ Groundwater belongs to the landowner under the rule of capture, but groundwater conservation districts, the state’s preferred management tool, can require permits, metering and limits on withdrawals.⁸ A parcel’s groundwater value therefore depends on the district it sits in, its rules and how much is already permitted from the same aquifer.

• Identify the groundwater conservation district, if any, and its production limits and spacing rules.
• For surface water or a municipal supply, confirm whether existing rights or contracts cover a new industrial user.
• Decide early between evaporative cooling and closed-loop cooling; the governor’s audit asks about both water use and cooling technology.⁴
• Check drought history and how the regional water plan treats new large users.

For the mechanics of securing supply, see our guide to water rights and groundwater for data centers.

Texas exempts qualifying data centers from state sales and use tax on eligible equipment and on electricity and gas used in data processing. A qualifying data center has at least 100,000 square feet in a single building used primarily for servers and related equipment by a single qualifying occupant, and must meet investment and other standards to be certified by the Comptroller.⁹ The exemption runs 10 years for a qualifying investment of at least $200 million but less than $250 million, and 15 years at $250 million or more. It does not cover local sales and use taxes.⁹

The exemption’s cost has grown fast. It now costs the state more than $1 billion a year in forgone revenue, against a Comptroller projection only a few years earlier of about $180 million for the entire 2027–2028 biennium, and the Senate Finance Committee chair has called the numbers unsustainable as legislators weigh narrowing or ending the exemption in 2027.¹⁰ Treat its long-term terms as a policy risk to monitor, not a fixed input, and see our state-by-state view of data center sales tax exemptions and the sales tax exemption glossary entry.

Property tax is negotiated locally, through abatement agreements with cities and counties, and the terms vary widely by jurisdiction. The state’s JETI program under Chapter 403 of the Government Code, effective January 1, 2024, replaced the former school district value limitation program with a narrower, more closely reviewed incentive.¹⁴ Confirm eligibility and timing with tax counsel before assuming any abatement in a pro forma.

Dallas–Fort Worth is the state’s largest data center market. CBRE’s first-half 2026 figures, as reported by Dallas Innovates, put inventory above 1,400 MW, with more than 765 MW under construction and 95% of it pre-leased, and vacancy at 2.8%.¹⁵ Proximity to fiber, labor and customers keeps demand high, but land prices and transmission constraints push larger campuses outward.

Abilene shows the remote, power-first model. The Stargate campus that Crusoe developed for Oracle and OpenAI is planned at about 1.2 GW across roughly 4 million square feet, with on-site gas turbines installed as part of its power supply.¹⁶ The Amarillo area shows the off-grid version at even larger scale.¹³ San Antonio, served by a municipal utility, and the Austin corridor are established markets where utility capacity and local approvals set the pace. Our guides on ERCOT siting and gigawatt-scale AI campuses go deeper on each model.

1. 01Confirm the grid and serving utility. ERCOT, SPP, MISO and WECC areas follow different rules.¹
2. 02In ERCOT, budget the study fee and $50,000 per MW of security, and plan for site-control evidence at request.³
3. 03Ask the utility where a project of your size would fall in Batch Zero or a later batch, and how the 2026 audit affects timing.⁴⁷
4. 04Document water source, rights and cooling design early; they are now part of the power review.⁴⁸
5. 05Model incentives conservatively, with and without the state sales tax exemption.⁹
6. 06Check flood, hail and wind exposure, and local zoning, which Texas counties regulate less than cities.

If you want an independent read before committing security to a request, BlackForge can get a site reviewed against these criteria, and our methodology explains how we weigh them.