Important Texas Regulatory Updates for Data Centers

On May 27, 2025, the Texas Legislature passed SB-6, which introduces significant changes to the planning, interconnection, operation, and cost allocation of certain large electrical loads within the Electric Reliability Council of Texas (“ERCOT”), including data centers. SB-6 primarily aims to ensure that large-load customers contribute fairly to the recovery of costs incurred by electric utilities when interconnecting and serving these loads. SB-6 also aims to support economic growth and maintain grid reliability. SB-6 was signed by Texas governor Greg Abbott on June 20.

Key Provisions

Standards for Large Load Interconnections & Cost Sharing

SB-6, among other things, amends the Texas Utilities Code (“TUC”) and directs the Public Utility Commission of Texas (“PUCT”) to establish standards for interconnecting large-load customers, defined as those with loads exceeding a default threshold of 75 megawatts at a single site, subject to possible adjustment by the PUCT. These standards are designed to foster business development, minimize stranded infrastructure costs, and maintain transmission system reliability. Based on this change, the PUCT will begin the process of developing interconnection standards. Those standards could have a significant impact on large energy developments in Texas, including specifically for data centers. Additionally, PUCT must, through its rule, require that any covered large-load customer participates in paying for the costs incurred by the electric utility to connect that large load to its system.

Disclosure and Reporting Requirements

Large-load customers will have to disclose to the interconnecting utility if they are pursuing similar electric service requests elsewhere in Texas that could affect their current interconnection timeline or status. They will also have to report information regarding on-site backup generation to the utility, which in turn must provide this data to the independent organization certified under Section 39.151 of the TUC for the ERCOT power region (“Independent Organization”).

Transmission Study Fees and Financial Commitments

Standards under SB-6 will require a flat initial transmission screening study fee of no less than $100,000 for applicable large loads. They will also impose uniform financial commitment requirements for necessary transmission infrastructure, allowing for proof of commitment through security deposits or prepayment agreements. Any security provided will be refundable once applied to outstanding costs.

Utility Authority and Planning

SB-6 prohibits the PUCT from placing limits on any additional service requirements that municipally owned utilities or electric cooperatives may impose on large-load customers beyond these standards. Furthermore, it directs the PUCT to adopt rules for an Independent Organization to incorporate forecasted large loads into transmission planning and resource adequacy models.

Net Metering Arrangements

Power generation companies, municipally owned utilities, and electric cooperatives will have to notify the Independent Organization prior to implementing net metering between existing registered generation resources and new large-load customers. The local utility may object for reasonable cause, but no objections may be raised after a final PUCT decision. The PUCT will approve, deny, or conditionally approve net metering arrangements based on study results to protect system reliability and transmission security.

Conditions on Dispatchable Capacity

Conditions may require generation resources that had previously provided dispatchable capacity to continue doing so post-net metering implementation, especially when directed to prepare for emergency conditions. Additional conditions could include load reductions by behind-the-meter retail customers during certain events and protections for customers against costs resulting from stranded transmission assets.

Reliability Service for Demand Reduction & Demand Management

PUCT will direct the Independent Organization to develop a competitive reliability service to procure demand reductions from large-load customers that can be deployed in advance of emergency conditions to enhance grid stability. Secondly, PUCT will require the Independent Organization to ensure that electric cooperatives, transmission and distribution utilities, and municipally owned utilities serving transmission-voltage customers create protocols and implement any needed equipment or technology to enable the curtailment of large loads during firm load-shed events, before customers connect to the grid.

Review of Wholesale Transmission Rates

SB-6 mandates that the PUCT evaluate whether the current four-coincident peak methodology for wholesale transmission rate calculation fairly distributes costs among all loads. This review will also determine which portions of transmission access and wholesale-service costs should be deemed non-bypassable.

Conclusion

SB-6 represents a comprehensive legislative effort to balance the needs of economic development with the operational and financial integrity of Texas’s electric transmission system. Large-load customers, utilities, and generation companies operating in ERCOT should carefully review these new requirements and prepare for forthcoming PUCT rulemakings that will shape the interconnection standards and processes, cost recovery, and system reliability standards.