Texas has long been a magnet for manufacturing and data center development, thanks to its business-friendly climate, abundant land, and low-cost energy infrastructure. But as the state’s electric grid faces new challenges from rapid load growth—driven in large part by data centers, crypto mining, and other large-scale users—the Texas Legislature has been grappling with how to manage the changing landscape in the State, most notably surging electrical demand in the ERCOT power region and the need for transmission and generation to meet the demand.
On May 29, 2025, the Texas Legislature passed SB 6, which enacted new requirements governing the planning, interconnection, and operation of large electrical loads and generation resources in ERCOT. SB 6 is now awaiting Governor Abbott’s signature. The bill will significantly impact how large electrical loads are planned, interconnected, and managed throughout ERCOT. Understanding SB 6’s impact on the regulatory and economic landscape is critical for anyone involved in siting, building, developing, or operating large-scale data centers or new industrial manufacturing facilities in Texas.
Key Takeaways
The new law is designed to balance Texas’s economic growth with the need for grid reliability, load growth planning, and fair cost allocation. Here’s what developers, investors, and operators of data centers and other large loads need to know:
Cost Sharing and Interconnection Standards
SB6 requires the Public Utility Commission of Texas to establish a rule for investor-owned utilities to address cost sharing and interconnection standards for new large load customers. Large load customers (defined at a 75 MW threshold, which can be lowered by the PUC), including data centers, will be required to contribute to the costs that utilities incur to connect them to the grid. The legislation also requires electric cooperatives and municipally owned utilities that have not adopted customer choice to pass through the reasonable costs to interconnect large loads.
The PUC is directed to establish uniform standards for interconnecting large loads with the goal of supporting business development while minimizing the risk of stranded/increased costs from overbuilt infrastructure.
Subject to certain confidentiality protections, large load customers must disclose if they are pursuing similar interconnection requests elsewhere in Texas that could impact the planning and timing of their interconnection request so that utilities, ERCOT, and the PUC will have better information on which to base load projections and infrastructure planning.
Key Provisions for Large Electrical Loads
- On-Site Backup Generation: Large load customers with on-site backup generation (capable of serving at least 50% of on-site demand but not exporting to the grid) must provide information about these facilities to their utility and ERCOT. During grid emergencies, ERCOT may require these customers to deploy their backup generation or curtail load.
- Financial Commitments and Study Fees: A flat fee of at least $100,000 will be required for initial transmission screening studies for large loads, with additional fees for expanded capacity requests.
- Net Metering and Co-Location Arrangements: New net metering arrangements between an existing generation resource and a new large load must be disclosed to ERCOT, which will study the system impacts. The PUC must approve, deny, or impose conditions on the arrangement.
- Demand Management and Reliability Services: Utilities must establish protocols for curtailing load during emergencies for large loads interconnected after December 31, 2025 (excluding critical industrial and natural gas facilities), including requiring the installation of necessary equipment or technology before the customer is interconnected to allow the load to be curtailed during firm load shed.
- Implications for Water and Sewer Corporations: These corporations may generate and sell electricity to ERCOT, using proceeds for operational costs or other authorized purposes.
- Transmission Cost Allocation Review: The PUC is directed to study, and, if necessary, revise the methodology for assigning wholesale transmission costs to ensure all customer classes—including large industrial loads and data centers—are paying their fair share. This review will consider alternatives to the current four coincident peak method and must be completed by the end of 2026.
What This Means for Data Center Stakeholders and Other Large Power Users
These changes represent a shift in how large electrical loads are interconnected into the Texas grid and the regulatory approval process for co-locating large power users with existing generation. Large power users may ultimately face new requirements for cost allocation for grid interconnection, disclosure of development plans, and operational flexibility during tight grid conditions. Land developers, equity investors, and energy providers should pay close attention to the evolving standards for site control, financial commitments, interconnection planning, and regulatory requirements related to on-site and co-located generation.
We recommend that all participants in the data center ecosystem review their current and planned projects in light of these new requirements. Our team is available to help you navigate these changes and position your business for success in the rapidly evolving Texas energy landscape.
