Data centers say they pay their way; Texas will hold them to it

Good policy design and implementation can hold data centers accountable for their bills, saving residents.

Texas has become a national hub of artificial-intelligence infrastructure, second only to Virginia as a site for the sprawling warehouses full of giant computer chips that allow our phones to outsmart us. The biggest question in the state and national debate over AI’s voracious electricity need is: who will pay for the grid upgrades to meet the increased demand and associated stress?

The conventional wisdom is that residential users will suffer as rates go up and reliability goes down due to a surge in data-center load. Large-loaders, however, are not freeloaders. Electricity rates are likely to rise in the coming years as utilities make long-delayed grid updates, but new Texas law and regulations are designed to ensure data centers pay their own costs. The extent of the rise in costs will depend on two factors: whether generation demand and capacity are matched and how transmission costs are divided.

Forecasts for long-term load demand are still in flux. In its most recent forecast, the Electricity Reliability Council of Texas estimated long-term load growth will rise fourfold from the 2023 peak of 85,500 megawatts to 367,000 in 2032. Texas regulators have asked ERCOT to revise that estimate, however, arguing it’s inflated by the inclusion of speculative large-load projects unlikely to materialize.

Texas Senate Bill 6 is intended to deter highly speculative projects and to prevent residential customers from carrying more than their fair share of infrastructure costs. The bill intends to make data centers and other large load users bear the lion’s share of the electric-infrastructure upgrades their scale requires. (By most reckonings, about 70 percent of large-load user connection requests in Texas come from data centers.)

Analysts are divided on whether the bill can achieve its goal of managing the additional demand without a sharp increase in electricity prices.

“Why are people coming to Texas for data centers?” said Tom Seng, a professor specializing in energy markets at Texas Christian University’s Neeley School of Business, in an interview. “Vast available land, preferential tax treatment, no state income and low electricity prices.” Seng argues electricity markets work just like property markets. When house-hunters from California and the Rust Belt moved to Texas for the cheap housing, home prices soon rose. Why would electricity be any different?