Texas Data Center Interconnections Face New Audit Gate After Governor Abbott Directive (UPDATE)

The directive was issued amid extraordinary queue pressure. Gov. Abbott’s letter cites approximately 474 GW of pending requests to connect to the ERCOT grid, more than five times the record peak demand of Texas, with approximately 90 percent of new power requests attributed to data centers.

The directive requires project-level information on public financial assistance, self-supplied or grid-supplied power, projected annual and peak electricity use, planned water consumption and cooling technology, community impact mitigation, and ownership and controlling interests.

ERCOT and PUCT Response
ERCOT responded immediately. In an August 3 Market Notice, ERCOT stated that it would not issue the planned August 7 Batch Zero classification notices and would seek a PUCT good-cause exception related to Batch Zero timelines and processes.

ERCOT filed good-cause requests on August 10 seeking relief from deadlines, including the classification deadline, treatment of certain projects in Quarterly Stability Assessments and timing for dynamic-data deficiency notices. PUCT approved ERCOT’s requested good-cause exceptions at its August 20 open meeting. The Commission’s action permits ERCOT to proceed with modified Batch Zero procedures while conducting the verification and audit process required by Gov. Abbott’s directive. ERCOT has indicated that it expects to issue conditional Batch Zero classifications while undertaking project-level verification reviews.

The review mandated by Gov. Abbott appears to have two principal workstreams: a Batch Zero eligibility verification for large loads generally at or above 75 MW, and a community-impact information collection process for unenergized computational loads generally at or above 25 MW. Projects at or above 75 MW that are computational loads may be subject to both workstreams.

ERCOT representatives informed the PUCT that the verification effort is expected to involve approximately 250–300 projects representing roughly 200 GW of prospective load. ERCOT also indicated that it expects to issue requests for information, review commercial commitments and supporting documentation, and complete a comprehensive audit report later in 2026.

Key Risks by Stakeholder Group

Contracting and Diligence Implications

• Interconnection conditions. Treat successful completion of ERCOT verification and required PUCT approvals as express conditions to energization, financing draw and major procurement commitments where appropriate

• Delay allocation. Allocate the risk of ERCOT audit delays among developers, customers, power suppliers and equipment vendors, including cure periods and extension mechanics

• Power and water covenants. Build project-specific covenants around self-supply, demand flexibility, water-efficient cooling, reporting obligations and community mitigation

• Confidentiality and public disclosure. Prepare for disclosure of ownership, incentives and resource-use information while protecting commercially sensitive information to the extent available under applicable law and process

• Verification cooperation obligations. Project documents should clearly allocate responsibility for responding to ERCOT information requests, preparing audit submissions, supporting verification reviews and addressing evolving compliance requirements arising from the audit process.

Salient Points

• Interconnection risk is now front-loaded. ERCOT, the wholesale power market operator for most of Texas, announced that it would not issue the planned August 7 Batch Zero classifications and would seek relief from the PUCT for good-cause while it implements Gov. Abbott’s August 3 directive.

• Audit readiness matters. Developers should be prepared to provide evidence to support site control, eligibility attestations, load forecasts, financial assurance, power supply, water use, cooling technology, government incentives, community mitigation and ownership information.

• Power supply strategy is a competitive differentiator. Projects that bring new or behind-the-meter generation, self-supply some or all demand, use flexible-load arrangements, or procure dedicated supply are better aligned with the policy direction reflected in the directive and ERCOT’s large-load framework.

• Financing and customer agreements need schedule protection. Developers, lenders, hyperscale customers and power providers should revisit milestones, conditions precedent, delay rights and termination triggers tied to ERCOT approvals and energization.

• PUCT approval changes the risk profile, but not the scrutiny. The August 20 action confirms that projects may continue advancing through modified ERCOT procedures, but developers should expect heightened examination of project maturity, commercial readiness, power supply arrangements and compliance with ERCOT requirements.

• Queue position alone may no longer be sufficient. ERCOT has publicly indicated that projects may be required to demonstrate credible evidence of development maturity through contracts, purchase commitments, financial documentation and other supporting materials.

Pillsbury Perspective Texas remains attractive for data center and power infrastructure investment, but the policy signal became clearer following the PUCT’s August 20 action. Texas regulators have not halted data center development. Instead, they have adopted a more rigorous proof-of-readiness framework intended to distinguish executable projects from speculative queue positions. Developers seeking ERCOT interconnection should assume that project maturity, power supply strategy, water strategy, community impacts and supporting commercial documentation will receive heightened scrutiny. Well-capitalized projects with advanced development status, credible power procurement strategies and robust compliance records may ultimately benefit if the verification process improves visibility into actual load growth and removes speculative requests from the interconnection queue.