Texas SB6 Establishes New Transmission Fees and Interconnection Standards for Large Load Customers and Co-Located Loads

ERCOT’s low energy costs have long attracted data centers and other large-scale electricity users. As the rapid growth of data centers, crypto mining and other large energy consumers continues to drive up demand, state officials have recognized the need for a more robust regulatory framework to maintain and enhance grid performance. Recent studies suggest that energy demand in Texas may double by 2031. SB 6 reflects recognition of the increasing demand and marks a policy shift by requiring large-scale electricity users to contribute more to grid investment and operation, while balancing reliability against anticipated demand growth.

Specifically, SB 6 targets new and expanding large load customers by imposing financial and operational requirements targeted at “level[ing] the playing field” between these major consumers and typical retail users. Among other things, the bill requires upfront financial commitments, demonstrable site control and disclosure of any backup generation capacity before such customers can connect to the grid. Additionally, it establishes new interconnection rules for co-located loads connecting to existing generation facilities, including a mandate that such interconnections incorporate an ERCOT-controlled “kill switch” to ensure grid operators can isolate these loads in emergencies.

SB 6 Provisions

Cost Sharing and Interconnection Standards for Large Load Customers
SB 6 introduces new financial and operational requirements for large load customers, defined as facilities with an energy demand of 75 megawatts (MW) or more (e.g., data centers, crypto mines and cloud storage facilities). It is one of the first attempts by a state to directly engage in large load management The bill specifically requires that these large load customers participate in paying for interconnection and grid costs and other ancillary services tied to their facility even when the facility plans to significantly rely on behind-the-meter use.

To establish a new connection to the ERCOT grid, large load customers must also comply with a new set of interconnection standards. They must disclose if they are shopping for electric services elsewhere in the state, to prevent duplicative infrastructure development. Additionally, new large load customers must demonstrate a financial commitment, establish control of the site for the proposed load location and pay the interconnecting utility a flat study fee of at least $100,000 for an initial transmission screening.

Further, large load customers must disclose to ERCOT whether they possess on-site backup generators capable of generating at least 50% of the facility’s requirements. In emergencies, ERCOT may require these large load customers to either deploy their on-site generators or curtail load.

Net Metering Rules and Oversight
SB 6 imposes additional regulatory oversight on new behind-the-meter interconnections and co-location agreements between large load customers and existing generation resources. Under the new rules, prior to implementing a co-location or interconnection agreement with a large load customer, power generation companies must first notify ERCOT of the proposed arrangement. ERCOT is then required to conduct a study of the system impacts of the proposed arrangement and submit its findings to the Public Utility Commission of Texas (PUC) for approval. If the PUC does not respond timely, the interconnection agreement is automatically approved by default.

To preserve grid reliability during emergencies, the bill allows the PUC to impose specific conditions on the proposed interconnections and co-location agreements. These conditions may include requiring the behind-the-meter large load customers to curtail use during grid stress events and requiring the generation resource to make grid capacity available to the ERCOT region.

Load Curtailment and Demand Management Protocols
Most notably, SB 6 requires utilities to develop and implement protocols, including the installation of any necessary equipment or technology, to curtail large electrical loads during firm load shed events and emergencies. The utility and the customer should work together to accomplish a coordinated response. This new rule will apply only to new interconnections (excluding critical industrial and natural gas facilities) established after December 31, 2025.

Additionally, SB 6 directs ERCOT to develop a reliability service to competitively procure demand reductions from large load customers. Participating large load customers must curtail their usage during declared emergencies, with at least a 24-hour notice, and remain curtailed for the duration of the emergency or until the load can be safely recalled. ERCOT must prohibit participation by any large load customer that responds to the wholesale price of electricity or that participates in a different reliability service.

Impact on Data Centers and Other Large Load Customers
SB 6 represents one of the earliest state-level efforts to balance the need for effective regulation of large load customers with continued support for industry growth. The deadly blackouts in Texas during 2021’s Winter Storm Uri have made lawmakers more cautious with large loads, and other states could take cues from how industry responds to the Texas legislation. SB 6 imposes constraints for data centers and other high demand customers, particularly those hoping to rely on behind-the-meter generation. Large consumer facility developers may face delays in interconnection and energization timelines. The risk of downtime due to curtailments is significant for data centers, which depend critically on nearly continuous service. These added costs, barriers to connection and interruption risks will likely slow the rapid pace of data center development we’ve seen in Texas in recent years.

Nonetheless, these provisions may serve a longer-term purpose of ensuring grid reliability and efficiency. By heightening oversight and regulating development, ERCOT may be able to spread grid costs across a wider base of users. The costs imposed on the large energy-consuming facilities will enter the stream of commerce and be passed along to customers and investors. The bill’s requirements to notify regulators if projects are being developed elsewhere in the state will also help ensure there is fewer double counting of projects in ERCOT and allow regulators to focus their attention on the projects most likely to be built. These reforms therefore stand to avoid potential political pushback on data center and other large load projects and help establish a more sustainable growth environment for large load customers and generators.