Texas has for years courted AI companies, cloud providers and Bitcoin miners with cheap electricity, plentiful land and a sales tax exemption that has become one of the state’s most expensive incentive programs.
But now Governor Greg Abbott has ordered state regulators to reverse the scheme, directing them to require data centers to fund the electricity grid they depend on so that households “will stop subsidizing one of the fastest growing industries in the world.”
That rather sudden change in sentiment could become the template for how the rest of America regulates AI expansion.
The state has spent much of the past decade making itself the easiest place in America to build a data center, and the bill for that hospitality appears to have been paid.
Texas now has roughly 6.5 gigawatts of capacity under construction, about a fifth of the national pipeline, and real estate firm JLL expects it could overtake Northern Virginia as the world’s largest data center market by 2030.
The sales tax exemption for eligible facilities will cost the state roughly $3.2 billion in lost revenue over the next two years, with about $1.3 billion coming in this year alone, the comptroller’s office said.
There are currently 121 facilities taking advantage of the pause, which waives the 6.25% state tax on everything from servers and cooling systems to the massive amounts of electricity these locations consume.
On June 10, Abbott sent a letter to the Public Utility Commission and ERCOT directing them to avoid passing on the costs of all that growth to residential customers and instead invest them with the companies that created the demand.
What Abbott laid out could serve as a regulatory roadmap for other states. He said the PUC and ERCOT should require data centers to fully fund the electric infrastructure built for them, directed the commission to begin cutting residential transmission costs by the end of July, and asked both agencies to submit a joint memo by July 17 outlining what they can do under existing authority and what new legislation will require in 2027.
His directive also included calls for water-efficient cooling, mandatory reporting on power and water use, and a hard look at whether that expensive sales tax exemption should survive at all.
What changes if the meter turns the other way?
Demands on this scale explain why an industry-friendly state like Texas has decided to intervene. ERCOT set its all-time peak demand at 85,508 megawatts in August 2023, and the grid operator’s preliminary long-term forecast now estimates peak demand at 367,790 megawatts in 2032, more than quadrupling the record.
Even the conservative version of the picture is rising steadily, from roughly 98,000 megawatts in 2026 to 111,000 in 2032 before any of these major taxes are implemented. approximately 226 gigawatts at the end of the year, with 73% of that demand coming from data centers.
These numbers mean that a new project will look very different once Abbott’s guidance works its way through the regulatory process. Developers can expect to absorb the upfront costs of substations, transmission upgrades and interconnection work, which used to be spread across the broader base of ratepayers. That increases the capital needed to break ground and encourages more operators to generate or store their own energy on site.
Behind-the-meter generation, co-located gas or solar, and large battery installations all become more attractive once a company knows from day one that it is financing its own connection, an approach already evident in projects like Fermi America’s Project Matador near Amarillo, which is financing its own private electric grid so the campus brings new generation into the system as it draws from it.
Stricter water regulations and annual consumption reporting are also expected, and the long-running sales tax exemption that made Texas so cheap could shrink or disappear when the Legislature convenes in 2027.
Operators already operating in Texas will have less to manage in the short term as signed interconnection agreements remain contractual and difficult to reopen, so new construction and major expansions will be most heavily impacted.
But much of this still depends on what the PUC and ERCOT decide they can do without a new statute and how aggressively the 2027 session goes. Abbott pointed back to Senate Bill 6, the 2025 law that already requires large loads to provide backup power and curtail it during grid emergencies, as a sign that the state was already down this path before concluding that more was needed.
The response from much of the industry has been better than expected, as clear, upfront rules give developers and lenders the certainty they love and spare projects the political backlash that follows AI wherever it goes.
Why Texas Bitcoin Miners Could Lead the Way
One of the most overlooked parts of Abbott’s guidance is the line Texas regulators continue to draw between flexible and inflexible demand, as Bitcoin miners sit on the winning side of that divide.
A mining facility can be shut down in minutes, reducing the drawdown to near zero if prices rise. That’s why ERCOT has for years integrated miners into its manageable tax resource programs and leaned on them to cut back in seconds when reserves become tight.
AI inference and training generally needs to run entirely on continuous power, so the more a future rulebook rewards loads that can move with the grid, the better a miner will look next to a hyperscaler. By one estimate, ERCOT’s decision to integrate miners as a flexible load after the 2021 blackouts helped the state avoid about $18 billion in new gas peaker installations.
However, flexibility decreases in both directions, because any miner looking for a new interconnection will meet the same demand as everyone else to finance its own infrastructure, and the bigger threat to the mining economy is the competition for cheap energy itself.
As CryptoSlate has documented through 2026, AI operators are bidding up electricity to levels that are undermining the thin margins miners can survive on, and BlackRock has warned customers that data centers could consume as much as 24% of US electricity by 2030, a number big enough to reorder where every kind of computer is built.
Miners have already tasted the upside of volatility in Texas, with one period seeing a 31% increase in mining energy use, alongside an 80% drop in local electricity prices, and the open question is whether adjustable demand will retain that privileged status as the grid tightens.
Texas will almost certainly not be the last state to implement this. The backlash is already strong domestically, where the San Marcos City Council recently rejected a proposed $1.5 billion data center after nearly nine hours of public comment. It’s also running nationwide, with a March Quinnipiac poll showing that 65% of Americans oppose an AI data center in their own community.
Virginia, Georgia and Arizona are grappling with the same surge in demand and transmission pressure, making Texas’ approach an early test case that the rest of the country will look to.
We now have one of the most business-friendly states in America, which built its data center growth on the most generous incentives ever, and was the first to take steps to make that industry pay its own way.
Abbott is betting that clearer rules and fairer cost sharing will keep investments flowing and households will be spared the bill. If that gamble pays off, the next phase of the AI boom will be shaped by the politics of the power grid and who pays for the power.