Industry warns of blackouts, economic woes if Texas overreacts to data center, transmission line anger

From The Texas Tribune:

For the first time in five years since Winter Storm Uri turned the electrical grid into a political albatross for Texas leaders, the state’s grid has again become a liability for politicians.

Many residents don’t want data centers in their communities, fearing their massive energy, water and land use, a majority of which is planned for rural Texas. Many residents are also balking at transmission lines lawmakers approved to build hundreds of miles across West Texas because they threaten to eat up their land.

The pushback has gotten so overwhelming that the state’s top leaders — the very ones that welcomed these initial proposals with open arms — have called on regulators to delay these projects.

But in this abrupt bid to assuage constituents’ concerns, state lawmakers could be shortsighted.

The Electric Reliability Council of Texas, the state’s grid operator, has said West Texas is at risk for rolling blackouts if these lines don’t get built, and residents will face higher energy prices as congestion worsens. The oil and gas industry says its ability to expand will be hamstrung without the lines’ construction. And, pushing pause on data centers has created uncertainty in other industries that want to connect to the grid but are unable to know if or when they will get it.

“Whatever the complexities of the policies engaged here — and the degree to which the deployment of these high-capacity power lines and the construction of data centers are distinct issues — in this moment, it’s the politics that matter at least as much as the policy,” said Jim Henson, director of the Texas Politics Project at the University of Texas at Austin.

In recent weeks, dozens of legislators and state officials have called on the transmission line buildout to be scrapped entirely so the Legislature can return to the drawing board. And Gov. Greg Abbott announced an audit of data centers seeking to be connected to the power grid that has forced ERCOT to pause a first-of-its-kind effort to rework its queue for facilities seeking energization. This delay has made grid planning harder and left industries unclear if or when they will be able to receive power from the grid, risking economic development from data centers and traditional industries alike.

The political stakes are too high for lawmakers ahead of the November election to defy the wishes of local residents, most of whom are concentrated in rural areas where these controversial transmission lines and data centers are being built, Henson added.

“We should expect that political leaders are going to be responsive in election season,” Henson said. “That’s how democracy works. We expect that responsiveness, and I think we’re seeing it.”

Transmission line needs

Most of the public learned the fragility of the Texas grid in February 2021, when Winter Storm Uri forced ERCOT to implement rolling blackouts to prevent a total grid collapse, leading to $80 billion to $130 billion in economic damage and 246 deaths.

The disaster prompted legislators to pass a slew of bills aimed at making the grid more reliable by encouraging new power generation to be built and requiring companies harden existing generators against bad weather. As electricity generation increased, regulators also asked the Legislature in 2023 to sign off on a plan to greatly expand the state’s transmission capacity so that additional electricity could be better distributed to customers around the state.

The Public Utility Commission later approved a plan to build 765 kilovolt transmission lines across the state to meet those transmission needs, a type of transmission line larger than any previously built in Texas.

Oil and gas operators in West Texas had long worried about transmission capacity in West Texas, which has far less generation capacity than the more populous eastern half of the state. Oil and gas production has skyrocketed in Texas, a milestone that industry leaders said can’t be sustained if the state doesn’t build more power infrastructure.

“The world’s most important energy basin is currently running on a patchwork of portable generators that just are not equipped for long-term needs or production growth,” said Todd Staples, president of the Texas Oil and Gas Association.

Now facing potential delays, those concerns are growing by the day. The PUC’s independent market monitor, Potomac Economics, found the West Zone average demand grew 12.3% in 2025 versus 6.1% statewide. Congestion inside the zone rose 27% that year, and the region posted ERCOT’s highest average annual energy prices for a second straight year.

Legislators opposed to the lines and grassroots advocates have pushed back on the oil and gas industry’s concern, saying those companies can use its access to natural gas to build power plants that could power the region. However, the construction of a new natural gas power plant faces lengthy delays due to supply chain constraints caused by rising energy demand globally.

The grid constraints are already slowing the growth of the industry, and reliability concerns are mounting.

ERCOT Senior Vice President and Chief Operating Officer testified in July that rolling blackouts are possible in the Permian Basin by next summer.

A letter authored by the oil and gas association, the Texas Chemistry Council, the Texas Association of Manufacturers and electric company associations reiterated those concerns to Abbott, Lt. Gov. Dan Patrick and House Speaker Dustin Burrows. Patrick is among a group of legislators that have called on the Public Utility Commission to reject the proposed lines outright.

“Reliability failures, congestion and operational limitations ultimately impose costs on Texas consumers that can exceed the cost of prudent, timely infrastructure investment,” read the letter, sent Wednesday. “Avoidable delay is not a neutral choice for ratepayers; it is a choice between paying for planned infrastructure now or paying more later through outages and congestion.”

Those concerns are not limited to West Texas.

In the Houston area, electricity demand is also growing rapidly due to industry and the region’s growing population. Electricity rates are already elevated due to transmission congestion, according to ERCOT.

Most of the debate over the lines has been limited to three routes planned for West Texas, the first phase of the buildout that is further along in the process. A second phase is planned that will construct a loop of 765 kV lines in the eastern half of the state, intended to relieve transmission congestion in the state’s largest cities.

“A lot of the loads going into the Houston area are manufacturing loads. They’re oil-and-gas terminal expansions. These are not industries that you can just move somewhere else,” said Bryn Baker, senior director of organized markets policy at the Corporate Energy Buyers Association and leader of CEBA’s Texas chapter, the Texas Energy Buyers Alliance. CEBA represents companies that consume a lot of electricity, including both data centers and traditional industries like manufacturers and refineries.

At the root of the frustration over the transmission lines is House Bill 5066, passed in 2023. The state legislation cut the time the PUC has to consider an application from 365 days to 180, significantly shrinking the time that landowners affected by a planned transmission line have to weigh in on the project. Residents opposed to the line commonly cite this as an example of their property rights being trampled.

Their solution is simple: reject the project entirely so the Legislature, regulators and ERCOT can draw up a new plan that considers energy demands and their land rights.

Transmission and distribution utility representatives, who favored the shortened timeline approved in 2023, now acknowledge that was a mistake while arguing the planned 765 kV lines should move forward.

“The 180-day process for landowners for these large, bulk-rate, long-length lines is not sufficient, and I think that’s an accurate and fair assessment,” said Mark Bell, president and CEO of the Association of Electric Companies of Texas, a trade association that represents several transmission utilities that will build the lines.

Following a House Committee on State Affairs hearing on Wednesday, a bipartisan group of 30 representatives called on the PUC to deny the transmission line applications, which would effectively kill the project in its current form.

There are currently five applications pending before the PUC, and final decisions by the PUC are expected in the next couple months.

Legislators in favor of scrapping the project altogether say the Legislature should first meet to again rework the approval timeline before any transmission line can move forward, which would delay the project by months or years.

The final decision on whether or not the lines will be built lies with the PUC, which is made up of five members, all appointed by Abbott, who hasn’t weighed in publicly on the issue.

“I don’t believe we have an option of doing nothing,” Thomas Gleeson, chair of the PUC, told lawmakers at a June Senate committee meeting. “We have to get electricity to customers in the Permian.”

Even if they continue with approvals, the commissioners may not rubber stamp each of the projects. The PUC votes on segments of the project after the State Office of Administrative Hearings considers public and industry testimony and provides a recommendation to commissioners. SOAH recommended the PUC reject a portion of the West Texas buildout in a ruling issued Thursday, an action it had not taken in previous months with several other legs of the buildout.

“Landowner concerns are very important to be addressed,” Staples said. “We want to make certain that their needs are being heard and that landowners are accommodated to the fullest extent, but we also know that no one wants rolling blackouts in their community, and that is what West Texas is facing today.”

Uncertainties from data centers

In the years since the 2023 plan to build the transmission lines was approved, the data center boom has significantly increased Texas’ future energy demand, further reinforcing the need for new transmission lines to carry power to support the growing grid demand. The state is currently the fastest growing market in the country for the electricity-intensive facilities and is poised to have more of the facilities than any other state.

Proponents of the line argue the debate around the 765 lines should be separated from the debate around data center regulation, but ERCOT documents about the transmission line buildout frequently cite the need to keep up with the growing power demand driven by data centers, along with other industrial users.

As the growing number of data centers intensified the state’s need for new high-voltage transmission lines, the energy-intensive facilities were also disrupting ERCOT’s process for studying how proposed connections will affect the delicate equilibrium of the grid. Previously, projects were studied by the grid operator one at a time before receiving approval to connect to the grid.

ERCOT uses this process to forecast future demand on the grid, allowing the grid operator to plan where transmission and generation will most be needed in the coming years. But as the queue has become overwhelmed with speculative data center projects, those future demand forecasts have largely lost their usefulness, showing extraordinary growth in demand that ERCOT officials say is almost certainly an overestimate.

There are now nearly 2,000 requests to be energized in the ERCOT queue, 90% of which are data centers, according to the grid operator. That represents 466,497 megawatts of electricity demand, more than five times the ERCOT grid’s peak demand record set on July 22.

“What we thought was a fast transition pales in comparison to what we’re seeing, and are likely to continue to see, with some of this large-load growth,” said Jacob Bradt, an assistant professor of business, government and society at UT-Austin who studies energy policy.

That rapid and uncertain growth, along with the political backlash to it, prompted Abbott earlier this month to order a pause on approval of data center connections to the grid until an audit of projects in the queue could be conducted.

In response to the order, ERCOT announced it would pause its effort to implement new rules that would allow it to study and approve large load projects in batches, known as the Batch Zero Interconnection Study.

That pause and the uncertainty on if it will delay the study’s expected completion in April is further confusing industry stakeholders and grid planners.

Without the study, large-load users like data centers, along with traditional industry, do not know when they will be approved to receive power, creating delays in construction timelines. ERCOT officials testified to the House Committee on State Affairs on Wednesday that several projects have already dropped out of Batch Zero because of the delay.

Baker said the uncertainty goes beyond the data center industry because traditional manufacturers are stuck in the same queue with the hundreds of data centers that have disrupted ERCOT’s study process.

“It’s not going to be perfect, but (Batch Zero) is thoughtfully setting out how you narrow the funnel,” Baker said. “The key thing for all of these businesses is how to do that in a predictable and stable and credible way. Various wrenches being thrown in the process make that really hard to call it a predictable stable process.”

ERCOT officials say they expect to complete the audit process sometime in December and are working to ensure it limits delay to the overall Batch Zero study.

Disclosure: Texas Energy Buyers Alliance and The University of Texas at Austin have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in The Texas Tribune’s journalism. Find a complete list of them here.