Data centers have spent years competing for sites based on tax incentives, land, fiber access and proximity to customers. A different set of questions is increasingly determining whether projects can move forward. Is enough electricity actually available? Who pays for the generation, transmission and distribution infrastructure needed to serve the facility? Where will the water come from? And what happens if a developer reserves enormous amounts of grid capacity but never builds the project?
California and Texas took major steps this week toward making those questions part of the development process. Their approaches are different, but both point toward a broader change in the U.S. data center market. Infrastructure capacity is becoming a condition of growth rather than a problem to solve after a project is announced.
California's AB 2383 Covers Facilities With 20 MW of Peak Load or More
California Gov. Gavin Newsom signed seven data center bills on September 21 covering electricity, water, rate structures, environmental review and reporting. The package includes AB 2383, which establishes a separate electricity classification for facilities with a peak load of 20 MW or more and requires the California Public Utilities Commission to develop an associated rate schedule by January 1, 2028. Rates must allocate costs based on the cost of serving the class and avoid unreasonable cost shifts to other customers.
The legislation goes further than simply creating a new tariff. Large facilities receiving service from investor-owned utilities will generally need contracts covering generation, transmission or distribution service, and transmission and distribution interconnection contracts must run for at least 15 years, with facilities potentially required to make minimum payments based on projected electricity consumption. Those provisions address a growing utility concern. Infrastructure can be built around projected demand that fails to materialize, potentially leaving other customers exposed to costs associated with underused assets.
California's package also addresses water, an approach several other states are converging on independently, including the two dozen states that have already adopted some form of cost-causation framework for large loads. Data centers will have to provide information to local governments and water suppliers about expected consumption, water sources, efficiency and drought planning, and projects will be responsible for any upgrades required to provide that water. The result is a development model in which access to power and water increasingly comes with explicit financial obligations attached.
Texas Freezes Permits Until ERCOT Completes a December Audit of a 474 GW Queue
Texas is taking a more immediate approach than California's legislative route. On September 21, Gov. Greg Abbott directed the Texas Commission on Environmental Quality to halt permits sought by data centers until the Electric Reliability Council of Texas (ERCOT) completes an audit of projects moving through its interconnection process, with state agencies barred from advancing regulatory approvals until information needed by ERCOT, the Public Utility Commission of Texas and the Texas Water Development Board has been obtained.
The scale of the queue helps explain the scrutiny. When Abbott ordered the audit in August, ERCOT was considering more than 474 GW of requests to connect to the grid, more than five times ERCOT's record peak electricity demand, and roughly 90% of that volume is tied to data centers. Not all of that proposed load will be built, which makes distinguishing credible projects from speculative requests increasingly important for grid planning; ERCOT expects to report the results of its audit in December.
Texas has also linked the electricity review to water, directing major water users, including data centers, to comply with existing water-use reporting requirements, while the Water Development Board and ERCOT coordinate to examine water consumption, supply sources and water-efficiency technologies. Under the governor's September 21 directive, data center projects are expected to cover electrical infrastructure costs, report electricity and water consumption and complete the ERCOT audit before proceeding, and the TCEQ must report on implementation by October 19. For developers, that changes the sequence of risk. A project may increasingly need to establish its infrastructure case before receiving the approvals that allow development to advance.
The Same Questions Are Appearing Elsewhere
California and Texas are not moving in isolation. Virginia unveiled a Data Center Accountability Framework on September 18 that combines immediate executive actions with proposals for the 2027 General Assembly. The requirements for data centers include covering infrastructure costs created by their operations, stronger water and environmental standards, financial protections against stranded infrastructure, and reliability requirements intended to prevent sudden load changes from destabilizing the grid.
Massachusetts took its own step September 8 through Executive Order 658, which applies to facilities with peak electricity demand above 25 MW and requires developers to procure enough new clean generation to cover their annual consumption or pay into a new Ratepayer Protection Fund. Pennsylvania took a similar step in August, tying data center permits to its own set of grid requirements after citing PJM's own forecast of 74 GW in summer peak load growth through 2045. The mechanisms vary, because utility regulation, generation markets and permitting authority vary considerably by state, but the direction across all four states is becoming more consistent.
Site Selection Now Starts With Infrastructure
That has implications well beyond compliance teams. For site-selection executives, cheap land or a favorable tax package has limited value if a utility cannot deliver hundreds of megawatts on the project's required timeline. Finance teams now have to weigh infrastructure contributions, minimum electricity payments and long-term utility commitments that can alter project economics before construction begins, while utilities themselves gain stronger financial assurances that can reduce the risk of committing billions of dollars to generation and grid infrastructure for loads that ultimately disappear. For communities, electricity is only one part of the calculation, since water availability, wastewater capacity, backup generation, emissions and land-use impacts are increasingly being weighed alongside power demand.
This does not mean states are closing the door on data centers. California's laws, for example, explicitly contemplate continued development, and Virginia's framework includes pathways intended to accelerate projects that bring additional clean energy and other infrastructure benefits. What is changing is the assumption that infrastructure will simply follow demand.
The next generation of large data center projects may have to demonstrate much earlier that the power exists, the water exists, the infrastructure can be built and someone has committed to paying for it. For developers accustomed to choosing locations first and solving infrastructure constraints later, that is a significant change, and ERCOT's December audit results will be an early test of how many projects in the country's largest queue can actually clear that bar.
