PUCT sets financial commitments for data center interconnection as governor pauses permit approvals

On September 18, 2026, the Public Utility Commission of Texas (PUCT) issued a rule standardizing interconnection requirements, capital contributions, and financial security obligations for all large loads equal to or exceeding 75 megawatts (MW) at a single site in the Electric Reliability Council of Texas (ERCOT).¹  Although the PUCT eliminated the non-refundable fees set forth in its initial proposed rule in favor of a flat study charge, the rule includes substantial upfront funding commitments, requiring developers to post $50,000 per MW of requested capacity prior to interconnection studies. Separately, on September 21, 2026, Governor Greg Abbott sent a letter to the Texas Commission on Environmental Quality (TCEQ) to suspend the issuance of all permits sought by data centers pending power grid and water resource audits by ERCOT and the Texas Water Development Board (TWDB),²  respectively.

PUCT Rule

In 2025, the Texas state legislature enacted Senate Bill 6, adding Section 37.0561 to the Public Utility Regulatory Act (PURA) to safeguard retail ratepayers from stranded transmission infrastructure costs associated with the influx of data centers within the ERCOT region.³  The PUCT developed initial standards under Project No. 58481 and filed a proposed rule in March 2026, and the final rule on September 18, 2026. In order to deter speculative interconnection queue positions prior to initiating study processes, the proposal established minimum readiness standards, such as demonstrating site control and sufficient progress in acquiring necessary permits.⁴ 

The new rule materially departs from the more stringent early capital requirements by replacing the non-refundable interconnection fee of $50,000 per MW with size-tiered study charges paired with an initial flat $100,000 fee. The new rule shifts the $50,000 per MW to become financial security posted. Further, the rule replaces interim milestone default standards with a 24-month grace period spanning the entire energization schedule before interconnecting Transmission Service Providers and Distribution Service Providers (TSPs and DSPs) must notify ERCOT of unutilized capacity. The adopted standards will apply to any customer requesting electric service at a single site for a new load interconnection equal to or exceeding 75 MW, a facility expansion that results in total site load equaling or exceeding 75 MW for the first time, or an expansion of an existing facility already operating at or above 75 MW that adds 75 MW or more of electrical demand.⁵

In the regulatory approval process, the PUCT rejected stakeholder requests to create industry-specific carve-outs (i.e., the rule is not specific to data centers, it captures green hydrogen producers, industrial metal manufacturers, and petroleum facilities). The PUCT mandated that financial security calculations reflect gross contracted peak demand, denying requests to exempt co-located generation or calculate collateral based on net grid imports.

The new rule establishes the following phased interconnection agreement (IA) process administered by interconnecting TSPs and DSPs:

• Intermediate Agreement: Prior to an interconnection study, the customer must execute an intermediate agreement, remit the $100,000 study fee, submit officer-attested technical disclosures, and post financial security of $50,000 per MW of requested peak demand. Interconnecting TSPs and DSPs must contact ERCOT within 60 days of intermediate agreement execution and funding to initiate the interconnection study.
• Standard Large Load Interconnection Agreement (SLLIA): Following allocation of transmission capacity, the customer must execute a SLLIA, submit updated project disclosures, and post financial security equal to the greater of $50,000 per MW of contracted peak demand or the allocated transmission upgrade costs.⁶
• Contribution in Aid of Construction (CIAC): Interconnecting TSPs and DSPs will invoice customers for direct interconnection costs prior to those costs being incurred.
• Contractual Rate Commitments: The SLLIA obligates the customer to pay the large load minimum billing demand established under the Transmission Cost Recovery Factor.⁷

Upon initial energization, the interconnecting utility returns 20 percent of the SLLIA financial security to the customer, releasing the remaining 80 percent in ratable 20 percent increments as the customer meets contract milestones for paying the large load minimum billing demand. Customers withdrawing prior to study commencement (or receiving zero MW of allocated capacity following the ERCOT batch study) receive a 100 percent return of posted security, less outstanding amounts owed to the interconnecting utility. Customers withdrawing after ERCOT allocates transmission capacity forfeit 20 percent of the financial security associated with allocated capacity, with the balance returned after deducting outstanding costs. If a customer fails to energize within 24 months of its scheduled date, the interconnecting TSP or DSP applies the financial security to outstanding amounts owed and returns any remaining balance within 60 days of notifying ERCOT.

For existing loads participating in ERCOT's Batch Zero study under Planning Guide Revision Request 145, posted cash collateral may be credited toward SLLIA security obligations (or returned). Letters of credit and corporate guaranties issued under prior intermediate agreements must be returned and replaced with conforming instruments under the SLLIA. Batch Zero projects with IAs executed on or before June 1, 2025, remain subject to the direct interconnection cost terms of those prior agreements and are exempt from additional direct cost assessments.

It is worth noting that all data submitted during the large load interconnection queue process remains subject to review by the PUCT and ERCOT; failure to substantiate technical disclosures may lead to administrative penalties, including the loss of allocated transmission capacity.

Governor’s letter

On September 14, 2026, Governor Abbott directed the TWDB to enforce mandatory water-use reporting compliance for data centers and to coordinate with ERCOT on joint resource assessments.⁸ One week later, on September 21, 2026, Governor Abbott issued a letter instructing the TCEQ to suspend the issuance of all permits sought by data centers (or related to data center projects). The letter precludes the TCEQ and other state regulatory bodies from advancing project approvals related to data center projects until ERCOT completes its ongoing audit and the TWDB concludes its municipal water impact evaluations. The governor asked the TCEQ to submit a compliance report by October 19, 2026.

To resume permitting, data center sponsors must satisfy six state conditions: 1) Fully absorb all dedicated grid infrastructure costs; 2) demonstrate that their commercial operation will result in lower residential electric bills rather than retail rate increases; 3), clear the joint ERCOT and TWDB audits; 4) establish that project operations will not consume water resources required by local communities; 5) submit mandatory electricity and water consumption reports; and 6) comply with applicable local setback ordinances. The letter notes an intention to collaborate with the Texas Legislature during the 90th Legislative Session to eliminate state tax exemptions and statutory economic development incentives for data center developments that fail to meet these requirements.

Implications & outlook

Going forward, large load developers building in Texas will need to post significant financial security and commit to direct CIAC payments prior to the full study process. Developers cannot bypass entirely these collateral requirements by deploying backup generation (i.e., behind-the-meter), given that the PUCT calculates security based on the contracted peak demand in the amount of allocated transmission capacity rather than net grid demand (after accounting for potential instances in which the project may draw from its own backup generation to meet demand).

By suspending all permits sought by data centers for a period, the freeze directed by Governor Abbott also blocks off-grid or islanded projects that would have bypassed the interconnection queue. Because collateral remains in place to maintain transmission priority while site permitting remains suspended, project sponsors and lenders must review and possibly amend existing arrangements to account for these final requirements and standards. 

^{1 Order in PUCT Project No. 58481 (Sept. 18, 2026).
2 Letter from Gov. Greg Abbott to Kelly Keel, Exec. Director, Texas Commission on Environmental Quality (Sept. 21, 2026).
3 PURA § 37.0561, as enacted by Senate Bill 6, 89th Leg., R.S. (Tex. 2025).
4 51 Tex. Reg 1942 (Mar. 27, 2026).
5 16 Texas Administrative Code (TAC) § 25.194.
6 While presumably ERCOT or the Transmission Service Provider will conduct a true-up of the financial security posted under the Intermediate Agreement at the point of the SLLIA, the new rule does not explain this process for projects of Batch Zero.
7 16 TAC §25.193.
8 Office of the Texas Governor, Press Release: Governor Abbott Directs TCEQ To Halt Data Center Permits (Sept. 21, 2026).
9 PUCT affirms curtailment authority over co-located data centers in first net metering case under Senate Bill 6, White & Case LLP (Aug. 5, 2026). Available at: https://www.whitecase.com/insight-alert/puct-affirms-curtailment-authority-over-co-located-data-centers-first-net-metering.}

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