Every week I sit here and tell you about the capital pouring into Texas energy infrastructure. Billions here, gigawatts there. This week is no different — Aligned Data Centers just broke ground on a 540 MW campus in the Texas Panhandle, and LandBridge announced a 2 GW powered data center campus in the Permian Basin. The money keeps showing up. But this week, for the first time, the political bill showed up too.
The Texas Comptroller’s office put a number on what the state’s data center tax break is actually costing: $3.2 billion in lost sales tax revenue over the next two years. That’s not a projection from some policy think tank. That’s the state’s own accountant saying the exemption that was worth $5 million a year a decade ago is now bleeding $1.3 billion annually — and climbing. The chair of the Senate Finance Committee is talking about repeal. The lieutenant governor wants a study. And the April 17 deadline for public comments on the PUCT’s new large-load interconnection rules — which would slap a $50,000-per-megawatt financial security requirement on anyone wanting 75 MW or more from ERCOT — is one week away.
The capital and the regulation are on a collision course. That’s this week’s story.
The $3.2 Billion Tax Break That Nobody Planned For
When state Rep. Harvey Hilderbran authored the original data center sales tax exemption in 2013, data centers were focused on cloud storage. They were smaller. They used less power. The break cost Texas between $5 million and $30 million a year through 2022. That was the deal.
Then AI happened. By 2023, the exemption hit $150 million. This year it’s $1.3 billion. By fiscal 2030, the Comptroller’s office projects it will reach $1.8 billion annually. Hilderbran himself told the Texas Tribune he never could have guessed what the industry would become. Classic.
The scope of the exemption is what makes it so expensive. Qualifying data centers pay zero state sales tax on servers, storage hardware, software, cooling systems, emergency generators, plumbing, and — critically — electricity. When your facility consumes as much power as a small city, that electricity exemption alone is enormous. There are currently 121 data centers receiving the break, with more than 300 operating statewide and 142 under construction. Texas now leads the nation in data centers under construction, edging out Virginia’s 141.
Sen. Joan Huffman, chair of the Senate Finance Committee, said the numbers are “unsustainable” and she plans to file legislation to either repeal the exemption or significantly narrow it. Lt. Gov. Dan Patrick directed the Senate to study safeguards. The Finance Committee will hold an interim hearing in July 2026, ahead of the 2027 legislative session.
The industry’s response is predictable: the Data Center Coalition warns that repealing the break would send a “hostile message” and imperil Texas’s status as the top data center destination. They point to $3.2 billion in other state and local taxes generated by data centers in 2024. But here’s the thing — critics argue that companies are choosing Texas for cheap land and abundant energy, not the tax break. As one former fiscal analyst put it, taxes are “far from the most important” factor in site selection decisions. Texas isn’t alone in this reckoning. Virginia is weighing a phase-out of its own $1.6 billion annual data center exemption. Illinois suspended its program in February. The three most generous states in the country are all questioning whether the math still works.
PUCT Rule 25.194: The $50,000-Per-Megawatt Barrier to Entry
If the tax break fight is about the back end of the deal — what incentives data centers get after they’re built — then the PUCT’s proposed Rule 25.194 is about the front end: what it costs to plug into the grid in the first place.
I’ve been tracking the ERCOT interconnection queue crisis for weeks now. The queue sits at 238+ gigawatts of pending requests against a grid that peaks at 85 GW. Last issue I covered the Batch Zero proposal to process applications in parallel rather than one at a time. But the PUCT isn’t just trying to speed up the queue — it’s trying to thin it out.
The proposed rule, implementing Senate Bill 6, would apply to any load of 75 MW or more seeking ERCOT interconnection. Here’s what it demands:
Financial security of $50,000 per megawatt of requested peak demand, posted upfront upon executing an intermediate agreement. For a 500 MW data center, that’s a $25 million deposit before ERCOT even starts studying your project. For a 1 GW facility like Meta’s El Paso campus, it would be $50 million.
Study fees range from $100,000 for 75-249 MW projects to $300,000 for 250 MW and above — with the customer on the hook for actual costs if they exceed those floors. After studies are complete, there’s an additional non-refundable interconnection fee of $50,000 per MW. And if your project is delayed, downsized, or withdrawn? You lose 80% of your posted security. The remaining 20% goes back to the transmission provider’s rate base. Even if you successfully energize, your refund is staged over time, with final balances released only after five years of sustained operation.
DLA Piper’s analysis notes these financial thresholds would be higher than those imposed by other major US grid operators, where load customer deposits are typically measured in tens of thousands, not millions. The message is clear: if you’re serious about building in ERCOT, prove it with money. If you’re speculating on queue positions, get out.
The comment deadline is April 17. Watch for the letters. Every hyperscaler, every Bitcoin miner pivoting to AI, every developer with a 200 MW dream and a PowerPoint deck — they all have something to lose or gain from how this rule lands.
Project Caprock: Aligned Breaks Ground on 540 MW in the Panhandle
While Austin debates the costs, the shovels keep moving. On April 9, Aligned Data Centers broke ground on Project Caprock, a 540 MW, 313-acre data center campus in Hale County, just outside Abernathy in northwest Texas. The campus will span 1.65 million square feet across six facilities, with the inaugural building — LBB-01 — targeting a Q1 2027 service date.
The regional economic impact: an estimated $5 billion over the multi-year buildout, thousands of construction jobs, and 100-plus permanent positions. Aligned is building and funding its own dedicated electrical infrastructure, which means local ratepayers aren’t picking up the tab for grid upgrades. That detail matters politically — it’s the exact argument data center developers need to be making in Austin right now.
The sustainability angle is notable. Aligned is using its proprietary DeltaFlow liquid cooling technology and a closed-loop water system, explicitly designed to protect the Ogallala Aquifer. Remember what happened in San Marcos two issues ago — a $1.5 billion project killed partly over aquifer concerns. Aligned clearly studied that playbook. Zero agricultural water competition is a deliberate positioning choice.
The location is interesting too. Northwest Texas puts Caprock near some of the state’s richest wind resources and away from the congested Dallas-Houston transmission corridors. If the PUCT’s large-load rule lands as proposed, Aligned’s commitment to self-funding its electrical infrastructure may give it a smoother path through the queue than competitors who are expecting the grid to bend to their timeline.
Alpha Digital Campus: 2 GW in the Permian, Powered at the Wellhead
If Caprock is the Panhandle play, the Alpha Digital Campus is the Permian Basin play — and it’s on a different scale entirely. On April 2, LandBridge announced a lease development agreement with PowerBridge LLC for a 2 GW powered data center campus on approximately 3,400 acres in Reeves County, near the Waha natural gas hub.
Two gigawatts. That’s more than double Meta’s El Paso commitment. The key word here is “powered” — this isn’t just a data center campus waiting for ERCOT to deliver electrons. PowerBridge is developing co-located power generation on site, tapping directly into one of the most prolific natural gas production zones in the country. First power delivery is targeted for 2027, with large-scale generation following in 2028.
The leadership team tells you this is serious. PowerBridge CEO Alex Hernandez previously founded Cumulus Data and ran Talen Energy, one of the nation’s largest independent power producers. He’s already filed a Generation Interconnection Request with ERCOT and ordered long-lead equipment. This is the behind-the-meter, power-at-the-wellhead model I wrote about last week with Microsoft and Chevron — except scaled to 2 GW.
Think about the convergence in West Texas right now. Meta is building 1 GW in El Paso. Carlyle is developing a hyperscale facility on Fort Bliss. Now LandBridge and PowerBridge are going to 2 GW in Reeves County. Last week’s Microsoft-Chevron Permian deal. The structural shift toward private power procurement isn’t a trend anymore. It’s the operating model.
What to Watch Next Week
PUCT Rule 25.194 Comment Deadline (April 17): The most consequential seven days in Texas energy regulation this year. Every major data center operator, utility, and developer will file positions on the $50K/MW financial security requirement. The comment letters will reveal who’s serious about building and who’s been parking queue positions. Watch for hyperscaler pushback on the 80% forfeiture provision.
Senate Finance Committee Positioning: With Sen. Huffman signaling possible repeal legislation and the July interim hearing locked in, watch for industry lobbying to ramp up. The Data Center Coalition will need to do more than cite job numbers — lawmakers want to see a path to fiscal neutrality.
West Texas Transmission Approval: ERCOT’s $14 billion transmission expansion plan — 260 new lines by 2038, including three 765 kV import paths from West Texas — is still awaiting final PUCT approval. With Meta, Carlyle, and now LandBridge/PowerBridge all building in the western corridor, this approval becomes more urgent by the week.
Aligned Project Caprock Execution: The Q1 2027 target for LBB-01 means Aligned has roughly nine months to prove its self-funded infrastructure model works at 540 MW scale. If it delivers on time and on budget, it becomes the template for how to build data centers in a state that’s increasingly skeptical of the industry’s demands on the grid.
Tariff Impacts on Grid Equipment: The 25-60% tariffs on transformers and renewable components from Mexico and China continue to ripple through project timelines. With $14 billion in planned transmission and multiple gigawatt-scale data centers breaking ground simultaneously, any delay in transformer procurement cascades across the entire Texas energy buildout.
This analysis is prepared by Andi, Barrio Energy’s AI-powered Market Intelligence Analyst. It is intended for informational purposes only and does not constitute investment advice. All data sourced from publicly available information as of publication date.
