Texas Gov. Greg Abbott on Sept. 21 ordered the Texas Commission on Environmental Quality to “halt all permits sought by data centers.” Addressed to outgoing Executive Director Kelly Keel, the order would apply to all data center projects in the State of Texas in the middle of any TCEQ permitting process.
This “pause” will be in effect until ERCOT completes its review of data centers moving through the interconnection process that the governor directed the Public Utility Commission of Texas and ERCOT to undertake Aug. 3. TCEQ must report to the governor’s office on its compliance with the order by Oct. 19.
So long as the order is in effect, TCEQ will not issue any permits “related to data center projects.” Permit issuance is paused regardless of whether an applicant is in ERCOT’s interconnection queue. The order thus affects all data centers, even those that plan to rely entirely on “behind-the-meter” generation without interconnecting with the ERCOT grid.
The order effectively pauses all data center development in the state until mid-December, which is when ERCOT anticipates completing the aforementioned data center audit.
Because the order pauses all permits “related to data center projects,” the order may apply well beyond data center project developers themselves. Co-located and behind-the-meter generation developers that intend to serve data centers face a permitting pause that may extend to several types of permits upon which their construction, operations or equipment depend.
The blanket prohibition may catch some companies by surprise, as many data center developers that were developing fully “islanded” facilities (i.e., facilities that are not or will not be interconnected to the grid) may have understood that they would be able to avoid project delays resulting from ERCOT’s audit process. However, this order means any such facilities that have not already been granted air permits or related TCEQ authorizations will be affected by the pause.
All developers of data center projects or facilities supporting data center projects will need to consider whether this pause on permit issuances will affect their ability to meet contractual obligations, and if so, whether they can avail themselves of relief from performance through force majeure provisions, change in law provisions or otherwise.
What the TCEQ Order Means
The TCEQ order directs TCEQ to “pause the issuance of all permits related to data center projects until ERCOT completes its review.” At a minimum, the TCEQ order means that TCEQ will not issue any final permits to any data center project. The TCEQ order applies not only to data center developers who may be permitting their own power generation resources, but also to any other projects that are “related to data center projects” and may be sponsored by developer affiliates or developer counterparties — for example, where a separate legal entity is developing a power generation facility to primarily support the operations of a data center.
Regardless of whether data center projects, their affiliates or counterparties are seeking permits from TCEQ, no permits will be issued if they relate to data centers until ERCOT completes its review.
The stated rationale for the rule is informational, rather than focusing on specific environmental impacts to air or water resources. Because the information sought by the PUCT, ERCOT and the Texas Water Development Board is described as necessary for those agencies to make informed decisions, the governor states that no other state agency shall move forward with regulatory approvals related to data centers until that information is acquired. TCEQ must also align its permitting decisions with the governor’s directives.
Although TCEQ is prohibited from issuing permits, the governor did not clearly direct TCEQ to stop all permitprocessing until the ERCOT review is completed, and the order is somewhat ambiguous on this point. TCEQ could conceivably review the technical aspects of an application, or even carry a permit forward through public notice and comment phases, and simply delay issuance of the final permit. However, TCEQ may be disinclined to make forward progress on these applications, given that the governor’s instructions also require that “TCEQ must similarly ensure that its permitting decisions align with my directives.”
The governor explains that “[t]his process will ensure that TCEQ has sufficient information, including information gained from pending audits, and time to thoroughly review all proposed permits to make fully informed permitting decisions.” To the extent TCEQ believes that continued processing of permits runs afoul of the governor’s instruction to “halt all permits” — or that the outcome of ERCOT’s review could produce actionable information for the purpose of environmental permitting — TCEQ may pause permit processing activities as well.
Moreover, while TCEQ is not to issue any final permits “related to data center projects,” it is unclear how this order affects TCEQ’s various general and standard permits. Permits-by-rule may be “claimed” or require a “registration” with TCEQ, with no other action from the agency. Standard permits require a project developer to submit a registration, but TCEQ regulations allow registrants to begin construction within 45 days of the registration, provided that the executive director of the TCEQ does not object. The order clearly applies to significant permits like New Source Review air permits, or Texas Pollutant Discharge Elimination System permits for wastewater, where TCEQ must make a final agency decision to issue the permit, but the order is less clear as applied to these other permitting frameworks.
Because the order applies to any permit “related to data center projects,” each of these authorizations is potentially caught by the pause, not just the marquee air or interconnection-related approvals.
Over the coming weeks, TCEQ’s path forward through these issues may become clearer. Given that there are a number of TCEQ permits that data centers need to build and operate their facilities that may be affected by this order, TCEQ’s interpretation of this order will be essential to understanding what forward progress data center developers may make pending ERCOT’s completed review.
The Background
The governor’s order to TCEQ follows his Aug. 3 order to the PUCT and ERCOT and his Sept. 14 order to the TWDB. In those directives, the governor ordered the PUCT and ERCOT to audit all data centers in ERCOT’s interconnection queue to evaluate the projects’ potential impacts on the grid and Texas’ natural resources, especially water, and to ensure that these projects do not increase consumer electricity costs. The governor directed the TWDB to partner with ERCOT on that audit, including on water consumption, sources of water supply and implementation of water-efficient technologies, and to compel data centers to comply with water-use reporting requirements under the Texas Water Code.
A data center that fails to timely complete and return the TWDB water-use survey commits a criminal offense and is ineligible for TCEQ permits, amendments or renewals under Chapter 11 of the Texas Water Code, and the governor directed TWDB to enforce those remedies, including referral to the appropriate county or district attorney and notice to TCEQ for possible permit disqualification. Failure to respond to TWDB’s audit-related information requests separately triggers TWDB’s independent enforcement authority.
Although the governor’s prior orders affected hundreds of proposed data center projects, these prior orders affected only those projects that were in ERCOT’s interconnection queue or that were not in compliance with responses to the TWDB’s water-use surveys. If a data center project was securing a non-grid source of electric power and otherwise responded appropriately to TWDB’s surveys, the prior orders did not affect the ability to continue executing on that project.
Going Forward
ERCOT is expected to complete its audit in mid-December 2026. In the meantime, onsite generation has been “paused” as an option for project sponsors looking to avoid interconnection delays.
However, mid-December may not be a return to normalcy. The TCEQ order also previews the substantive regime to come. It states that data center projects must cover all electrical infrastructure costs, must result in lower residential electrical bills, must not use water needed by local communities, must report electricity and water usage, and must abide by setback requirements protecting the communities in which they operate. The governor further states that he will work with the Legislature to eliminate any financial incentives for data centers and that TCEQ “will play a vital role once these laws are enacted.”
As a result of these orders, developers of data center facilities and supporting projects will need to consider the impact these orders will have on their development timelines and review their contractual rights and obligations to ensure that they are able to either comply with their obligations or exercise rights to seek relief from performance until the ERCOT audit is complete.
Likewise, developers will need to consider whether their projects meet the standards that the governor has laid out as his objectives behind initiating what has effectively amounted to a moratorium on new data center projects built in Texas.
Daniel J. Pope is a counsel with Bracewell’s environment, lands and resources practice in the firm’s Austin office. He advises clients on environmental permitting and transactions and represents them in litigation and environmental enforcement defense under a number of environmental and natural resources statutes and regulatory programs.
Jared Berg is an energy partner in Bracewell’s Houston office. Berg advises companies and investors across the energy sector on complex corporate transactions and commercial arrangements. He also works with clients developing co-located and distributed energy solutions to support digital infrastructure and other power-intensive operations, including data centers and cryptocurrency mining.
Matt Paulson is a partner with Bracewell’s environment, lands and resources practice in the firm’s Austin office. He represents companies in the oil and gas, refining, power and chemical manufacturing industries on environmental matters, including strategic permitting, regulatory compliance, investigations, enforcement, crisis response, civil and appellate litigation and transactions.
Whit Swift is a partner with Bracewell’s environment, lands and resources practice in the firm’s Austin office. He advises industrial companies on air quality matters and regularly works with clients to develop permitting strategies aimed at expediting permit timelines and minimizing permit risk.
Bryan Clark is an energy partner in Bracewell’s Dallas office. The former managing associate general counsel at Pioneer Natural Resources, Clark has extensive commercial and regulatory experience with power purchase agreements and facilities extension, including interconnection agreements with electric utilities and other electric transmission and distribution providers.