East Texas Data Center Proposal Withdrawn

By Selina Xia Zamacois

AUSTIN — A proposed data center near Cedar Creek Lake has been withdrawn after the developer, Diode, informed Henderson County officials that the project would not meet requirements outlined by state leadership or the expectations of nearby residents. The decision follows a June 10 directive from Governor Greg Abbott that set new criteria for data centers operating in Texas.

According to the Governor’s office, the company chose to step back after reviewing the standards, which include environmental considerations, community protections, and power‑grid requirements. The directive established expectations for future data center development, such as ensuring interconnections that do not increase residential electric bills, requiring companies to fund necessary electric infrastructure, and mandating that new facilities add capacity to the grid rather than only increasing demand.

The directive also encourages water‑efficient technologies—such as closed‑loop cooling systems—and community‑focused measures including setbacks, noise‑reduction systems, and other protections for nearby neighborhoods.

Abbott has said he intends to pursue legislation to formalize these standards and add additional requirements, including annual reporting of electricity and water usage by large data centers and the repeal of certain tax incentives. He stated that the goal is to ensure data center growth does not negatively affect families or rural communities.

One day after the Cedar Creek Lake proposal was withdrawn, the Public Utility Commission of Texas and the Electric Reliability Council of Texas released their formal response to the June 10 directive. The agencies reported that they have begun implementing measures aimed at preventing residential ratepayers from absorbing costs associated with data center expansion.

Among the steps underway, the PUCT is requiring data centers to pay for transmission infrastructure built to serve them and to avoid diverting existing power away from the ERCOT grid. ERCOT has implemented a new interconnection screening process to prevent grid overloading and has strengthened long‑term planning to maintain reliable service for residents. Additional standards are being developed to determine whether a data center can connect to the grid, including requirements that facilities reduce power usage when instructed by ERCOT.

PUCT and ERCOT also recommended legislative changes for the upcoming session. Those include expanding the Lone Star Infrastructure Protection Act to cover large data centers, clarifying regulatory authority over reliability requirements, and requiring data centers to register with both agencies to provide accurate water and electricity usage information.

State officials say they will continue working with lawmakers on potential legislation related to data center development and its impact on Texas ratepayers.