Texas Governor Orders Data Center Moratorium – Disrupting Projects Under Construction and Parties’ Contractual Expectations

Texas Governor Greg Abbott has directed the Public Utility Commission of Texas (PUCT) and the Electric Reliability Council of Texas (ERCOT) to conduct a comprehensive verification and audit of all data centers advancing through ERCOT’s interconnection process. See “Governor Abbott Directs Comprehensive Data Center Audit.”

The PUCT and ERCOT must complete this audit before any data center project moves forward. Any project that fails to comply with the requirements set forth by the PUCT and ERCOT will be denied connection to the Texas grid.

This order will disrupt projects that are currently underway and challenge the ability of parties to existing transactions involving the construction of data centers to comply with the terms of their contractual obligations. Parties to such transactions should consider enhanced monitoring of their counterparties’ performance—and potentially reevaluate in-service dates and timelines—considering the impacts that this order and further activity by the PUCT and ERCOT in response to it will have.

According to the governor’s statement, ERCOT is currently considering over 474 GW in requests to connect to the Texas grid — 90% of which are for data centers. To put this figure in context, Texas’ hourly peak demand reached a historical record of 91.1 GW on July 22, 2026, surpassing the previous record of 85.5 GW. Such unprecedented load growth, coupled with ongoing regulatory reforms (such as the potential transition from 4CP to 12CP), could endanger the reliability and stability of the Texas electric grid.

The governor has also directed the PUCT and ERCOT to obtain the following information from each data center project:

• Whether the data center depends on any state or local financial assistance (including state and local tax incentives, grants, abatements, or other public financial assistance).
• Whether the data center is providing its own power or depending on the ERCOT grid for power (i.e., a “Bring Your Own Generation” or “BYOG” solution).
• Whether the data center is bringing and reusing its own water for cooling operations or drawing on water from aquifers otherwise used to support local  communities.
• The extent to which the data center is reducing impacts on neighboring property owners and communities, including noise mitigation, light controls, setbacks, traffic improvements, emergency response coordination, and other community protection measures.
• Information detailing the ownership and controlling interests in the project (in addition to compliance with the Lone Star Protection Act).

The order raises many questions, including whether the order has any effect on projects outside of the ERCOT territory or projects that rely exclusively on on-site “behind-the-meter” generation, and how the order will affect implementation by ERCOT of its “Batch Zero” process for large loads just announced in June. See “ERCOT Trending Topics.”

In reaction to the order, ERCOT has already announced that the notification it previously indicated would be provided by August 7 related to the classification of projects as “base load,” “studied load,” and “excluded” will not be issued by that time. See “M-A080326-01 Update Regarding Batch Zero Timelines and Processes.”  Instead, ERCOT will be seeking a good cause exception from the PUCT at its August 20 meeting related to the timelines and process for Batch Zero.

Morrison Foerster has represented clients in numerous transactions involving data center construction in Texas and other locations, including:

• Build-to-suit synthetic leases for construction of data centers;
• Prime and multi-prime construction contracts for construction of data centers;
• Power procurement, interconnection, transmission strategy, state and federal regulatory matters, and other energy aspects of data center projects;
• Construction loans for construction of data centers, supported by leases that will commence once the project is completed and power is available;
• Project financing of data center construction;
• M&A transactions involving developers of data centers under construction and their sponsors;
• Sales of powered land featuring earnout payments to the seller based on the achievement of approvals from ERCOT (and/or other agencies/utilities/
• cooperatives) and energization of lines;
• Representation of clients before the PUCT and ERCOT in connection with data center interconnection, load study, and grid reliability proceedings;
• Advice to data center developers and investors on navigating ERCOT’s Batch Zero process, including project classification, timeline compliance, and related regulatory approvals; and
• Evaluation of the implementation of SB6 legislation and associated PUCT and ERCOT rulemaking, including the impact of new regulatory requirements on data center siting, interconnection, and grid access.

The governor’s order raises numerous questions with respect to how projects that are currently underway will be impacted and the ability of parties to comply with existing contractual terms, including:

• What are the requirements that the PUCT and ERCOT will establish for projects to connect to the grid?
• Will the order adversely affect ability of developers to comply with closing conditions, funding conditions, or conditions related to “final completion,” and what are the consequences of non-compliance?
• How does the order affect projects where will-serve commitments have already been obtained but the project has not yet physically connected to the grid?
• Do lenders need to keep funding if availability of power to the data center under construction has now become uncertain?
• Is the impact of the governor’s order covered by a force majeure clause and, if so, exactly what performance is excused or postponed by that clause, and what preconditions, if any, must be satisfied for a party to claim the benefits of that clause?
• What responsibilities of a borrower, contractor, or landlord to deliver a completed and powered project by a hard date remain enforceable, considering the order?
• What types of costs and cost overruns might be incurred because of the order?
• Are rights exercisable because of anticipated delay or non-performance resulting from the order, or only if the promised project and power aren’t delivered when required?

Our multidisciplinary team of Data Center and Digital Infrastructure lawyers works with data center developers, operators, lenders, and investors around the globe. We have advised some of the most active and sophisticated stakeholders in the data center space on their projects.

Drawing on the capabilities of our Austin office and our multidisciplinary Data Center and Digital Infrastructure team, we are available to assist you in evaluating the impact of Governor Abbott’s order on your Texas transactions and projects. Please reach out to:

Andrew Mina – amina@mofo.com

Justin Mirabel – jmirabal@mofo.com

Jay Costan – jcostan@mofo.com

Dena Sholk – dsholk@mofo.com