As with previous legislative hearings, dozens of rural landowners arrived to complain about trampled property rights. Speakers directed much of their ire at data center companies and utility officials, but some they also directed at the lawmakers themselves.
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Rep. Charlie Geren
AI data centers may lose their sales tax exemptions when the Texas Legislature convenes in January, according to comments from key lawmakers this week.
Speaking during a legislative hearing, Rep. Charlie Geren, R-Fort Worth, announced he already has prepared a bill to end the tax breaks.“Realistically, (the tax breaks) will be going away,” said Geren. Another lawmaker on the panel also suggested that the exemptions should be revisited.
The potential loss of the tax exemptions was one of several revelations to emerge from an Aug. 19 meeting of the House State Affairs Committee that convened in Austin on August 19. The panel spent 12 hours considering both AI data center development issues and transmission development issues, both of which have become flashpoints for public dissent.
As with previous legislative hearings, dozens of rural landowners arrived to complain about trampled property rights. Speakers directed much of their ire at data center companies and utility officials, but some they also directed at the lawmakers themselves.
“You, the elected representatives, are responsible,” said one irate landowner, speaking about the plans for a massive multi-billion-dollar transmission buildout.
The meeting was divided roughly in half, with the committee receiving expert and public testimony about data centers during the first six hours, and about transmission buildout during the second.
DATA CENTERS
During the data center discussion ERCOT officials provided additional details about how they intend to carry out a recent directive from Gov. Greg Abbott to delay approvals of interconnection requests from large-load industrial energy consumers. Gov. Abbott called for the delay to give time for audits of energy and water usage from data centers, which comprise about 90 percent of those outstanding requests. The audits also will consider their impacts on utility prices and private property rights. Any projects that fail the audits should be denied connection to the grid, the governor said.
Prior to Abbott’s directive, ERCOT and the PUC had launched a regulatory process to consider hundreds of large load interconnection requests simultaneously. Interconnection approvals through this “batch” process had been expected in April, but now the batch process has been placed on hold because of the audits. ERCOT CEO Pablo Vegas said during the hearing that the end date for the first interconnection batch is now uncertain. He also said that some of the roughly 250 projects awaiting the first batch approvals may drop out because of the delay.
Separately, several lawmakers expressed displeasure with tax break legislation authorized in 2013 and 2015 that favors data centers. Those laws exempt qualifying data centers from paying the state’s 6.25 percent sales taxes on purchases related to building and maintaining the facility, and likewise exempts them from paying state sales taxes on the cost of electricity. When the Texas Legislature initially adopted the exemptions, their cost to the state treasury was estimated at $5.4 million annually. Those costs now have ballooned to an estimated $3.2 billion over the next two years, according to reports.
Rep. Geren said he had supported that tax break legislation during previous sessions but now would work to repeal them. Geren also asked AI data center developers whether they would leave the state without the tax breaks. Those industry representatives appearing before the committee on August 19 said that they would not.
Public officials during the hearing also told committee members that the state does not comprehensively track the separate tax breaks that data centers receive from local jurisdictions, nor do they track overall statewide water usage by data centers.
TRANSMISSION LINES
As noted above, lawmakers likewise spent hours considering the proposed buildout of transmission lines for the state’s Permian Basin Reliability Plan and the interrelated Strategic Transmission Expansion Plan. Together, both plans could cost the state about $33 billion, according to ERCOT estimates.
As part of the transmission buildout for both plans, the PUC has authorized for the first-time ever in Texas the construction of massive 765-kilovolt lines. Each of these lines would require more land acquisitions than smaller but more traditional 345 KV and and 148 kV lines. However, overall land use would be comparatively less with the 765 KV lines because ERCOT would require fewer of them.
Nonetheless, landowners at the hearing expressed outrage at plans to build the higher capacity lines across their property, with many noting that there was no specific legislative directive for them to do so. PUC chair Thomas Gleeson, during the hearing, said the agency decided to authorize the larger lines without explicit legislative direction because the larger lines would more efficiently carry power with a smaller footprint.
Landowners also repeated complaints about the180-day timeline that regulators face to approve or reject line-siting proposals. Landowners said the tough schedule did not leave them enough time to defend their property rights, particularly given the extremely technical nature of the process. As such, many of the landowners called for a delay in the transmission buildout until after the upcoming session in 2027. And some lawmakers appeared receptive to those calls. For instance, Rep. Drew Darby, a Republican from San Angelo, said that “when (the transmission plan) was brought to me, the 180 days was suggested … based on the Permian Basin Reliability Plan — not y’all deciding that we’ve got to run lines all the way across the state. So that’s where the 180 days came from, and I agree. I think we need to relook at that.”
However, utility representatives warned that delaying the process would disrupt construction schedules and their ability to procure necessary equipment at optimum prices. Adrian Rodriguez, chief operating officer and president of AEP Texas, said his company reserves “slots” for when equipment becomes available, and that that losing those places in line could result in higher costs. “We have the potential to lose those slots, or that equipment could then be utilized for another part of the country,” he said.
Other industry leaders said it wasn’t just data centers that would be harmed if the transmission buildout were halted. “This is not about data centers,” said Katie Coleman, representing the Texas Association of Manufacturers. “It is about our planning process systematically under-planning for industrial growth for more than 10 years. We are in a catch-up phase because of extreme restrictions that were put on forecasting of industrial growth.”
Rep. Darby also hinted that the Texas Legislature may want to cap utility legal costs associated with the transmission buildout. Darby said utilities receive recovery from ratepayers for their legal costs, but that landowners seeking to protect their own property rights do not. Darby in 2025 filed House Bill 4427 that would have limited an electric or water utility’s recoverable legal expenses, but that legislation failed to pass.
On a separate note, Benjamin Barkley, chief executive of the Texas Office of Public Utility Counsel, pointed to a mismatch between the 20-year length of time that minimum demand charges would be imposed to pay for transmission lines, and their length of service that can reach 40 or 50 years. This long-term timing mismatch could leave residential ratepayers holding the bag once the minimum-demand obligation expires, Barkley warned.