Perry Data Center Bill Ties Tax Breaks To Low-Water Cooling

The text as introduced · 3,710 words

90R4472 DRS/ANG-F

By: Perry, et al.
S.B. No. 338

A BILL TO BE ENTITLED

AN ACT

relating to data centers.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 403.602, Government Code, is amended by

adding Subdivision (7-a) to read as follows:

(7-a) "Data center" has the meaning assigned by

Section 312.2042, Tax Code.

SECTION 2. Section 403.605(a), Government Code, is amended

to read as follows:

(a) The taxable value for school district maintenance and

operations ad valorem tax purposes of eligible property subject to

an agreement for each tax year of the incentive period prescribed by

the agreement is equal to:

(1) 50 percent of the market value of the property for

that tax year; [ or ]

(2) if the property is used as part of an eligible

project that is a data center, not more than 50 percent of the

market value of the property for that tax year; or

(3) if the property is located in a qualified

opportunity zone, 25 percent of the market value of the property for

that tax year.

SECTION 3. Section 403.612(d), Government Code, is amended

to read as follows:

(d) This subsection applies to a term described by

Subsection (b)(10). The agreement must provide that:

(1) the governor or the school district is authorized

to terminate the agreement if the applicant fails to comply with :

(A) an applicable jobs or wage requirement of the

agreement; or

(B) any term of an agreement that pertains to an

eligible project that is a data center;

(2) the governor or the district may not terminate the

agreement until the party provides written notice to the applicant

of the proposed termination;

(3) the governor or the district must provide the

applicant a 180-day period to cure and dispute the alleged failure,

including through judicial action; and

(4) in the event the agreement is terminated, the

state shall recover from the applicant a penalty in an amount equal

to all lost ad valorem tax revenue from the project and interest on

that amount calculated as provided by Section 111.060, Tax Code.

SECTION 4. Subchapter T, Chapter 403, Government Code, is

amended by adding Section 403.6121 to read as follows:

Sec. 403.6121. ADDITIONAL REQUIREMENTS FOR AGREEMENTS

INVOLVING DATA CENTERS. (a) In this section:

(1) "Closed-cycle recirculating system," "dry cooling

system," "saline water cooling system," and "water-efficient

cooling system" have the meanings assigned by Section 39.920,

Utilities Code.

(2) "Commission" means the Public Utility Commission

of Texas.

(b) This section applies only to an agreement entered into

under Section 403.612 pertaining to an eligible project that is a

data center.

(c) In addition to the requirements of Section 403.612, an

agreement entered into under that section between the governor, a

school district, and an applicant pertaining to an eligible project

that is a data center must require the applicant to:

(1) use only a closed-cycle recirculating system, dry

cooling system, saline water cooling system, water-efficient

cooling system, or a combination of such systems to cool the data

center, including any generation resource located at the data

center;

(2) at the time the applicant executes the agreement,

submit to the commission documentation in a form prescribed by the

commission that:

(A) estimates the anticipated annual water

supply needs for cooling purposes at the data center; and

(B) identifies the anticipated source or sources

of water the applicant will procure to meet the anticipated annual

water supply needs of the data center;

(3) starting on the first anniversary of the

construction completion date of the data center and on each

subsequent anniversary of that date until the data center is no

longer in operation, submit to the commission documentation in a

form prescribed by the commission that states for the preceding

year:

(A) the amount of water used for cooling

purposes; and

(B) the source or sources of water used for

cooling purposes;

(4) own the data center for the term of the agreement;

(5) pay the cost to remediate environmental harm to

the real property that is the subject of the agreement that results

from the construction, operation, presence, abandonment, or

demolition of the data center;

(6) except as provided by Subsection (d), convey to

the school district a nonpossessory interest in the real property

that is the subject of the agreement that imposes a permanent

limitation on the applicant and the applicant's assignees or

successors in interest from constructing or operating a data center

that uses a cooling system other than a system or combination of

systems described by Subdivision (1), and file for recording in the

real property records of the county in which the real property is

located the instrument of conveyance of the interest; and

(7) comply with any standards adopted by the

commission under Section 39.920, Utilities Code, limiting light and

noise pollution caused by operation of the data center or

regulating the minimum distance of any component building of the

data center to the boundary of the data center.

(d) An agreement is not required to provide for the

conveyance of a nonpossessory interest in real property as provided

by Subsection (c)(6) if the applicant has conveyed an interest in

the property to a taxing unit under an agreement entered into under

Chapter 312, Tax Code.

SECTION 5. Chapter 380, Local Government Code, is amended

by adding Section 380.005 to read as follows:

Sec. 380.005. ADDITIONAL REQUIREMENTS FOR PROGRAMS

INVOLVING DATA CENTERS. (a) In this section, "data center" has the

meaning assigned by Section 312.2042, Tax Code.

(b) A municipality may not make a loan or grant of public

money under a program authorized by this chapter involving the

construction or operation of a data center unless the governing

body of the municipality or a development corporation created by

the municipality enters into an agreement with the loan or grant

recipient that meets the applicable requirements of Section

312.2042, Tax Code.

SECTION 6. Section 381.004(g), Local Government Code, is

amended to read as follows:

(g) The commissioners court may develop and administer a

program authorized by Subsection (b) for entering into a tax

abatement agreement with an owner or lessee of a property interest

subject to ad valorem taxation. The execution, duration, and other

terms of the agreement are governed, to the extent practicable, by

the provisions of Sections 312.204, 312.2042, 312.205, and 312.211,

Tax Code, as if the commissioners court were a governing body of a

municipality.

SECTION 7. Section 312.204, Tax Code, is amended by adding

Subsection (a-1) to read as follows:

(a-1) In this subsection, "data center" has the meaning

assigned by Section 312.2042. Notwithstanding any other provision

of this section, the governing body of a municipality may not enter

into an agreement under this section with the owner or lessee of

property that is a data center to exempt from taxation more than 50

percent of the portion of the value of the property that is

otherwise subject to abatement under this section during any year

covered by the agreement.

SECTION 8. Subchapter B, Chapter 312, Tax Code, is amended

by adding Section 312.2042 to read as follows:

Sec. 312.2042. ADDITIONAL REQUIREMENTS FOR AGREEMENTS

INVOLVING DATA CENTERS. (a) In this section:

(1) "Closed-cycle recirculating system," "dry cooling

system," "saline water cooling system," and "water-efficient

cooling system" have the meanings assigned by Section 39.920,

Utilities Code.

(2) "Commission" means the Public Utility Commission

of Texas.

(3) "Data center" means a site containing one or more

facilities that:

(A) individually or collectively are at least

100,000 square feet in area; and

(B) are constructed or adapted to house servers

and related equipment and support staff for the processing,

storage, and distribution of data.

(b) This section applies only to an agreement entered into

under Section 312.204 pertaining to real and tangible personal

property located at a data center.

(c) In addition to the requirements of Section 312.204, an

agreement entered into under that section between a municipality

and the owner or lessee of real property at which a data center is

located must:

(1) require the owner or lessee, as applicable, to:

(A) use only a closed-cycle recirculating

system, dry cooling system, saline water cooling system,

water-efficient cooling system, or a combination of such systems to

cool the data center;

(B) at the time the agreement is executed, submit

to the commission documentation in a form prescribed by the

commission that:

(i) estimates the anticipated annual water

supply needs for cooling purposes at the data center; and

(ii) identifies the anticipated source or

sources of water the owner or lessee, as applicable, will procure to

meet the anticipated annual water supply needs of the data center;

(C) starting with the first anniversary of the

date the data center begins operations and on each subsequent

anniversary of that date until the data center is no longer in

operation, submit to the commission documentation in a form

prescribed by the commission that states for the preceding year:

(i) the amount of water used for cooling

purposes; and

(ii) the source or sources of water used for

cooling purposes;

(D) either:

(i) own the data center for the term of the

agreement if the owner enters the agreement; or

(ii) lease the data center for the term of

the agreement if the lessee enters the agreement;

(E) pay the cost to remediate environmental harm

to the real property that is subject to the agreement that results

from the construction, operation, presence, abandonment, or

demolition of the data center;

(F) except as provided by Subsection (d), convey

to the municipality a nonpossessory interest in the real property

that is the subject of the agreement that imposes a permanent

limitation on the owner and the owner's assignees or successors in

interest from constructing or operating a data center that uses a

cooling system other than a system or combination of systems

described by Paragraph (A), and file for recording in the real

property records of the county in which the real property is located

the instrument of conveyance of the interest; and

(G) comply with any standards adopted by the

commission under Section 39.920, Utilities Code, limiting light and

noise pollution caused by operation of the data center or

regulating the minimum distance of any component building of the

data center to the boundary of the data center;

(2) authorize the municipality to terminate the

agreement if the owner or lessee, as applicable, fails to comply

with a term of the agreement; and

(3) require the municipality to recover from the owner

or lessee, as applicable, a penalty in an amount equal to all lost

ad valorem tax revenue from the data center and interest on that

amount calculated as provided by Section 111.060 if the agreement

is terminated.

(d) An agreement is not required to provide for the

conveyance of a nonpossessory interest in real property as provided

by Subsection (c)(1)(F) if the owner has conveyed an interest in the

property to:

(1) another taxing unit under a separate agreement

entered into under this chapter;

(2) a municipality or county under an agreement

entered into under Chapter 380 or 381, Local Government Code; or

(3) a school district under an agreement entered into

under Subchapter T, Chapter 403, Government Code.

SECTION 9. Section 312.206(a), Tax Code, is amended to read

as follows:

(a) If property taxes on property located in the taxing

jurisdiction of a municipality are abated under an agreement made

under Section 312.204 or 312.211, the governing body of each other

taxing unit eligible to enter into tax abatement agreements under

Section 312.002 in which the property is located may execute a

written tax abatement agreement with the owner of the property. The

agreement is not required to contain terms identical to those

contained in the agreement with the municipality , other than a term

required by Section 312.2042 if the agreement pertains to property

to which that section applies . The execution, duration, and other

terms of an agreement made under this section are governed by the

provisions of Sections 312.204, 312.2042, 312.205, and 312.211

applicable to a municipality. If the governing body of the taxing

unit by official action at any time before the execution of the

municipal agreement expresses an intent to be bound by the terms of

the municipal agreement if the municipality enters into an

agreement under Section 312.204 or 312.211 with the owner relating

to the property, the terms of the municipal agreement regarding the

share of the property to be exempt in each year of the municipal

agreement apply to the taxation of the property by the taxing unit.

SECTION 10. Section 312.402(a-2), Tax Code, is amended to

read as follows:

(a-2) The execution, duration, and other terms of an

agreement entered into under this section are governed by the

provisions of Sections 312.204, 312.2042, 312.205, and 312.211

applicable to a municipality. Section 312.2041 applies to an

agreement entered into under this section in the same manner as that

section applies to an agreement entered into under Section 312.204

or 312.211.

SECTION 11. Subchapter H, Chapter 39, Utilities Code, is

amended by adding Section 39.362 to read as follows:

Sec. 39.362. DATA CENTER LARGE LOAD REGISTRATION. (a) This

section applies only to a large load customer who is subject to the

standards adopted under Section 37.0561 and intends to interconnect

or has interconnected to the ERCOT transmission grid a site that

includes one or more facilities that:

(1) individually or collectively encompass at least

100,000 square feet of space; and

(2) are specifically constructed or refurbished to

house servers and related equipment and support staff for the

processing, storage, and distribution of data.

(b) The commission by rule shall:

(1) require a large load customer to register as a

large load the facility or facilities receiving electric service at

the data center; and

(2) establish a method to ensure compliance with this

section.

SECTION 12. Subchapter Z, Chapter 39, Utilities Code, is

amended by adding Section 39.920 to read as follows:

Sec. 39.920. DATA CENTER CUSTOMERS. (a) In this section:

(1) "Closed-cycle recirculating system" means a

cooling system that uses a minimized volume of water to support

contact or no-contact cooling uses in one or more facilities by

passing water through a condenser, a sub-surface zone, an adiabatic

chamber, or another component of the system and reusing that water

for cooling multiple times without adding new water to the system,

except as necessary to replenish losses caused by blowdown, drift,

or leakage.

(2) "Data center customer" means a customer registered

under Section 39.362.

(3) "Dry cooling system" means a cooling system that

uses no water to support contact or no-contact cooling uses in one

or more facilities.

(4) "Saline water cooling system" means a cooling

system that is determined by the commission to use only desalinated

seawater, desalinated brackish water, or water derived from fluid

oil and gas waste, as defined by Section 122.001, Natural Resources

Code, for cooling purposes.

(5) "Water-efficient cooling system" means a cooling

system that is determined by the commission to use less total water

for cooling purposes per unit of power consumed by the system than a

closed-cycle recirculating system would use in the same or

substantially similar circumstances.

(b) The commission by rule shall require a data center

customer to, before interconnecting the customer's site to the

ERCOT transmission grid:

(1) use only a closed-cycle recirculating system, dry

cooling system, saline water cooling system, water-efficient

cooling system, or a combination of such systems to cool the

facility or facilities on the customer's site, including any

generation resource co-located on the site; and

(2) submit documentation in a form prescribed by the

commission that:

(A) estimates the customer's anticipated annual

water supply needs for cooling purposes on the customer's site; and

(B) states the anticipated source or sources of

water the customer will procure to meet the customer's anticipated

annual water supply needs.

(c) The commission by rule shall require a data center

customer to, after interconnecting the customer's site to the ERCOT

transmission grid, annually submit to the commission documentation

in a form prescribed by the commission that states for the preceding

calendar year:

(1) the customer's water usage for cooling purposes;

and

(2) the source or sources of water used by the customer

to meet the customer's water needs.

(d) At least once each year, the commission shall provide to

the Texas Water Development Board the documentation provided to the

commission under Subsections (b) and (c) during the preceding year.

(e) The commission shall consult with the Texas Water

Development Board in developing the forms required by Subsections

(b) and (c).

(f) The commission by rule shall:

(1) prohibit an electric cooperative, municipally

owned utility, or transmission and distribution utility from

interconnecting a data center customer's site to the ERCOT

transmission grid, unless:

(A) the site uses only a closed-cycle

recirculating system, dry cooling system, saline water cooling

system, water-efficient cooling system, or combination of those

systems at the time of interconnection; and

(B) the customer has submitted to the commission

the documentation required by Subsection (b); and

(2) require an electric cooperative, municipally

owned utility, or transmission and distribution utility to

disconnect a customer's campus from the ERCOT transmission grid if

the customer:

(A) uses a cooling system other than a

closed-cycle recirculating system, dry cooling system, saline

water cooling system, water-efficient cooling system, or

combination of those systems to cool a facility located on the

customer's campus, including any generation resource co-located on

the campus, while interconnected to the grid; or

(B) fails to timely submit to the commission the

documentation required by Subsection (c).

(g) The commission by rule may require a data center

customer to:

(1) limit the noise and light pollution caused by the

operation of any facility on the data center customer's site,

including any noise and light pollution caused by a generation

resource co-located on the customer's site; and

(2) locate a facility on the customer's site,

including any generation resource co-located on the customer's

site, a minimum distance from the boundary of the tract of land that

comprises the site.

(h) The commission by rule may:

(1) prohibit an electric cooperative, municipally

owned utility, or transmission and distribution utility from

interconnecting a data center customer's site to the ERCOT

transmission grid because the customer's site is not in compliance

with the standards adopted by the commission under Subsection (g);

and

(2) require an electric cooperative, municipally

owned utility, or transmission and distribution utility to

disconnect a data center customer's site from the ERCOT

transmission grid because the site is not in compliance with the

standards adopted by the commission under Subsection (g).

SECTION 13. Subchapter L, Chapter 5, Water Code, is amended

by adding Section 5.517 to read as follows:

Sec. 5.517. EMERGENCY ORDER CONCERNING CONSTRUCTION

ACTIVITY OF DATA CENTER. The commission shall issue an emergency

order in the manner provided by Subchapter L, Chapter 5, requiring

the cessation of construction of a data center authorized under a

general permit issued under Section 26.040 that authorizes

discharges of stormwater runoff and non-stormwater discharges from

construction if the commission determines, after receiving a

complaint or learning through other means, that the data center

does not or will not comply with the standards and rules described

by Section 26.054(c).

SECTION 14. Subchapter B, Chapter 26, Water Code, is

amended by adding Section 26.054 to read as follows:

Sec. 26.054. PERMIT CONDITIONS FOR DATA CENTERS. (a) In

this section, "data center" means a site that has one or more

facilities that encompass at least 100,000 square feet of space and

are specifically constructed or refurbished to house servers and

related equipment and support staff for the processing, storage,

and distribution of data.

(b) This section applies only to a general permit issued

under Section 26.040 that authorizes discharges of stormwater

runoff and non-stormwater discharges from construction activities.

(c) An applicant for authorization to discharge waste from a

data center under a general permit shall attest in the notice of

intent submitted to the commission that the applicant is compliant

or will comply with applicable standards and rules adopted by the

Public Utility Commission of Texas under Sections 37.0561 and

39.920, Utilities Code.

(d) Notwithstanding any other provision of this chapter,

the commission, after hearing, shall deny or suspend a discharger's

authority to discharge from a data center under a general permit if

the commission determines that the data center does not or will not

comply with applicable standards and rules described by Subsection

(c).

SECTION 15. Sections 403.605(a) and 403.612(d), Government

Code, as amended by this Act, and Section 403.6121, Government

Code, as added by this Act, apply only to an agreement limiting the

taxable value of property entered into under Subchapter T, Chapter

403, Government Code, on or after the effective date of this Act.

SECTION 16. Section 380.005, Local Government Code, as

added by this Act, applies only to a loan or grant of public money

made on or after the effective date of this Act.

SECTION 17. Section 381.004(g), Local Government Code, as

amended by this Act, applies only to an agreement entered into on or

after the effective date of this Act.

SECTION 18. Sections 312.204(a-1) and 312.2042, Tax Code,

as added by this Act, and Sections 312.206(a) and 312.402(a-2), Tax

Code, as amended by this Act, apply only to a tax abatement

agreement entered into on or after the effective date of this Act.

SECTION 19. The Public Utility Commission of Texas may

apply rules adopted under Section 39.920, Utilities Code, as added

by this Act, only to the site of a data center customer

interconnected to the ERCOT transmission grid on or after the

effective date of this Act.

SECTION 20. Section 26.054, Water Code, as added by this

Act, applies only to an application for authorization to use a

general permit that is filed with the Texas Commission on

Environmental Quality on or after the effective date of this Act. An

application for authorization to use a general permit that is filed

before the effective date of this Act is governed by the law in

effect on the date of filing, and that law is continued in effect

for that purpose.

SECTION 21. This Act takes effect September 1, 2027.