When Texas cools on data centers, Big Tech has a problem

Artificial intelligence is having a riotous summer. Models developed by the likes of Anthropic PBC and OpenAI have escaped testing sandboxes and in some cases then hacked into other systems. The politics of AI are similarly in revolt, jumping from debates about data centers to a widening backlash against the technology itself and its masters. The risk of over-the-top regulation is now tangible, with implications for Big Tech and the energy providers feeding it.

Gov. Greg Abbott of Texas dropped a bombshell earlier this month. Less than a year after being onstage with Alphabet Inc.’s Chief Executive Officer Sundar Pichai and hailing Texas as "the epicenter of AI development," Abbott directed state regulators to conduct a "comprehensive data center audit," assessing impacts on resources and local communities before authorizing connection to the power grid. 

How long that audit takes is guesswork, but it seems unlikely to conclude this side of Nov. 3. (The grid operator said it would take "several months.") Abbott is locked in a tightening gubernatorial race with Democratic contender Gina Hinojosa, who last month called on him to impose a moratorium on new data centers. Abbott’s move not only crossed his ally President Donald Trump — who called it "a mistake" — but put him closer to the likes of Gov. Abigail Spanberger of Virginia, a Democrat, who campaigned on making data centers pay their fair share of energy costs.

Texas and Virginia are, together, ground zero for the data center boom.

While the federal moratorium on new data centers proposed by Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez is unlikely to happen, the proposal itself signals a sector that is on its heels politically. Gov. Kathy Hochul of New York recently signed the nation’s first state moratorium on new large data centers, and fellow Democrat Gov. Josh Shapiro of Pennsylvania has been backpedaling from his prior "all in on AI" position. Vivek Ramaswamy, the Republican candidate in a tight gubernatorial race in Ohio, just proposed that owners of new data centers pay everyone’s electricity bill in their locality.

There is a clear direction of travel here, taking us from areas of common-sense regulation such as water and energy use, toward blanket delays and bans. That is a new level of risk for technology companies, along with utilities and power equipment suppliers, that have ridden a wave of enthusiasm predicated on AI infrastructure being ubiquitous and unstoppable. 

Disruptive technologies usually attract opposition, yet this backlash hasn’t spread just geographically, but also in its scope. Polling indicates that a large majority of Americans, across the red-blue divide, not only oppose data centers in their localities but are just down on AI, period. They don’t trust businesses to use the technology responsibly and nearly eight out of 10 think AI will reduce the number of jobs over the next decade. If it’s hard to persuade people about the benefits of hosting a big, energy-hungry facility in their backyard, it is way harder if they also think that facility is something like a digital chemical plant.

The rash of measures to slow data center development speaks to how data center developers fumbled things early on: By prioritizing speed, they neglected the slow art of winning acceptance and support. The power grid is the prime example of this. Data centers struck deals to effectively commandeer existing capacity on an electricity system largely funded by households.

Large loads like data centers could actually help to reduce power bills, by spreading the grid’s fixed costs over more electricity demand. But that only works if households are shielded from the upfront costs. Now, ‘BYOG’, or bring your own generation, is becoming table stakes for seeking grid hookups. As of June, 16 states had adopted measures to protect ratepayers from data centers’ energy costs, according to CreditSights.

That initial gatecrashing of the grid helped precipitate the jump in bills across the PJM grid, America’s largest, and the ongoing political fall out there. Having raised bills, and hackles, developers also corroded trust through extensive use of nondisclosure agreements with local officials, reinforcing perceptions of billionaire tech titans doing an end-run around communities’ interests. 

There has been a flurry of post-hoc efforts to address this. Trump’s "ratepayer protection pledge" for technology firms was splashy but, being voluntary, serves more as a signal of White House nerves. Microsoft Corp.’s commitment to end the use of NDAs with local officials was better. Meta Platforms Inc.’s $1 billion "future is for everyone fund," announced this week as part of Chief Executive Officer Mark Zuckerberg’s AI manifesto, suffers from a clunky title and the obvious disparity with the company’s $130 billion-plus capital expenditure budget for 2026.

Managing to unite red and blue America in their unease and hostility may well rank as one of AI’s first big achievements. Economic and national security considerations mean outright prohibition of the technology isn’t an option. The period marked by welcoming tax breaks, a free-for-all on the grid and local enthusiasm or indifference is, however, giving way to something slower, where the gating factor isn’t just access to chips or power connections, but also plain political acceptance. Social license is harder to obtain than mere permits. 

Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited The Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.