Texas Senate Bill Six Driving Change for Large Loads and Colocated Generation

Impact of Texas Senate Bill 6 on Large Energy Consumers

The recent passage of Texas Senate Bill 6 (SB 6) has ignited debate among energy producers, large-scale consumers, and regulatory experts. Signed into law by Governor Abbott on June 20, 2025, and implemented immediately, the bill establishes a new regulatory framework intended to manage the rapid growth of consumers with high electricity demand – those classified as “Large Loads” (≥ 75 MW) – and governs the co-location of generation facilities. This transformative legislation is poised to shape operational procedures, cost allocation, and market dynamics as Texas continues to attract technology giants, semiconductor manufacturers, and cryptocurrency miners.

In this editorial, we take a closer look at SB 6, unpack the tricky parts and tangled issues it introduces, and consider how its labyrinthine provisions could impact the electricity grid, Large Load developers, and co-located generation partners. We also outline some best practices and strategies for companies aiming to figure out a path forward in an environment that is as exciting as it is nerve-racking.

Texas Large Load Regulatory Update: Understanding the New Framework

Texas has long been known for its relatively affordable, reliable electricity, competitive wholesale market, and ample renewable energy resources. These factors have propelled the state into becoming a magnet for energy-intensive projects. SB 6 was enacted to address growing concerns regarding grid reliability, cost sharing, and the often confusing bits of uncoordinated interconnection for new Large Loads.

Under the new law, the Public Utility Commission of Texas (PUCT) has launched Project No. 58317 and scheduled a workshop for July 21, 2025. This meeting aims to clarify implementation details and offer guidance for affected stakeholders. While SB 6 gives a sense of tighter regulatory oversight, it does not empower the Electric Reliability Council of Texas (ERCOT) with broad dispatch authority over behind-the-meter (BTM) or private use network (PUN) generation. Instead, the bill delineates limited, condition-based powers under three key sections of the Public Utility Regulatory Act (PURA): §§ 37.0561, 39.169, and 39.170.

Key Provisions Under PURA

At its core, SB 6 introduces three primary statutory conditions which have specific implications for Large Load projects and the associated on-site backup generation. The law:

Allows ERCOT to curtail or dispatch BTM/PUN generation only under very narrow conditions related to new or expanded interconnecting Large Loads.
Requires ERCOT and PUCT approvals for BTM/PUN arrangements involving existing grid-facing generators and new Large Loads unless a specific exemption applies.
Mandates utility-administered curtailment protocols during firm load shed events for new Large Loads interconnected after December 31, 2025.

This approach is designed to balance the interests of electricity consumers and the overall reliability of the grid. While developers might find these regulatory twists and turns intimidating, especially as they design and structure their projects, a clear set of guidelines is emerging that may allow them to thrive in a competitive energy landscape.

ERCOT Grid Oversight Issues: Dissecting the Operational Constraints

One common misconception is that SB 6 hands ERCOT sweeping control over the grid, especially concerning behind-the-meter generation. However, a closer look reveals that ERCOT’s authority is significantly restricted and conditional.

Under PURA § 37.0561, ERCOT can only issue operational directives if all the following conditions are met:

The Large Load is either newly requesting interconnection or an expansion is being pursued.
The facility includes on-site backup generation that cannot export power and is capable of serving at least 50% of the demand.
ERCOT has exhausted all available market mechanisms aside from frequency response service.
A grid emergency is identified or deemed imminent by ERCOT in line with standards that the Commission is set to define.

This means that ERCOT’s role is confined to managing system emergencies rather than routine operations. Notably, these measures do not apply retroactively and are separate from other utility-administered protocols. This limited scope should reassure stakeholders that ERCOT’s involvement remains a safety net for genuine emergencies rather than an everyday managerial tool.

PURA Statutory Guidelines for Co-located Generation Facilities

A notable component of SB 6 is its impact on co-located generation arrangements. These strategies, where a generation facility is colocated with a new Large Load – such as a data center – are becoming increasingly popular. However, the regulatory framework under PURA §§ 39.169 and 39.170 imposes distinct requirements that developers must heed.

Under PURA § 39.169, when a pre-existing grid-facing generation resource (registered as of September 1, 2025) is involved in a co-location with a new Large Load, ERCOT is obliged to conduct a system reliability study. The findings of this study inform the PUCT, which then has the authority to approve, deny, or attach reasonable conditions to the co-location arrangement.

This review process ensures that even when generation resources are used to self-supply a Large Load, the overall grid stability remains secure. The process might seem full of problems for some companies, but it is designed to ensure that critical dispatchable capacity – a super important factor – is maintained during large-scale grid stress.

Exemptions and Strategic Structuring

There are exemptions under PURA § 39.169. For instance, if the generation resource was registered after September 1, 2025, or if a majority of the generator is owned by the same parent company as the Large Load as of January 1, 2025, pre-approval requirements may be bypassed. These exemptions provide a strategic pathway for companies to structure their investments favorably, avoiding some of the more tangled and intricate regulatory demands.

However, any changes in ownership after the statutory cutoff date or adjustments to the fundamental structure could negate these benefits. Partners contemplating mergers, acquisitions, or other contractual frameworks must carefully get into the nitty-gritty to determine the safest and most efficient legal and regulatory route forward.

Operational Strategies for Energy-Reliant Businesses

Businesses in the technology, semiconductor, and advanced manufacturing industries – including data centers and cryptocurrency operations – should pay particular attention to the operational strategies mandated by SB 6. With grid peak demand set to rise by over 65% by 2031 largely due to these energy-intensive customers, there are several key operational issues to consider.

While the idea of dealing with these new rules might seem overwhelming at first, companies that adopt a proactive approach will be better positioned to mitigate risks and capitalize on market opportunities. Here are some practical steps businesses might consider:

Review Current Energy Infrastructure: Assess the capabilities of on-site backup generation to ensure it meets the requirement of serving at least 50% of the facility’s demand without exporting to the grid.
Plan for Financial Commitments: Recognize that interconnection studies and related infrastructure upgrades are now cost-shared between developers and the state. A well-thought-out financial strategy will be key to managing these expenses.
Engage with Regulatory Workshops: Participate in the upcoming PUCT workshop on July 21, 2025, to gain first-hand insights into rulemaking updates and practical guidance from expert panels.
Consult Legal Experts: Given the tricky parts of ownership structure and potential exemptions, working with legal advisors experienced in energy regulation can help companies steer through the process without tripping over unintended curtailment obligations.

Each of these strategies serves as a stepping stone to ensure that operations remain compliant while also protecting the financial interests and stability of the company during periods of grid emergencies.

Cost-Sharing and Financial Responsibilities for Large Load Developers

An additional layer of consideration brought about by SB 6 is cost-sharing. Developers now are not only responsible for meeting technical and regulatory standards but also must fund interconnection studies and infrastructure upgrades essential for keeping the grid stable. This requirement is designed to ensure that those who benefit from the state’s energy resources contribute fairly to the system’s overall maintenance and reliability.

From a financial perspective, Large Load developers need to prepare for potentially significant expenditures. Companies should expedite their evaluations and cost projections, incorporating both the direct expenses of system upgrades and the indirect costs associated with potential disruptions during grid emergencies. Here are some key financial considerations:

Upfront Investment Costs: Budget for the mandatory interconnection studies and the necessary infrastructure enhancements that will likely be required to integrate a new Large Load seamlessly.
Long-Term Maintenance: Understand that the ongoing cost burden includes not only operational expenses but also periodic reviews and updates to compliance measures, particularly if the PUCT revisits imposed conditions every five years.
Contingency Funds: Prepare for unexpected grid emergencies where ERCOT and utilities might require temporary load reduction strategies. Proactive financial planning can help cushion the impact of these short-term disruptions.

By establishing realistic financial estimates and aligning them with operational strategies, developers can effectively figure a path through this reform and ensure that their projects remain both economically and technically viable.

Exploring Critical Industrial Customer Exemptions

A particularly noteworthy feature of SB 6 is the selective exemption provided for critical industrial loads and critical natural gas facilities. Under PURA § 17.002(3-b) and PURA § 38.074, these facilities are defined such that their interruption would create dangerous or life-threatening conditions.

For these entities, the usual curtailment protocols do not apply. The law intentionally excludes these customers from certain dispatch and load shed procedures, recognizing the essential nature of their operations. This exemption is a critical consideration for companies operating in sectors where continuity of supply isn’t just a business imperative but also a public safety concern.

As a result, businesses that might be classified under these categories should take advantage of the exemption by clearly outlining their operational criticality in interconnection applications. This forward-thinking approach can help avoid entanglements with other provisions of SB 6.

Energy Reliability During Grid Emergencies: How Preparations Can Mitigate Operational Risks

The potential for grid emergencies is a central concern under SB 6, especially given ERCOT’s defined authority to step in during critical moments. The reliance on on-site backup generation and contingency procedures is meant to stabilize the grid only when needed. But what does this really mean for companies daily that rely on a steady electricity supply for essential operations?

For one, operators must ensure that their systems are capable of rapid transition during emergencies. This could involve integrating advanced monitoring and control systems that detect when conditions are reaching critical limits. The regulatory emphasis is on exhausting all market and grid tools before any operational directives are issued, which means that any system design must include multiple layers of checks and redundancies.

Here are a few strategies to ensure high reliability:

Enhanced System Monitoring: Continuous monitoring can help in early detection of signs of grid stress, allowing for a smoother transition into emergency modes.
Robust Backup Solutions: Ensuring that on-site generators are not only capable of supporting at least 50% of load demands but are also maintained under rigorous testing standards.
Collaboration with Utilities: Establish open lines of communication with local utilities and TSPs so that any firm load shed directives are anticipated rather than received as a surprise.
Employee Training: Invest in training for operations staff to effectively manage emergency protocols and system transitions.

These measures are designed to keep systems resilient even during the most nerve-racking grid emergencies. Businesses that implement such strategies are better positioned to safeguard operations and minimize disruptions.

Assessing the Business Tax Implications for Large Energy Consumers

Beyond operational and regulatory concerns, SB 6 has broader implications that could impact business tax planning and economic strategies for companies with large energy demands. With new cost-sharing mandates in place, companies must account for expenditures related to interconnection studies, infrastructure upgrades, and enhanced maintenance programs.

Tax advisors are now tasked with helping companies identify deductions and credits that may partially offset these increased costs. It is essential for businesses to work closely with tax professionals who are familiar with the energy sector’s regulatory environment to fully leverage any available incentives or tax relief measures.

One key consideration is the potential increase in operational expenses related to maintaining compliance with SB 6. By adopting proactive tax planning strategies, companies can ensure that priorities such as research into energy-efficient technologies or investments in backup generation are not only operationally sound but also financially optimized.

Key Tax Considerations Include:

Area	Consideration
Interconnection Study Costs	Deductible as part of infrastructure investments and regulatory compliance efforts.
Backup Generation Investments	Eligible for energy efficiency incentives; consult with tax experts on capital expense recovery.
Maintenance and Upgrades	These recurring costs can often be deducted, improving overall tax efficiency.
Grid Reliability Measures	Investment in advanced control systems and monitoring devices may qualify for specialized credits.

With these factors in mind, companies must take a holistic approach when planning budgets and forecasting returns. Harmonizing operational improvements with financial incentives could be the key to a robust business strategy in this evolving landscape.

Risk Management Under SB 6: Strategies to Mitigate Regulatory Exposure

No regulatory change comes without risk. The new mandates under SB 6 introduce a series of challenging twists and turns that large energy consumers must manage. Whether it’s the conditional authority granted to ERCOT under specific market circumstances or the pre-approval processes for co-located configurations, companies are faced with a series of potential pitfalls.

Key risks include:

Regulatory Approval Delays: Delays in receiving clear guidance or approval from PUCT could lead to project postponements, affecting operational timelines and financial planning.
Operational Disruptions During Emergencies: While ERCOT’s directives are limited to emergency scenarios, any miscommunication or misalignment in system capabilities could lead to unexpected interruptions.
Changes in Ownership Structure: For companies seeking to leverage exemptions under common ownership provisions, any shifts in ownership post-January 1, 2025, may trigger regulatory reviews that add inefficiencies.
Financial Burdens: The cost of interconnection studies and infrastructure upgrades must be thoroughly anticipated; unexpected expenses could disrupt overall project viability.

To manage these risks effectively, companies are advised to engage in comprehensive planning that includes:

Detailed scenario planning to identify potential operational bottlenecks.
Regular consultations with legal and tax experts to stay ahead of evolving regulatory interpretations.
Incremental investments in resilient infrastructure, ensuring that backup generation and monitoring systems meet new standards.
Active participation in stakeholder workshops and other platforms provided by PUCT to better understand upcoming changes and the rationale behind them.

By tackling these issues head-on with a well-rounded risk management strategy, businesses can not only minimize potential disruptions but also capitalize on opportunities that arise from a more transparent and accountable regulatory environment.

Effective Cost-Sharing in Energy Infrastructure: A Collaborative Approach

One of the more positive outcomes of SB 6 is the emphasis on transparent cost-sharing between state regulators and Large Load developers. Rather than placing the entire financial burden on the private sector, the law calls for a collaborative approach that acknowledges the mutual benefits of a stable and reliable grid.

Under the bill, developers are required to invest in interconnection studies and infrastructure upgrades, which in turn benefit the broader network of customers and industries in Texas. This shared responsibility model has several advantages:

Equitable Investment: Both public entities and private developers contribute to the building and maintenance of critical infrastructure.
Enhanced Transparency: With clear disclosure requirements, all parties have insight into project costs and the expected benefits.
Stimulated Innovation: Companies may invest in more advanced and energy-efficient systems to better align with the rigorous standards.

This cooperative model not only enhances grid stability but also encourages a healthy competitive atmosphere among Large Load developers. By pooling resources and knowledge, stakeholders can figure a path through even the most twisted regulatory landscapes and create robust, future-proof energy systems.

Innovative Co-location Models: Balancing On-Site Generation and Grid Integration

Co-locating generation facilities with energy-intensive Large Loads is becoming an increasingly popular strategy. This model offers significant benefits, including improved energy efficiency, a reduced grid draw, and enhanced operational flexibility during peak usage times. However, SB 6 sets out a series of conditions that must be met, forcing developers to carefully balance on-site generation with grid integration requirements.

For instance, under PURA § 37.0561, the on-site backup generation must be capable of serving at least half of the facility’s energy demand and must be designed to only operate in non-export mode. While these conditions might seem like a series of complicated pieces, they are intended to ensure that when grid emergencies occur, the utility and ERCOT have reliable mechanisms in place to support the overall system without destabilizing the balance.

Developers choosing to adopt co-location must consider the following factors:

Technical Integration: How will on-site generation systems be integrated with existing grid infrastructure?
Regulatory Compliance: Are all conditions laid out in SB 6 met, and can backups operate effectively under grid emergencies?
Operational Flexibility: How will the facility adjust operations if ERCOT issues a directive to curtail load during emergencies?
Cost Implications: Determine whether the financial benefits of reduced grid dependency outweigh the investment needed for advanced on-site systems.

By carefully assessing these factors, energy-intensive companies can design innovative co-location models that not only comply with regulatory mandates but also provide superior operational resilience. This balanced approach is essential as Texas looks to expand its network of Large Loads while maintaining a robust, stable grid.

Future Implications and Stakeholder Perspectives

As Texas paves the way for a more regulated energy market, the long-term implications of SB 6 remain to be seen. What is clear, however, is that the landscape is evolving and will require business leaders to work through numerous tricky parts and tangled issues as they develop strategy and operational plans.

Several stakeholder groups have expressed varied viewpoints on the new legislation:

Large Load Developers: While the enhanced regulatory oversight introduces additional steps, many industry experts view the changes as a necessary evolution to maintain grid stability in the face of rapidly growing demand.
Utility Companies: The shift to utility-administered curtailment protocols offers a more localized, controlled approach to managing system-wide emergencies, which could result in improved service reliability for a broad array of customers.
Technology and Manufacturing Giants: With co-location becoming a strategic focal point, firms are exploring innovative project designs that align operational needs with regulatory requirements, ensuring both cost efficiency and energy security.
Legal and Regulatory Experts: Many advisors stress the importance of a careful review of ownership structures and interconnection strategies, arguing that understanding the small distinctions in SB 6 is critical for avoiding unintended regulatory exposure.

These varied perspectives highlight that while SB 6 may be seen as a source of nerve-racking regulatory change, it also offers opportunities for those who are prepared. Companies that take the time to robustly dig into the details now, invest in proper infrastructure, and work with knowledgeable advisors will be better positioned to reap the benefits of a more transparent and collaborative energy market in Texas.

Taking a Closer Look at the PUCT Workshop

The upcoming workshop on July 21, 2025, hosted by the PUCT under Project No. 58317, is expected to shed further light on how SB 6 will be implemented. This event promises to offer practical guidance on several fronts:

Clarification of Regulatory Standards: Experts will address questions about the specific conditions under which ERCOT may issue load curtailment or dispatch directives, particularly focusing on emergency scenarios.
Operational Scenarios: Detailed case studies – like the integration models for existing generators with new Large Loads or for new generator installations – will be presented to help stakeholders better picture real-world applications.
Exemption Strategies: There will likely be discussions around preserving exemptions for co-located arrangements, such as those involving common ownership structures, as well as strategies to avoid triggering the more demanding provisions…

Attending the workshop will not only provide stakeholders with timely updates but also an opportunity to ask questions directly and gauge how peers in the industry are approaching these regulatory changes. For many, this event will serve as a critical platform for working through the established rules and identifying best practices for compliance and operational resilience.

Looking Ahead: Steering Through the Regulatory Landscape

As SB 6 takes effect and continues to shape the energy sector in Texas, businesses are advised to take proactive steps to manage their way through these twisted regulatory pathways. Here are some final thoughts for energy-intensive companies planning for the future:

Plan Early: Develop long-term strategies that account for regulatory reviews, mandatory expenditure on grid-related infrastructure, and potential disruptions during grid emergencies.
Engage in Peer Networks: Join industry forums, workshops, and special interest groups to keep abreast of evolving interpretations and practical experiences related to SB 6.
Invest in Flexibility: Ensure that operational systems are designed for rapid adjustment to emergency directives while preserving efficiency during normal operations.
Consult Widely: Utilize the expertise of legal, financial, and regulatory advisors together to model the best-case scenarios under SB 6 provisions.

While the challenges introduced by SB 6 may initially seem loaded with issues and off-putting regulatory twists, they also represent an opportunity for companies to modernize their operations and invest in resilient energy solutions. The future holds promise for a more stable and balanced grid that benefits not only large energy consumers but also the broader Texas economy.

Final Thoughts: Embracing Change and Innovation

The introduction of Senate Bill 6 has undeniably transformed the regulatory landscape for high-demand energy consumers in Texas. What might have appeared as nerve-racking and overwhelming at first glance is, in fact, a carefully calibrated approach to maintaining grid reliability and fair cost-sharing in an era of rapid energy consumption growth. By taking a closer look at the various provisions — from ERCOT’s limited emergency powers under PURA § 37.0561, to the detailed review processes in PURA § 39.169, and the utility-administered curtailment protocols in PURA § 39.170 — it becomes clear that the legislative intent is to protect the grid while fostering a competitive market environment.

For those involved in developing or managing Large Loads and co-located generation facilities, the path ahead may be full of tricky parts and tangled issues. Yet, with careful planning, proactive risk management, and smart financial strategies, the new framework offers a range of opportunities for growth and innovation. The key lies in understanding the fine points of SB 6, staying abreast of regulatory updates, and engaging with expert advisors to steer through the evolving landscape.

In conclusion, Texas Senate Bill 6 sets the stage for a transformative phase in energy management for large consumers. It is essential that companies not only prepare for the immediate regulatory obligations but also look to the future by developing systems and partnerships capable of adapting to evolving standards. With this mindset, the industry can harness the benefits of a transparent and collaborative regulatory framework while mitigating the inherent challenges of a rapidly changing energy market.

As industry stakeholders gather at the upcoming PUCT workshop and beyond, the collective insights and shared experiences will undoubtedly pave the way for innovative solutions that ensure both grid stability and competitive market growth. In this transition, embracing change, understanding every small distinction in the regulations, and being ready to figure a path forward are the hallmarks of those who will succeed in Texas’s dynamic energy environment.

Originally Post From https://www.bakerbotts.com/thought-leadership/publications/2025/july/texas-senate-bill-6-understanding-the-impacts-to-large-loads-and-co-located-generation