Diorio: South Texas region can capture a good slice of the data center market

AUSTIN, Texas – Dan Diorio, senior state policy director at the Data Center Coalition, has discussed the economic development impact of data centers in Texas, particularly in the RGV region.

In an exclusive interview with the Rio Grande Guardian, Diorio said the South Texas region’s chances of becoming part of this fast-growing industry are positive.

“I think Texas, and that includes all regions of Texas are really poised to compete very, very well. Texas is and wants to be the center of innovation in the United States, again for all the reasons of global competitiveness and ensuring the U.S. is at the forefront of that and ensuring national security,” Diorio said. “So, I think data centers companies want to keep investing in Texas as long as the policy is right. We will continue to see strong investment in Texas, and I think you’ll see the entire state poised to compete well and I’m hopeful that that will bring a lot of strong economic development benefits down to South Texas.”

Guillermo Aguilar of Brownstone Consultants praised the Data Center Coalition for its efforts.

“I applaud the coalition, the state of Texas on their vision, their leadership, the foresight. Going back to what Dan was saying with respect to loads and peaks and whatnot, I think we have to applaud Texas and ERCOT that we had not a great showing a couple of years ago, and the governor and the legislature have taken the bull by the horns and we have the most resilient, in my opinion, energy infrastructure now,” Aguilar said.

“We’ve shown it throughout this last winter cycle and then some. So, and that is with all the data center growth that we’ve had already.”

Aguilar said the data center industry has begun to show interest in the South Texas.

“Without getting in to specifics the Magnificent 7, the largest data center interests have now becoming aware that South Texas has very affordable, readily available land that has the foundational building blocks necessary which are power whether it be: traditional natural gas, wind power, BP39s newly started solar farm; next generation broadband connectivity that is resilient with multiple redundancies crossing into Mexico as well, a young, educated workforce, vast experience in Laredo and the RGV of building large 1M+ sq. ft. Class A tilt wall facilities, and access to water which is a scarce commodity in this day and age,” Aguilar said. 

“Lastly, a loose coalition of South Texas companies that have experience in large capital projects and have long-standing elationships with some of the titans of American industry that are active in the region are poised to provide the well-trained, high-quality workforce that these crucial, next generation infrastructure data center companies require.  It is a win-win situation for all involved. We have completed the most recent nationally acclaimed broadband project; the core group and many other partners are ready to replicate that success in the data center ecosystem.”

Diorio said he and his colleagues in the coalition have been keeping a close eye on the 89th Legislature now underway, specifically following SB6 and SB 2321.

“The coalition has been very much an engaged stakeholder with conversations on SB6,” Diorio said.

SB6 was introduced by state Sen. Phil King with support from Senate Business and Commerce Chairman, state Sen. Charles Schwertner. It is also a priority bill for Lt. Gov. Dan Patrick. 

If passed, the bill would directly impact entities currently in or contemplating a co-location arrangement in the Electric Reliability Council of Texas (ERCOT) region. A co-location arrangement is where generation and load are located at the same point on the grid. In addition, SB6 would require the Texas Public Utility Commission (PUC) to “implement minimum rates that require all retail customers in that region [ERCOT] served behind-the-meter to pay retail transmission charges based on a percentage of the customer’s non-coincident peak demand from the utility system as identified in the customer’s service agreement.”

Many large load entities have pursued co-location arrangements to avoid transmission costs so if passed this will result in a shift. The bill would require the PUC to develop standards for interconnecting large loads in a way to “support business

development” in Texas “while minimizing the potential for stranded infrastructure costs.”

“We certainly agree, I think, with all the intentions and aims of SB6 and in firming up load forecast, building out the infrastructure, making sure that costs are assigned appropriately as Texas looks to, you know, continue to be the center of innovation for the entire country,” Diorio said.

Diorio said there is another Senate bill that will complement SB6, that is also being tracked.

“Along with that we’ve been tracking a separate piece of legislation which is SB 2321. That was introduced by Senator King which would provide enforcement discretion from the Texas Commission on Environmental Quality. And that’s in regards to aims of SB6, which is to allow data centers to be a part of that emergency operations plan, or energy emergency alerts in times of heavy grid constraint can data centers fire up their backup generation in order to help alleviate that constraint on the grid to ensure that homes and businesses don’t go off while large industrial loads remain online,” Diorio said. 

“That enforcement discretion is key. The data centers have back up generation. It really is for continuity of important essential services, especially in times of emergency. It can only be used in times when grid power is interrupted, but certainly being a collaborative, cooperative and willing partner to help ensure the reliability of the Texas grid is paramount. So, the passage of that legislation is something that DCC is very much supporting so that we can be that engaged partner in times of grid strain.”

According to Diorio, there are some concerns with SB6 that have still to be addressed. These concerns are related to interconnection requests from outside the state of Texas.

“In the bill, there’s a requirement there that a company would have to disclose if it’s requesting any, has any other outstanding interconnection requests for energy service outside the state of Texas,” he said. “Data Centers are not your typical economic development project; they develop by market and that’s because there’s significant market demand. And so, as you look at Texas with at least four strong markets, primarily in DFW and the three, growing secondary: Houston, San Antonio, and Austin, there’s already significant benefit to building in Texas and serving the market here. And especially with continued advancement and a strong tech ecosystem here as well there’s going to continue to be strong demands.”

Any development outside the state of Texas is going to have little bearing on that request inside the state of Texas, Diorio said.

“And for competitive business information, proprietary information, we have concerns about disclosing that,” he added. “I think that’s an important key there, which is risk mitigation and certainty as to how that information would be used. What can be gleaned from that information is key.”

Diorio said he agreed with the aim of the bill, which is getting the load forecast right so that the infrastructure build out would be built properly to the right number and ensure there are no strains to cost.

“We do want to ensure, again, that data centers can properly participate during those times of firm load shed. We still do have some remaining concerns on those provisions there. There was a provision that would have allowed a remote disconnection that has changed somewhat. I think, you know, an additional stakeholder process to effectively understand that provision before and how it will be utilized,” he said. 

“Data centers ar providing essential services, national security, you know they can’t just be shut off in times of emergency with little notice. There has to be proper protocol in place. We have to be able to scale up the back up generation so that there is no blip in that service.”

Diorio said there were some additional concerns to SB6.

“And then also we have some remaining concerns on some of the restrictions or analysis around co vocation with generating facilities. Innovative partnerships including co-location with those generating facilities, including behind-the-meter solutions, are really key as we look at, again, the short term and long term build out of the grid,” he said. 

“So, we want to ensure that’s a smooth process where companies can continue to innovate with those Texas partners, those Texas companies providing power generation, and of course, we want to ensure that the reliability of the grid, and we, of course share that aim. But we want to make sure that the mechanism is right that allows for it.”

The importance of SB2321 is the enforcement aspect, according to Diorio.

“Yeah, that enforcement discretion is key. It’s an important aspect. I think I understand it may not have been able to be in Senate Bill 6 because of subject rules and certainly understand that there but it’s a really key piece as well,” he said. “It is important to stress that there are still things in Senate Bill 6 that we do think would increase market friction in Texas, could increase risk of investment in Texas, and so those are items that do really need to be addressed in order to keep the market strong, predictable because Texas is where our companies want to be but I think we have to make sure that the right signals are sent, you know, from the legislature.”

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