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As data center development continues to expand—driven by demand for artificial intelligence, cloud computing and other digital infrastructure—the use and availability of water have emerged as a key consideration. As discussed in our prior article, the scale of water use associated with large data center operations is drawing increasing scrutiny as a primary policy concern for data centers. While factors such as the size of the facility, the design of its cooling system and local climate conditions will affect the water volumes necessary for operations, large data centers may require as much as five million gallons a day, comparable to the municipal demand of smaller cities. As a result, water sourcing and reuse are becoming central to both operators and local, state and federal government officials tasked with regulating and legislating on these issues.
As hyperscale facilities and AI-focused computing operations continue to increase electricity and cooling demands, regulators and local governments are beginning to evaluate whether existing water planning frameworks adequately account for this new category of large-scale industrial consumption. These considerations are particularly acute in Texas, where population growth, economic expansion and recurring drought conditions are increasing pressure on existing water supplies. In this environment, large industrial users such as data centers are entering a more complex regulatory and stakeholder landscape, where water use is not only a technical issue but also a policy question.
Two recent developments highlight this shift in Texas. First, in April 2026, the Texas Water Development Board (TWDB) released a draft of its 2027 State Water Plan, outlining projected statewide water needs, supply gaps and investment requirements over the next 50 years. Second, the Texas Legislature issued interim charges to House and Senate committees ahead of the 2027 legislative session directing them to study data center development and associated resource impacts, particularly water use. Together, these developments signal a growing focus on how large-scale infrastructure projects like data centers fit within Texas’s long-term water planning and regulatory framework.
Draft 2027 State Water Plan
TWDB’s draft 2027 State Water Plan was issued as a “Phase I” version on an accelerated timeline and will be followed by a more detailed Phase II plan prior to final adoption in early 2027. The Phase II version, if adopted, will include additional analysis that enhances the current draft.
The State Water Plan is the cornerstone of Texas’s long-term water planning framework. Updated every five years, the State Plan compiles the regional water plans developed by 16 local water planning groups and evaluates projected water demands, existing supplies, potential shortages and recommended water management strategies. Consistent with state planning requirements, the Water Plan is designed to prepare for and respond to drought conditions—specifically “drought of record” scenarios. The drought of record refers to the driest seven-year period in state history, from 1950–1956, when 244 of Texas’s 254 counties were classified as disaster areas.
More broadly, the planning process is intended to support the orderly development, management and conservation of Texas’s water resources so that sufficient water is available at a reasonable cost to meet projected needs, while also protecting public health and safety, supporting economic development, and preserving agricultural and natural resources. In practice, this means the Water Plan focuses not only on identifying future water supply gaps, but also on evaluating a wide range of strategies—such as conservation, reuse, groundwater development and major infrastructure projects—to address those needs in a cost-effective and environmentally responsible manner.
Key Findings: Systemwide Water Constraints and a Growing Supply Gap
The draft Water Plan highlights a fundamental constraint facing Texas: Water demand is expected to grow while existing supplies decline, increasing potential shortages over time. The Plan projects that, although total water demand will rise by about 6% between 2030 and 2080, existing water supplies will decrease by approximately 10%—from 15.5 million to nearly 14 million acre-feet—over that same period, driven largely by aquifer depletion and other system losses.
As a result, projected shortages under drought-of-record conditions are expected to increase significantly—from approximately 3.6 million acre-feet per year (AFY) in 2030 to 5.8 million AFY by 2080. Even with implementation of the approximately 6,700 recommended water management strategies and more than 3,000 recommended water management strategy projects identified in the draft Plan, some unmet needs are expected to persist.
Addressing these constraints will require substantial investment. The TWDB estimates that approximately $174 billion will be needed to implement recommended water supply strategies over the planning horizon—far exceeding currently available funding, even after Texas voters approved Proposition 4 in 2025, authorizing $20 billion for water infrastructure and supply projects over the next two decades. To put that figure into perspective, the state budget for all of Texas for the current biennium totals roughly $338 billion.
Public Participation and Next Steps
The draft 2027 Plan is subject to a formal public review process before final adoption. The TWDB is accepting public comments on the draft until 5 p.m. on May 29, 2026, and will also conduct a public hearing at 1 p.m. on May 27, 2026, as part of the adoption process. These procedures provide operators and other interested parties with an opportunity to comment on demand projections, regional supply strategies and the prioritization of water management projects before the Plan is finalized in early 2027. Engagement at this stage may help inform how future planning cycles and related policy discussions account for emerging water demands.
Against this backdrop of increasing statewide water demand and projected supply gaps, the Texas legislature has also begun to more directly examine the resource impacts associated with large-scale data center development.
Legislative Interim Charges
Following adjournment of the Texas legislature in 2025, lawmakers entered the interim period preceding the next legislative session beginning January 12, 2027. During this 16-month period, legislative committees study emerging policy issues, evaluate existing laws and regulatory frameworks, gather stakeholder and agency input, and develop recommendations through formal “interim charges” issued by the Lieutenant Governor and Speaker of the House. Among the issues receiving increased attention during the current interim cycle are the infrastructure and resource impacts associated with large-scale data center development, including water use.
Interim Charges Addressing Data Center Water Use
As part of the 2026 interim cycle, both chambers have directed committees to examine the operational footprint of data centers, with a particular emphasis on water use. The Senate Water, Agriculture, and Rural Affairs Committee has been charged with evaluating water consumption associated with high-demand cooling technologies, including those used in data center operations. The charge also contemplates recommendations aimed at improving transparency for local water providers and ensuring that continued industrial growth does not adversely affect water affordability for residential and agricultural users.
In parallel, the House Natural Resources Committee has been directed to undertake a broader assessment of data center water usage across Texas, including both direct withdrawals and indirect demands. The House charge also extends to reviewing permitting frameworks, infrastructure constraints and development considerations for water-efficient data center siting, particularly in regions experiencing water supply pressures. It further calls for evaluation of policy mechanisms that could promote more efficient water use within the sector.
Collectively, these directives indicate a more structured legislative inquiry into how data center expansion interacts with Texas’s water resources and infrastructure systems. The scope of the House charge, in particular, suggests that future policy discussions may extend beyond data collection to consideration of regulatory or planning-based responses.
Opportunities for Stakeholder Participation
The interim process provides a defined window for stakeholders to inform how these issues are evaluated and ultimately framed for legislative action. For data center developers, operators, related infrastructure providers and other stakeholders, engagement at this stage may influence both the analytical record developed by committees and the policy options advanced in interim reports.
Stakeholder participation may include submitting written materials for the record, providing testimony at committee hearings, and engaging directly with legislative staff on technical and operational considerations. Coordination with industry associations, utilities and local governments may also support the development of consistent and data-driven input on issues such as water sourcing, infrastructure planning and permitting pathways.
Because interim reports often shape the scope and direction of subsequent legislation, early engagement can be an important component of broader regulatory strategy, particularly for sectors—such as data centers—experiencing rapid growth and increased policy attention. Entities involved in data center development or supporting infrastructure should monitor committee activity and consider whether participation in the interim process aligns with broader business and regulatory objectives.
Toward Water Use Disclosures?
Although Texas currently does not impose a general statewide requirement that data centers publicly disclose projected or ongoing water consumption over the life of a project, state regulators have begun gathering more detailed information regarding energy-related water use associated with large industrial operations. During the 2025 legislative session, lawmakers directed the Public Utility Commission of Texas (PUC) to study the water impacts associated with electric generation and large electricity consumers, including data centers. In response, the PUC initiated a mandatory survey process requiring certain entities to report information regarding water use, cooling technologies and operational characteristics.
The survey effort appears intended to provide policymakers and regulators with a clearer understanding of how increasing electricity demand—particularly from data centers and other high-load facilities, such as cryptocurrency mining—may affect Texas’s broader water infrastructure and resource planning. The PUC is expected to compile and analyze the submitted information and provide findings ahead of the 2027 legislative session, potentially informing future legislative proposals relating to disclosure requirements, infrastructure planning, water-efficient technologies, or permitting considerations for large industrial users.
Local Governments Begin Incorporating Water Use into Data Center Incentives
In addition to statewide planning and legislative activity, some local governments and economic development authorities are beginning to incorporate water-efficiency considerations into incentive negotiations and project siting discussions. Some Texas counties evaluating incentive packages for data center projects have increasingly focused on whether proposed facilities will utilize closed-loop or otherwise water-efficient cooling systems as part of broader infrastructure and sustainability considerations.
While these approaches remain largely project-specific and are not yet standardized across jurisdictions, they reflect a broader trend toward integrating water-resource considerations into economic development decisions. As water constraints become more prominent across portions of the state, developers may increasingly encounter requests for additional information regarding anticipated water demand, reuse strategies, cooling technologies and long-term infrastructure impacts during both permitting and incentive-related negotiations.
Conclusion
The convergence of statewide water planning, legislative study efforts, regulatory data gathering and local economic development practices signals that water use is becoming an increasingly significant component of the policy and regulatory landscape for data center development in Texas. While Texas has not yet adopted a comprehensive regulatory framework specifically governing data center water use, recent developments suggest that policymakers are moving toward a more detailed evaluation of how large-scale computing facilities interact with the state’s water and energy infrastructure systems.
Importantly, these discussions are occurring alongside broader concerns regarding electricity reliability and infrastructure capacity associated with rapid data center growth. Because many cooling technologies rely on significant water withdrawals while simultaneously driving substantial electricity demand, Texas regulators and lawmakers are increasingly evaluating water and power infrastructure planning as interconnected issues rather than separate policy considerations.
Taken together, the draft 2027 State Water Plan, legislative interim charges, PUC survey initiatives, and emerging local incentive practices suggest that future Texas frameworks may place greater emphasis on water use transparency, infrastructure coordination, cooling technology selection and efficiency measures for large industrial users. Even absent immediate statutory changes, developers and operators may increasingly encounter requests for additional information regarding projected water demand, reuse strategies and long-term infrastructure impacts during permitting, utility coordination and incentive negotiations.
For data center developers, operators, utilities and infrastructure providers, this evolving landscape underscores the importance of integrating water sourcing, reuse planning, cooling technology evaluation and broader infrastructure considerations into project development at an early stage. Stakeholder engagement—both through the State Water Plan process and ongoing legislative and regulatory proceedings—may also play an important role in shaping how future policy frameworks address the continued expansion of data center infrastructure in Texas.
Pillsbury’s Environmental Practice regularly assists clients in evaluating and navigating emerging water, energy and infrastructure-related regulatory issues, including preparing public comments and hearing testimony, engaging with legislative and regulatory stakeholders, and monitoring policy developments affecting large-scale infrastructure projects. We will continue to monitor developments related to data center water use and provide updates as additional information becomes available.
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