Texas is forcing AI data centers to make an uncomfortable choice: get online faster by co-locating with renewable energy, or pay the price through mandatory power cuts and lost revenue opportunities. The state's new Senate Bill 6 rules, finalized in late 2025, have turned the Crusoe-Google Goodnight campus in the Texas Panhandle into a test case for how regulators nationwide might handle the collision between explosive AI power demand and grid stability concerns.

What Are Co-Located Data Centers, and Why Do Regulators Care?

Co-location means pairing a data center directly with its own power source, like a wind farm or solar installation, rather than drawing from the broader electrical grid. This sounds efficient, but it creates a regulatory headache. When multiple data centers and power plants connect at the same point without proper oversight, grid operators lose visibility into what's happening, potentially destabilizing the system .

The problem accelerated in 2022 when crypto miners and early hyperscalers began rapidly deploying co-located facilities without formal studies. Texas grid operator ERCOT responded by requiring transmission studies, but the real crackdown came with SB 6, which formalized strict approval processes and added emergency dispatch rules specifically for large loads paired with existing generators .

How Does the Goodnight Campus Illustrate the New Rules?

Crusoe's Goodnight project is a 933-megawatt facility in the Texas Panhandle, developed with Google. The controversial part: it will run on fossil gas turbines expected to emit 4.5 million tons of greenhouse gases annually, more than the average coal plant. But one phase of the campus will co-locate with Goodnight Wind, a 265.5-megawatt wind farm that came online in 2024, and that portion became Texas's first test case for the new net metering rules .

In a move that highlights the complexity of modern data center finance, Crusoe sold the wind-powered portion to a company called Ensign Infrastructure in mid-March. Ensign, incorporated in Delaware last summer, now serves as the official "large load" in the regulatory application. This structure appears designed to create a legal firewall between the carbon-free wind portion and the gas-fired expansion, potentially allowing Google's renewable contract to remain technically separate from the facility's substantial emissions .

What Are the Steep Costs Data Centers Must Accept?

Texas regulators approved a set of strict, standardized conditions that effectively make co-location a high-risk bet for data center operators. The most demanding requirement: data centers must fully curtail their power consumption within 30 minutes when ERCOT declares a grid emergency, making 100% of the wind farm's capacity available to the grid .

Crusoe argues this is technically impossible without cascading hardware failures. In filings to the Public Utilities Commission of Texas (PUCT), the company stated that at least an hour is necessary to avoid "cascading hardware failures across server clusters" and the "loss of active computational work that cannot be recovered." The PUCT's response was blunt: ERCOT's operational needs "override any individualized concerns" regarding data center hardware safety .

Crusoe

Beyond the curtailment mandate, the financial penalties are substantial. Data centers receive no compensation for emergency curtailments and are barred from participating in paid demand response programs, which would normally generate revenue during peak demand periods. Ensign called this arrangement "a massive, free ancillary service that allows ERCOT to curtail all co-located loads" .

How Are Data Centers Responding to Texas's Co-Location Rules?

• Evaluating the Speed-vs-Cost Tradeoff: Co-location offers faster interconnection timelines compared to traditional grid connections, but only if companies accept mandatory 30-minute curtailment requirements and zero compensation for emergency dispatch obligations.
• Structuring Projects Through Special Purpose Vehicles: Following Crusoe's model, companies are separating the renewable-powered portion of a facility into a distinct legal entity to isolate it from broader liabilities and create regulatory clarity with grid operators.
• Planning for Operational Constraints: Data center operators are designing workloads with flexibility in mind, potentially using backup power systems or workload scheduling that can accommodate sudden power reductions without losing computational progress.

Why Are Other States Watching Texas Closely?

Texas's strict approach contrasts sharply with how other regions are handling the same problem. The Federal Energy Regulatory Commission (FERC) has directed the Department of Energy to study large load interconnection and envision a "fast lane" for co-located facilities. Meanwhile, PJM, the grid operator serving the Mid-Atlantic and parts of the Midwest, is pursuing more flexible reforms that would give data centers greater participation in demand response markets .

Texas is doubling down on what regulators call a "trust but verify" approach, formalizing a pathway that speeds up interconnection but at a high price. The state has prioritized protecting ratepayers from paying for stranded or underutilized transmission assets, even if that means discouraging data center co-location. Crusoe and other developers argue these rules will simply push investment elsewhere, but Texas regulators maintain that companies can undertake the risk voluntarily if they want speed to power .

Crusoe won't be alone in navigating these rules. CyrusOne is also seeking PUCT approval for a co-location agreement with Calpine to power a 760-megawatt data center campus behind-the-meter with fossil gas in Freestone County .

What Does This Mean for the Broader AI Infrastructure Boom?

The Goodnight case reveals a fundamental tension in AI infrastructure development. Hyperscalers like Google need massive amounts of power, and they increasingly want that power to come from renewable sources to meet climate commitments. But grid operators need reliability and visibility, and they're unwilling to sacrifice either for speed. Texas's solution prioritizes grid stability and ratepayer protection, even if it means data centers pay a steep price in lost revenue and operational constraints .

The broader energy sector is responding to this demand surge. Utility companies and power equipment manufacturers are seeing strong tailwinds from AI and cloud computing growth. Brookfield Renewable, which operates 47 gigawatts of renewable capacity and has signed long-term power agreements with Microsoft and Google, expects revenue and adjusted EBITDA to grow at compound annual rates of 22% and 6%, respectively, from 2025 to 2028. GE Vernova, the energy division spun off from General Electric in 2024, has seen its stock surge nearly eight times since its market debut, with more than half its 2025 orders coming from power generation segments serving data centers and cloud infrastructure .

For now, the Goodnight campus represents a test of whether data centers can thrive under Texas's strict rules, or whether the state's approach will simply redirect investment to more permissive jurisdictions. The answer will likely shape how regulators nationwide balance the urgent need for AI infrastructure against the equally urgent need to keep the grid stable and protect consumers from bearing the costs of that growth.