Legal Alert | October 9, 2026 | Paul B. Turner

Texas Dropped the Interconnection Fee. It Did Not Drop the Collateral.

PUCT Project No. 58481 | 16 TAC § 25.194 | Effective October 8, 2026

By Paul B. Turner
Turner Commodities Law, PLLC

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This alert is dated October 9, 2026. The October 5 and October 12, 2026 deadlines discussed below have passed. The text reflects its publication date.

Contents

The Final Rule Keeps Two Distinct Money Requirements
The Fee Was Removed, Not the Financial Commitment
First Energization Does Not Necessarily Release the Security
Existing and Batch Zero Projects Should Not Assume They Are Grandfathered
Do Not Confuse the 75 MW Rule with ERCOT's Separate 25 MW Data-Center Review
What Developers Should Do Now
Practical implications
Principal regulatory sources

The Public Utility Commission of Texas adopted new large-load interconnection standards on September 18. New 16 TAC § 25.194 became effective October 8, 2026 and implements Senate Bill 6 and PURA § 37.0561. For covered large loads, the final rule changes the economics of getting and keeping an ERCOT interconnection position: the proposed non-refundable interconnection fee is gone, but substantial study costs, financial security and direct interconnection costs remain.

The practical point is easy to miss in the headline. A developer may no longer face the proposed non-refundable interconnection fee, but it still may have to tie up millions of dollars before the project is operating, and that security may remain outstanding after first energization. For projects already in development, the now-effective rule makes this an immediate diligence and contracting issue.

The Final Rule Keeps Two Distinct Money Requirements

The first requirement arises before a covered large load enters an ERCOT interconnection study. The customer executes an intermediate agreement and posts financial security with the interconnecting transmission or distribution service provider. Under the adopted framework, that security is $50,000 per MW of requested peak demand. The customer also pays a separate $100,000 study fee. For an expansion, the per-MW security applies to the incremental demand. Unused study-fee amounts must be returned within 60 days after the study concludes; ERCOT protocols may establish an additional flat study fee.

The second security requirement arises when the Standard Large Load Interconnection Agreement, or SLLIA, is executed. At that stage, security is based on the greater of $50,000 per MW of contracted peak demand or the customer's allocated system-upgrade costs. Direct interconnection costs remain separate and must be paid through cash contribution in aid of construction, subject to applicable existing-agreement provisions.

That distinction matters. The $50,000-per-MW figure is not a cap on interconnection exposure. A 200 MW project produces a $10 million number under the per-MW test. If the interconnection study allocates $18 million of system upgrades to the customer, the relevant security figure becomes $18 million, before considering direct interconnection costs and other project expenses.

The Fee Was Removed, Not the Financial Commitment

The March proposal included a non-refundable interconnection fee. The Commission removed that fee in the adopted rule. That is meaningful, but it should not be confused with a reduction of the project's overall capital commitment. The rule continues to use financial security to protect against stranded transmission or distribution investment if a large-load project does not proceed as represented.

For financing purposes, developers should separate three concepts that are easy to collapse into one number: the $100,000 study fee, financial security, and direct interconnection costs. They arise for different purposes, may be paid or posted at different times, and have different refund or release mechanics.

First Energization Does Not Necessarily Release the Security

After outstanding amounts are paid, §25.194(f)(3)(C) requires the utility to return 20% of the remaining security at energization, followed by 20% increments as the customer meets SLLIA milestones for its minimum-billing-demand obligation. First energization therefore does not release all security. Cash collateral must be held in a segregated, interest-bearing account at no less than the specified one-month U.S. Treasury bill rate.

The SLLIA’s minimum-billing-demand milestones and the campus’s phased energization schedule should be reviewed together. Developers should not assume that construction progress or tenant occupancy independently triggers collateral release. The agreements should align commercial funding and payment obligations with the rule’s actual release provisions.

Existing and Batch Zero Projects Should Not Assume They Are Grandfathered

Section 25.194 applies to covered large loads that have not energized by the rule's effective date. An existing study position, intermediate agreement or Batch Zero classification does not necessarily take a project outside the new rule. Projects that remain unenergized on October 8 should determine promptly which provisions apply, what security has already been posted, whether prior cash collateral is creditable, and whether the form of existing credit support remains acceptable. Certain agreements executed on or before June 1, 2025 retain their direct-interconnection-cost treatment; other applicable financial requirements remain. Intermediate cash is subject to a written return-or-credit election within 30 days after notice of allocated capacity, with credit as the default. Batch Zero has additional express credit and withdrawal provisions.

Do Not Confuse the 75 MW Rule with ERCOT's Separate 25 MW Data-Center Review

The new PUCT interconnection rule and ERCOT's current data-center information initiative are related developments, but they are not the same program and they do not use the same threshold. Section 25.194 is the large-load interconnection and security rule and is built around covered large loads at the 75 MW level. ERCOT is separately conducting a Governor-directed data-center review that reaches certain data-center projects at 25 MW or more. The rule distinguishes new connections, expansions first reaching 75 MW, and expansions of at least 75 MW at sites already above that level; covered expansions are assessed on their incremental addition. Co-location requires separate review.

ERCOT states that its State and Community Impact Request for Information seeks information from developers of data centers of 25 MW or more pursuing interconnection to the ERCOT system. The requested subjects include public financial assistance, reliance on grid power and onsite generation, water sources and consumption, cooling technologies, noise, light and traffic impacts, and ownership and controlling interests. ERCOT has set an 5 p.m. Central on October 12, 2026 deadline for responses to the current RFI. ERCOT’s September 24 notice clarifies which medium-load customers must respond and permits voluntary responses by certain newly substantiated medium loads; the request for a new voluntary RFI closed October 5.

ERCOT also changed its RIOO tool to restrict visibility of submissions made by other respondents, reflecting the commercially sensitive nature of the requested information. In addition, Governor Abbott directed TCEQ on September 21 to halt permits sought by data centers until ERCOT completes its audit. Those steps create a separate regulatory track that can affect projects below the 75 MW threshold applicable to the PUCT large-load rule.

What Developers Should Do Now

Confirm whether the project is a covered large load under § 25.194 and whether it was energized as of October 8.
Price the intermediate-stage and SLLIA-stage security separately, and stress the case in which allocated system-upgrade costs exceed $50,000 per MW.
Separate the $100,000 study fee, financial security, CIAC/direct interconnection costs and any other utility charges in the project budget.
Map every dollar and instrument already posted and confirm in writing what will be credited or replaced at the SLLIA stage.
Align SLLIA milestones and security-release mechanics with phased construction, tenant occupancy and realistic load ramp.
Review power-supply agreements, leases, credit agreements, EPC contracts and development agreements for collateral, delay, partial-load, minimum-demand and change-in-demand risk.
For data centers at or above 25 MW, determine separately whether the ERCOT State and Community Impact RFI or related audit requirements apply and coordinate the ERCOT, water, environmental and interconnection workstreams.

Practical implications

The final rule is not a prohibition on large-load development in ERCOT. It changes the price and risk allocation associated with an interconnection position. The immediate questions are narrower and more practical: Is the load covered? Has it energized? What has already been posted? What must be posted next? When does that capital come back? And do the project's commercial documents allocate the new collateral and delay risks to the parties that are expected to bear them?

Paul B. Turner advises energy-market participants and large energy users on ERCOT, PUCT, interconnection and commercial energy matters. Legal services are provided through Turner Commodities Law, PLLC. This Legal Alert is for informational purposes only and is not legal advice.