Needham maps Texas risk. Plus, Jim Bianco says higher rates won't break AI.

In a recent research note, Needham analysts John Todaro, Michael Chen, and Austin Ortiz flagged regulatory risks for data center developers in Texas.

One of these risks we’ve covered extensively here at Blockspace, namely Greg Abbott’s audit to root our speculative projects in ERCOT’s Batch Zero pipeline.

The other, however, is a new, underdiscussed vector in the data center NIMBY debate: transmission lines. 

Texas has five pending Certificate of Convenience and Necessity applications for 765-kV transmission lines. If connected, these lines would create three major delivery routes to pipe power to the Permian Basin, but these projects are now facing serious procedural, political, and (potentially) judicial risk. 

The PUCT approved the concept of three 765-kV import paths in April 2025, but each actual route still needs Certificate of Convenience and Necessity approval and a final route selection.

The central corridor for this new network of transmission lines faces the biggest challenge. On August 20, three Texas State Office of Administrative Hearings (SOAH) administrative law judges recommended that the Public Utilities Commission of Texas (PUCT) deny applications for the path’s two companion lines (Bell County East to Big Hill and Big Hill to Sand Lake), on grounds that PUCT has not demonstrated the lines are necessary, while also arguing that the utilities companies behind the lines, Oncor and Lower Coloarado River Authority, violated public-participation rules involving 1,400 landowners now impacted when the utilities modified the transmission route.

That first contention is notable, because it rests on the same assumption – speculative projects are blowing hot air into ballooning forecasts for data center energy needs – as Abbott’s audit.

Now, the PUCT doesn’t have to adhere to the judges’ recommendation (they can modify or reject it), but it’s a regulatory wrinkle nonetheless.

The PUCT consolidated dockets for the two sections of the northern transmission route (Dinosaur to Longshore and Longshore to Drill Hole), a matter that is now on the PUCT’s agenda for an August 28 meeting to deem whether these lines are necessary. (Incidentally, the Dinosaur-Longshore section of this route has its own notice issues, as SOAH judges claim that Oncor failed to include 1,650 property owners in discussions regarding new route links).   

A southern route (Howard to Solstice) is also on the August 28 meeting to-do list, and while there is local opposition to this line, it’s in better shape than the other two routes because it adhered to the public-participation rules.

Needham said these transmission lines are not essential to near-term projects in the Batch Zero queue, those with energization timelines in 2027. But it did flag them as potential regulatory risks for projects further down the interconnection line.

The growing pains of the infant AI boom are real, and its not just generation and interconnection that could stunt growth — it’s everything in-between.

-CMH

Jim Bianco of Bianco Research joins the show to talk the Treasury’s buyback expansion, sticky inflation, and what a 3 to 4% world means for AI capex, before Colin walks through Needham’s ERCOT risk map. Plus, Charlie walks us through a complex election issue in Oklahoma, State Question 844, which asks whether the legislature should keep reimbursing counties for property taxes waived under the state’s five-year manufacturing exemption. Charlie voted this morning and walked through why a 1985 incentive is now a data center story.

Texas presents the largest immediate regulatory risk for data center developers, with about half of Needham’s covered AI/HPC operators exposed to the state. Analysts John Todaro, Michael Chen and Austin Ortiz flagged two issues, ERCOT’s Batch Zero review of large-load interconnection requests and local opposition to proposed 765-kV transmission routes. Riot’s 1,750 MW across Rockdale and Corsicana and Core Scientific’s 280 MW in Denton and Austin sit in the low-risk bucket, while Cipher’s roughly 2 GW targeting 2028 and 2029 carries the most timing exposure. Read more.

Morgan Stanley expects Cipher (NASDAQ: CIFR) and Riot (NASDAQ: RIOT) to announce AI data-center leases covering as much as 2 GW of gross capacity by October. The bank forecasts 700 to 1,000 gross MW of contracts for Cipher and expects Riot to lease all 1,000 gross MW at Corsicana by September 30, tying the timing to AI customers seeking capacity that can energize before the end of 2027. Its valuation work assumes 20-year leases at $2.38 per watt annually, up from $1.80 per critical IT watt in summer 2025. Read more.

Soluna (NASDAQ: SLNH) signed a 28 MW co-mining agreement with a Bitdeer (NASDAQ: BTDR) subsidiary for Project Kati 1 in South Texas on Tuesday. The deployment is expected to add about 1.93 EH/s. Soluna will operate the site and provide its electricity. Read more.

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