In short
Texas law draws a hard line between surface water and groundwater. Surface water belongs to the public and you need a permit from the Texas Commission on Environmental Quality to use it. Groundwater belongs to the landowner, but local districts called Groundwater Conservation Districts can still require a permit for a large commercial well. More than 90 percent of the water used by AI data center operators is purchased from a city or water district, so they do not need their own water right. No single state agency regulates how much water an AI data center uses, and the state’s own water plan does not yet account for the rapid growth of AI data centers. At the local level, some communities are pushing back, and the 2027 Texas Legislature may take up new rules. COMPASS White Paper, Texas Observer
How does Texas treat surface water and groundwater differently?
Texas creates two separate legal worlds for water. Surface water in rivers and lakes is owned by the state. Groundwater under your land is privately owned, but local districts can set rules.
Surface water is public water, and you need a state permit to use it
Texas law declares all rivers, streams, lakes, bays, and watersheds, and all stormwater, floodwater, and rainwater, to be state property. Tex. Water Code § 11.021(a). The state owns all this water and holds it in trust for the public. Tex. Water Code § 11.021, Tex. Water Code § 11.0235. To take water from a watercourse or store it, you must first get a water right from the Texas Commission on Environmental Quality. Tex. Water Code § 11.121. Texas uses the prior appropriation system, also called first in time, first in right. That means the first person to get a water right has the highest priority. In a drought, senior rights get water first, and junior rights can be cut off entirely. Tex. Water Code §§ 11.027, 11.053. A new AI data center surface water right would be junior, so drought risk is high.
Groundwater is privately owned, but local districts must require a permit
Your land includes the water below it. The Rule of Capture, set out by the Texas Supreme Court in 1904, entitles a landowner to drill for and produce groundwater. Texas Water Code § 36.002 lets groundwater conservation districts regulate that right and requires landowners to avoid waste, negligent subsidence, or malicious drainage. Tex. Water Code § 36.002, TCEQ Groundwater Regulation But the legislature allowed Groundwater Conservation Districts, or GCDs, to override the Rule of Capture in their areas. Most of Texas, 98 GCDs, is covered by a district. Where a GCD exists, it can require permits for drilling, operating, or altering a well, and it can set pumping limits. Tex. Water Code § 36.113, Tex. Water Code § 36.116. In areas without a GCD, the Rule of Capture still applies and no permit is needed. TCEQ Groundwater Regulation for Private Well Owners
| Surface Water | Groundwater | |
|---|---|---|
| Who owns it? | The State of Texas, held in trust for the public. | The landowner, subject to GCD rules. |
| Who issues permits? | TCEQ. | GCD (if one exists) or none. |
| How is priority decided? | First in time, first in right. | Not a priority system, but GCD may limit total production. |
| Drought risk? | Junior users can be curtailed. | GCD may impose pump limits or reductions. |
What permit does an AI data center need to use surface water?
A TCEQ water right is required, and an AI data center cannot use the domestic or livestock exemption. The permit process takes at least 300 days if no one objects. The right you get is junior, so it can be suspended during a drought.
The permit requirement is mandatory. Anyone taking state water from a watercourse needs a TCEQ permit, though limited exceptions allow domestic and livestock use. Tex. Water Code § 11.022, Tex. Water Code § 11.081, Tex. Water Code § 11.142 There are narrow exemptions for domestic and livestock use, wildlife management, and emergencies like wildfires. AI data center cooling does not fit any of those, so a permit is mandatory. Tex. Water Code § 11.142
How the application process works. You file an application with TCEQ showing the beneficial use, the amount of water you need, and the location where you will divert it. The date the agency declares your application administratively complete becomes your priority date. Simple, uncontested applications are usually processed in about 300 days. TCEQ Applications and Forms If someone objects, TCEQ may hold a contested case hearing, which adds significant time.
Ongoing obligations and risks. Every surface water right holder must file an annual Water Use Report with TCEQ by March 1, even if no water was used. If you fail to file the report, TCEQ can impose daily penalties. If you do not use the water for 10 years in a row, TCEQ can cancel the right. TCEQ Annual Water Use Reporting As a junior right, your water can be curtailed when senior users need it during a drought. Texas also has 23 River Authorities that manage river systems and can affect how much water is available to private right holders. OpenEI RAPID Toolkit
How does groundwater permitting work in Texas for data centers?
If your site is inside a GCD and you plan to drill a production well, you need an operating permit. The GCD will check whether the well hurts neighboring properties or exceeds the aquifer’s safe yield. The rules vary from district to district.
When a permit is required. A GCD must require a permit for drilling, equipping, operating, or completing a well or for substantially altering the size of a well or well pump. Tex. Water Code § 36.113 There is a narrow exemption for domestic and livestock wells on tracts larger than 10 acres that produce no more than 25,000 gallons a day, or about 17 gallons per minute. An AI data center can need 300,000 gallons a day or more, so that exemption does not apply. Even exempt wells must be registered and built to prevent pollution. Tex. Water Code § 36.117(b), (h)
What the GCD considers. The GCD must consider whether the application follows Chapter 36 and includes fees, whether the proposed use unreasonably affects existing water resources or permit holders, whether it is for a beneficial use, whether it matches the management plan, whether (if in the Hill Country Priority Groundwater Management Area) it is for an aesthetic pond, and whether the applicant agrees to waste prevention, conservation, and groundwater quality protection. Tex. Water Code § 36.113(d) The GCD may also impose spacing rules and production caps.
Variation across districts. Each GCD writes its own rules. One district might approve a well with modest conditions, while a neighboring district might deny the same application. Law firm analysis The Central Texas GCD requires that the water be put to beneficial use within five years, or the permit may be revoked. Central Texas GCD Rules § 3.06
Areas with no GCD. If your site sits outside any GCD, no groundwater permit is needed. A landowner owns the groundwater beneath their land as real property and has the right to drill for and produce it, but must do so without causing waste, malicious drainage of other property, or negligently causing subsidence. Tex. Water Code § 36.002
Why most AI data centers buy water from a utility rather than holding their own water rights
It is the easiest path. Over 90 percent of AI data center water in Texas is purchased from municipal or wholesale water utilities. The AI data center does not deal with TCEQ or a GCD. Instead, it negotiates a long term contract with the city or water district. The risk shifts to whether the utility can reliably supply the water.
A city or water utility holds its own water rights and treatment capacity. When an AI data center connects to the municipal system, it becomes a large commercial customer. The utility is responsible for the raw water supply and permits. The developer’s main task is to negotiate a water supply agreement that guarantees enough volume and pressure for cooling. The contract should address curtailment during drought, rate increases, and the ability to expand. The Fermi America project in Amarillo is a recent example. The company requested 2.5 million gallons a day from the city of Amarillo. The city council voted 4 to 1 to approve, but the project later ran into financial trouble when a prospective anchor tenant deal fell through and its stock price collapsed. That demonstrates both the opportunity and the risk of depending on a municipal contract. POLITICO
Can an AI data center use reclaimed water instead of fresh water?
Yes. Texas encourages industrial reuse of treated wastewater. AI data centers can use reclaimed water for cooling tower makeup and other nonpotable needs without a full water right, as long as they follow TCEQ’s reclaimed water rules. Using reclaimed water can reduce freshwater demand and may help with community acceptance.
The rules are in 30 Texas Administrative Code chapter 210, Subchapter E. Industrial reclaimed water may be used for cooling towers, irrigation, dust suppression, and fire protection. There are two authorization levels. Level I applies to on site use when the wastewater source is eligible and needs no TCEQ approval. Level II requires written authorization from TCEQ. Both levels impose setbacks of 250 feet from private wells and 500 feet from public water supply wells. 30 Tex. Admin. Code § 210.56(f)(4) The Texas GOP resolution of December 2025 specifically urged AI data centers to prioritize the use of recycled water from oil and gas operations. Texas Observer However, reclaimed water infrastructure, such as separate purple pipes, storage, and possibly disinfection, adds cost and must be designed into the site from the start.
What regulatory gaps make Texas water planning hard for AI data centers?
Texas has no dedicated regulator for AI data center water use, no statewide mandatory water use reporting for this sector until the recent PUCT survey (and even that is limited), and a state water plan that does not yet include the expected growth. The lead environmental agency, TCEQ, is underfunded, and backlogs are growing. As a result, the public and developers both operate with incomplete information.
No single AI data center water permit or tracking system. Texas law treats AI data centers as commercial customers, not as a distinct industrial category. No state agency has clear authority to require AI data centers to disclose water use or to prioritize nonpotable supplies. Texas Observer
The State Water Plan does not account for AI data centers. The draft 2027 State Water Plan uses historical data, so it does not include the projected demand from the current AI data center boom. Major new AI data centers are expected between 2028 and 2032, but the next plan with data from 2026 to 2027 will not be ready until about 2032. The Texas Water Development Board already estimates potential water shortages of 3.6 million acre feet per year by 2030 statewide. Spending to avoid regional water crises could reach $174 billion over 50 years. E&E News, Draft 2027 State Water Plan
TCEQ capacity is strained. TCEQ requested $60 million in extra funding ahead of the 2025 legislative session, warning that without additional resources, permit timelines will lag. TCEQ 2026-27 LAR In its 2025 enforcement report, TCEQ stated that only 3 percent of complaints required an immediate response of one working day or less, while 64 percent were assigned a 5-to-30-day response time and 3 percent a response time of more than 30 days. TCEQ 2025 Annual Enforcement Report
The PUCT water use survey is a start and covers planned facilities through 2030. In 2026, the Public Utility Commission of Texas directed data centers and virtual currency mining facilities that are operating or planning to operate by 2030 to report direct water use, cooling technology, and indirect water use, with responses due by May 28, 2026. A report to the legislature is due by the end of 2026. While the final report will not include identifiable information from specific facilities, all survey data is subject to the Texas Public Information Act. PUCT FAQs
How are local communities pushing back against AI data center water demands?
Several GCDs and counties are taking formal steps to slow or block AI data center development. The Texas GOP has called for stricter water rules, and a legislative committee heard that 95 percent of GCDs believe future water needs are unsustainable. The 2027 legislative session may bring statewide responses.
Blanco-Pedernales GCD. In April 2026, this district passed a resolution opposing AI data centers in water constrained areas, asking the legislature for protection from lawsuits if it denies a permit. The district relies on several aquifers and fears overpumping. The Texan, BPGCD Resolution No. 20260416-1
Hill County moratorium. Hill County commissioners approved a one year moratorium on new data center construction in unincorporated areas, effective May 12, 2026. Texas Tribune, KWTX
Hood County attempted moratorium. Commissioners considered a similar moratorium but voted it down after a state senator threatened legal action, saying the county lacked authority. Texas Tribune report
Texas GOP resolution. The Texas GOP in December 2025 called for AI data centers to follow the same water management and recycling protocols as the oil and gas industry, and to prioritize the use of recycled water from oil and gas operations. Texas Observer
Legislative hearing. In a February 2026 hearing, the House Committee on Natural Resources heard testimony that 95 percent of GCDs estimate future water needs are unsustainable under current conditions. NGWA
Marathon Digital lawsuit. In Hood County, a bitcoin mining operation, which uses similar fan based cooling, faced multiple lawsuits from residents alleging noise pollution from cooling fans caused serious health problems. KERA News
These local actions, together with the legislative session starting in January 2027, signal that water policy for AI data centers is likely to shift. Developers should expect more, not less, regulatory attention.
What should a developer do to secure water for a Texas AI data center?
Water should be one of the first items checked in site selection. The steps depend on the water source, but in every case early engagement with the state, the GCD, the utility, and the community is essential.
1. Identify the water source and its legal path. Determine whether you will use surface water, groundwater, municipal supply, or reclaimed water. Each has a distinct permitting or contracting path. The table below summarizes the options.
2. If you plan to use groundwater, check GCD coverage immediately. Use TCEQ’s GCD map to see if the site is inside a district. If it is, get the district’s rules, permit application forms, and Desired Future Conditions. Meet with GCD staff early, before you buy land or announce the project. Some GCDs may take months to process an application, and a denial could kill the project.
3. If you need a surface water right, start the TCEQ process early. The roughly 300 day timeline is only for simple, uncontested applications. Prepare for a contested hearing if the application draws opposition. Remember that the right will be junior and subject to curtailment. Assess whether that risk fits your facility’s need for uninterrupted cooling.
4. Negotiate municipal water contracts with care. If you are buying water from a city, understand where the city gets its water and what its drought contingency plan says. Negotiate a contract that addresses curtailment, take or pay terms, and future capacity. The deal may not be as simple as the city council vote suggests. The utility may face its own supply constraints.
5. Evaluate reclaimed water as a supplement or alternative. Using reclaimed water can lower your freshwater footprint and may help with local opposition. Determine whether a municipal wastewater plant is nearby and whether TCEQ Level I or Level II authorization applies. Factor in the cost of purple pipe infrastructure.
6. Watch the political and legislative landscape. Local opposition can harden into moratoriums or GCD resolutions. The 2027 Texas Legislature may debate new reporting mandates, GCD permit protections, or even a statewide AI data center water permitting framework. Monitor bills early and, if appropriate, engage with lawmakers.
| Water Source | Permitting or Contracting Authority | Key Requirements | Typical Timeline | Primary Risks |
|---|---|---|---|---|
| Surface water | TCEQ | Water right permit, annual use reports, priority date based on application | About 300 days if uncontested | Junior right can be curtailed in drought, 10 year nonuse cancellation |
| Groundwater in a GCD | GCD | Operating permit, proof of beneficial use, compliance with GCD rules and spacing | Varies by GCD, often months | Denial risk, production limits, legal challenges from neighbors |
| Groundwater with no GCD | None, Rule of Capture | Compliance with waste and subsidence laws only | None | No permit assurance, may attract regulatory attention later |
| Municipal supply | City or water district | Water supply contract, negotiated volume and rate | Negotiation timeline, months | City’s own supply risk, curtailment during drought, political pressure |
| Reclaimed water | TCEQ for Level II | Level I (no approval) or Level II (written authorization), setback rules | Varies, Level I immediate if conditions met | Infrastructure cost, limited availability, public acceptance |
Key takeaways
- Texas law splits water into state owned surface water (TCEQ permit, first in time priority) and privately owned groundwater (Rule of Capture, but GCDs can impose permits).
- More than 90 percent of AI data centers in Texas buy treated water from a utility, bypassing direct water rights but shifting risk to the utility’s supply.
- Surface water permits take about 300 days and give junior rights with drought curtailment risk.
- Groundwater permits from GCDs vary widely. The domestic well exemption will not cover an AI data center’s volume.
- There is no statewide AI data center water permit, and the State Water Plan does not yet account for the sector’s growth.
- Local opposition is rising. GCDs, counties, and the Texas GOP are pushing for more restrictions.
- The 2027 legislative session could bring new water use reporting mandates, permit protections for GCDs, or other changes.
- Developers should make water due diligence a top priority, including checking GCD jurisdiction, engaging early, securing supply contracts, and exploring reclaimed water.
Frequently asked questions
Q:Do AI data centers need a water permit in Texas?
A:
It depends on the water source. If an AI data center takes water directly from a river or lake, it needs a TCEQ surface water right. If it drills its own well in a Groundwater Conservation District, it needs an operating permit from that GCD. If it buys water from a city, it needs a supply contract and the use must be covered by the city’s existing water right or the buyer must obtain a permit. TCEQ Water Rights in Texas, TCEQ Water Supply Contracts
Q:What is the Rule of Capture and can an AI data center rely on it?
A:
The Rule of Capture, established by a 1904 Texas Supreme Court case, says a landowner can pump unlimited groundwater from beneath their land without a state permit, unless a GCD has authority over the area. In parts of Texas not covered by a GCD, the Rule of Capture still applies, and an AI data center could pump freely as long as it does not cause waste or subsidence. But most of Texas lies within a GCD, and those districts require permits for large commercial wells. Texas State Library, Tex. Water Code § 36.113, TCEQ GCD Map
Q:Can an AI data center drill a well under the domestic or livestock exemption?
A:
No. The exemption covers wells used only for domestic or livestock purposes on a tract over 10 acres that produce no more than 25,000 gallons per day (about 17 gallons per minute). An AI data center can use hundreds of thousands of gallons a day and is a commercial use, so the exemption does not apply. Tex. Water Code § 36.117(b)
Q:How long does a TCEQ surface water permit take?
A:
About 300 days for a simple, uncontested application. If someone objects and the case goes to a contested hearing, the timeline can stretch much longer. TCEQ Applications and Forms
Q:What happens if an AI data center uses surface water without a permit?
A:
Using state water without a required permit violates the Texas Water Code. TCEQ can impose fines and seek a court order to stop the use.
Q:Can AI data centers use recycled water in Texas?
A:
Yes. Texas allows industrial reclaimed water for cooling towers, irrigation, dust suppression, and fire protection. The rules, set out in 30 Texas Administrative Code Chapter 210, Subchapter E, provide for Level I authorization (no TCEQ approval needed for certain on site uses) and Level II authorization (written TCEQ approval). Industrial reclaimed water shall not be applied within 250 feet of a private water well or 500 feet of a public water supply well. 30 Tex. Admin. Code § 210.51-.60
Q:What is the PUCT water use survey?
A:
In spring 2026, the Public Utility Commission of Texas began requiring data centers and virtual currency mining facilities to report their direct water use, cooling technology, and power plant sources within six weeks. A report to the Legislative Budget Board and the Governor is due by December 31, 2026. The survey covers facilities already operating or planning to operate in Texas by 2030. The final report will not identify individual facilities but survey data remains subject to the Texas Public Information Act. PUCT FAQ
Q:Are there any active moratoriums on AI data center water use in Texas?
A:
Hill County enacted a one year moratorium on new AI data center permits in May 2026. Hood County considered a moratorium but voted it down after a state senator threatened legal action. Some GCDs have expressed formal opposition and may seek legislative authority to restrict permits. Law firm analysis
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.