Texas has spent two legislative sessions making itself the premiere state for incorporation. Whether it’s a state you can actually operate in is a different question, and the answer looks less certain in August than it did in May.

In recent weeks, the “feels like” temperature across the Houston metro area climbed above 100 degrees. Houston once set out to build “the world’s most air-conditioned city,” which is fine until the power grid fails. Air conditioning isn’t comfort here; in prolonged heat, it’s public-safety infrastructure.

Texas asks more of that infrastructure every day. The state added 391,243 residents between July 2024 and July 2025, reaching 31.7 million — about 2.6 million more people than in 2020. Population growth means more homes, offices, hospitals, and air conditioners. Now the grid has a new power drain that can run around the clock: data centers training and operating artificial intelligence systems.

Texas is unusual in a structural sense, too. Unlike the rest of the Lower 48, Texas runs on its own grid, which the Electric Reliability Council of Texas, known as ERCOT, operates. ERCOT mostly escapes Federal Energy Regulatory Commission jurisdiction because it doesn’t cross state lines.

That independence became a liability in February 2021, when Winter Storm Uri forced the largest controlled outages in US history. Since then, the Legislature, the Public Utility Commission of Texas — which regulates ERCOT — and generators have mandated weatherization, restructured ERCOT’s board, and adopted reliability standards meant to keep a statewide failure from happening again.

That’s why the Texas Senate Business & Commerce Committee’s July 29 hearing focused on electric reliability, including Senate Bill 6. SB 6, the large-electric-load law effective June 20, 2025, standardizes ERCOT interconnection for data centers and other power-intensive users, makes them share infrastructure costs, and allows curtailment during grid emergencies.

ERCOT reached an unofficial all-time July peak of 91,089 megawatts on July 22, breaking a record set the day before, Chair Charles Schwertner said in the hearing. The grid still held more than 20,000 megawatts in reserve, without a conservation call or emergency. That’s reassuring. It isn’t permission to stop planning.

Possible projects totaling 474 gigawatts — more than five times that July peak — are in the pipeline. ERCOT therefore created “Batch Zero,” which studies large users together and screens for financial security, site control, equipment orders, and whether the grid can reliably serve them.

The goal is to ensure that large users only connect in quantities and locations the Texas grid can reliably support. The task is no longer to attract investment; it is to distinguish an executable project from a placeholder before Texans pay to build around it.

The heat makes that challenge tangible. No single sweltering week proves climate change, but infrastructure is designed for patterns, not anecdotes. More days are expected to reach or exceed 100 degrees. Hotter days and nights extend cooling demand. AI data centers add a different kind of load: large, concentrated, and continuous. Both trends increase the cost of planning.

Gov. Greg Abbott’s (R) recent actions acknowledge the growing pressures on the grid. In June, he directed the PUC and ERCOT to prevent data centers from shifting their infrastructure costs to residential ratepayers and promised legislation addressing data centers’ added generation, water-efficient cooling, usage reporting, community impacts, and tax incentives.

Abbott on Aug. 3 ordered a comprehensive audit of data center projects seeking ERCOT interconnection and paused approvals until the review is complete. That isn’t Texas abandoning AI; it’s Texas recognizing that “business friendly” can’t mean an unlimited claim on shared power and water.

The legal framework still matters. The Texas Business Court offers a specialized forum. Senate Bill 29 supplies a management-protective governance framework. The Texas Stock Exchange moved from promise to operation when live trading began July 10, and its guide anticipates a first corporate listing in October.

These institutions lower the legal and financial cost of choosing Texas, but none of them keeps a plant running in August. Electricity, water, transmission, housing, and transportation determine whether a company can actually operate after it arrives.

This is where the usual Delaware comparison falls short. Delaware’s advantage is principally institutional: statute, court, and precedent. But incorporation reaches only internal affairs; most of what constrains how a company operates is where it does business. Incorporating in Texas doesn’t require that the company operate there, but many of the largest companies to lay down corporate stakes in the state, such as Tesla Inc. and ExxonMobil Holdings Inc., are also headquartered there.

The recent legislative changes let Texas compete on the institutional ground Delaware owns, without giving up its historic industrial capabilities. Houston’s ship channel, energy complex, highways, medical center, and embrace of air conditioning all reflect the same instinct: Law can invite growth, but infrastructure makes growth possible.

The Senate’s broader interim agenda follows that tradition. The Legislature this session says it will focus on areas essential to the external affairs of corporations, including broadband, nuclear energy, transmission, cybersecurity, and the state’s new AI law.

For boards and counsel, domicile advice shouldn’t stop with fiduciary standards and litigation exposure. The real question isn’t only which law governs the board, but which jurisdictions govern the success of the enterprise.

A Texas on-the-ground strategy requires asking when a project can interconnect, who funds transmission, whether load can be curtailed, how cooling affects local water, and whether nearby communities accept the bargain. Those are also governance questions: They determine whether management can execute the plan the board approved.

The harder question for Texas is whether it can build quickly, fairly, and with enough foresight to sustain business growth in a hotter, more power-hungry future. The July 29 hearing and Abbott’s willingness to slow the data-center pipeline suggest the state understands the challenge.

Charters are the easy part. Power, water, and transmission are the test.

Columnist Carliss Chatman is a professor at SMU Dedman School of Law. She writes on corporate governance, contract law, race, and economic justice for Bloomberg Law’s Good Counsel column.

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