5_ Report on recommendations by Planning for Large Volume Users WG — original pdf

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TO: Austin Integrated Water Resource Planning Community Task Force FROM: Working Group of Austin Integrated Water Resource Planning Community Task Force (Sarah Baker Faust, Paul DiFiore, Hani Michel, Madelline Mathis) DATE: June 9, 2026 The Working Group presents this memo for the consideration of the full Task Force. We request that the Task Force forward the Recommendations to Austin City Council to address potential demand increases in commercial and industrial use that could affect Austin’s timing and expense in diversifying its potable water supplies. Background The Austin Integrated Water Resource Planning Community Task Force (“Water Forward Task Force” or “WFTF”) recently formed a working group (“Working Group”) to take a closer look at water use in commercial, industrial, and institutional water consumption due to potential changing demand conditions in these user groups.1 The Water Forward water supply planning process operates on a 5-year timeline. The Working Group was tasked with reviewing Water Forward 2024 planning in these categories to determine whether the planning is still in alignment with changing conditions or should be addressed through policy recommendations. We believe the Austin City Council should review and adopt the recommendations in this memo that would address potential demand increases in industrial and commercial water use. Existing and Projected Commercial, Industrial, Institutional Water Use Austin Water has customers using significant volumes of water in the commercial, industrial and institutional categories.2 Large volume including institutional, industrial, and 1 The Working Group was initiated at the April 14, 2026, Water Forward Task Meeting. The Working Group developed research and resources, submitted written questions to and received responses from Austin Water, and met twice to review research, characterize problems, identify gaps in policy, and develop interventions and policy recommendations. 2 See “Large Water User Overview”, Slide 21, Climate, Water, Environment and Parks Committee Meeting Backup: May 18, 2026) https://services.austintexas.gov/edims/document.cfm?id=473249. In this memo the phrase “high water use’’ or “large water customers” is used rather than “large volume” because Austin Water defines a “large volume customer” specifically as “an existing commercial customer of Austin Water that purchases 85.0 million gallons of water during a fiscal year at a single service address or campus.” In this context commercial includes industrial. (See Slide 20, Climate, Water, Environment and Parks Committee Meeting Backup: May 18, 2026) https://services.austintexas.gov/edims/document.cfm?id=473249. (Attachment 1). Austin Water follows TWDB customer classifications: Industrial water use refers to customers who use water to convert materials into products with greater usability or value. This includes sectors such as mining, manufacturing, and power generation (excluding hydroelectric). Institutional water use refers to water used by establishments dedicated to public service, including schools, universities, churches, hospitals, nursing homes, parks, prisons, and government facilities. Commercial water use refers to water used by places of business, such as retail sales establishments, hotels, restaurants, and office buildings. This category does not include multi-family residences, agricultural users, or industrial users. See “Large Water User Overview”, Slide 20, Climate, Water, Environment and Parks Committee Meeting Backup: May 18, 2026) https://services.austintexas.gov/edims/document.cfm?id=473249. 1 commercial customers together account for 25% of total water use.3 In 2025 the top 5 retail water customers used approximately 4.5 billion gallons of water, or 13,900 acre-feet of water.4 That use of the top 5 customers is 29% of 2030 projected baseline demand for all commercial use. This water is used in semiconductors, manufacturing, and for the University of Texas. In some instances, these large water users increased year over year, even while Austin Water was in State 2 drought for the nearly 2-year period of August 2023-2025.5 Current regulations and drought curtailment plans do not restrict consumption for indoor commercial, industrial, or institutional use. Water use in these categories can have significant impacts on our water planning. The Water Forward Plan (updated 2024) estimated future commercial, industrial and institutional water demand with the disaggregated demand model.6 In the Water Forward Plan baseline demand is presented as “Commercial” and “Wholesale” although commercial includes commercial, industrial, and non-wholesale institutional. The methodology to create the baseline demand projections used historical and projected commercial-sector employee counts, historical billing data, and adjustments to account for weather and COVID trends. Historical employee counts along with historic population, and employment estimates were used to develop baseline historic estimates of employees and the number of employees per commercial subsector. Development data and staff insights, as well as indoor and outdoor water use factors were used to estimate consumption per employee.7 Austin Water does not currently require high volume or significant volume water customers to forecast future water consumption.8 The 2024 Cost of Service Study developed forecasts of billed water consumption for specific large volume customers as part of developing the water cost of service. For 3 of the top 5 water users, Samsung, Cypress, and NXP, the 2025 3 See “Large Water User Overview”, Slide 22, Climate, Water, Environment and Parks Committee Meeting Backup: May 18, 2026) https://services.austintexas.gov/edims/document.cfm?id=473249. 4 See “Large Water User Overview”, Slide 21, Climate, Water, Environment and Parks Committee Meeting Backup: May 18, 2026) https://services.austintexas.gov/edims/document.cfm?id=473249. 5 For example, two of Austin top 5 water users increased water use from 2023 - 2025. Tesla Motors, Inc. water use increased from 318,332,000 gallons in 2023 to 544,342,000 gallons in 2025. The University of Texas water use increased from 650,782,000 gallons in 2022 to 846, 738,000 gallons in 2023, increased again to 976, 550,000 gallons in 2024, then reduced to 858, 617,000 gallons in 2025. 6 Water Forward Plan 2024 Baseline demand commercial (aggregate of commercial, industrial, large volume and demand estimates: 47,600 acre-feet per year in 2030; 56, 800 acre-feet per year in 2040; 67,100 acre-feet per year in 2060. Water Forward 2024 plan pages 22-23. 7 Information about methodology for estimating commercial, industrial and institutional water (aggregated as “commercial”) demand was provided by Austin Water and is attempted to be summarized here. Austin Water has more extensive detail that explains the demography and geographic application of growth trends. Please refer to Austin Water for more specifics. 8 Austin water uses projections from the disaggregated demand model to plan for future water demands from commercial customers, including large volume. The water budgeting model proposed by Austin Water would allow for projected water use to be required of certain customers. 2 forecast was relatively on target, but for UT and Tesla the forecast was significantly below billed consumption.9 The Austin area is experiencing and expecting changing conditions that could affect our water planning and potable water demand. Commercial and industrial development from data centers, advanced manufacturing, semiconductors, and other categories can expand water use at a much faster rate and use more water per square foot than a typical mixed use or office development.10 Projections based on historic demographic employee data and regulations designed to enhance recycled water use based on square footage may not produce results that align with the City’s current water planning.11 Economic Development and Growth of Artificial Intelligence Data Centers The City of Austin is seeking to accelerate growth in several industries, including many that have a large water use footprint. In May 2026, the City of Austin initiated a new economic development strategy in response to changing economic conditions and in order to continue Austin’s economic growth.12 The new program will be actively recruiting foreign direct investment, supporting international companies seeking to establish or expand U.S. operations, and positioning Austin as a preferred destination for global firms in the City's existing economic landscape.13 This program will offer grants, loans, and other incentives for firms to locate businesses in Austin. The City of Austin has signaled that the types of businesses recruited under the economic development strategy will likely include data management, artificial intelligence, advanced manufacturing14, automotive and mobility technology, semiconductors 9 Tesla 20205 annual consumption was projected to be 217, 610,000 gallons but actually billed 544,342,000 and University of Texas was projected to be 288,378,000 gallons but actually billed 858, 617,000. 10 A dense AI data center configuration may reduce spatial footprint but increase thermal intensity (and thus energy needs and water-cooling needs). Data and Infrastructure Growth in Texas: Energy, Infrastructure, and Policy Pathways, Bureau of Economic Geology at the University of Texas at Austin. 11 The Houston Advanced Research Center notes “Because of the size and speed of this projected growth, the lack of adequate data and delayed planning processes will hamper communities’ ability to plan for these new water demands and ensure they have adequate funding and time to develop new water supplies.” Thirsty Data and the Lone Star State: The Impact of Data Center Growth on Texas’ Water Supply. 12 https://communityimpact.com/austin/central-austin/government/2026/05/07/council-advances-plan-for- austins-economic-expansion-business-recruitment/. 13 Resolution 2026-0527 (Adopted May 7, 2026) https://services.austintexas.gov/edims/document.cfm?id=473268; Austin City Council May 21, 2026 Agenda Item 38 (adopted)(File #26-1757 Authorizing negotiation and execution of a 45-year development agreement … on 2,614 acres … authorizing among other uses advanced manufacturing, autonomous vehicle and boat testing). 14 An example of advanced manufacturing water use could be Austin’s third largest water customer, Tesla Motors Inc., which used 556,289,700 million gallons or 1.5 million gallons per day in 2025. 3 and microelectronics.15 Water consumption in these industries is significantly higher than typical office building water use.16 The City of Austin’s economic development framework will include, among other things: creating a resource stewardship standard evaluating carrying capacity and resiliency; establishing a community benefit framework; actively marketing large scale development sites; creating a real estate inventory of city owned and privately owned land ready and available for corporate investment, as well as a program to expedite development permitting. 17 Current City policies and codes encourage development in the Desired Development Zone (DDZ). One of those policies is to grant water and wastewater Service Extension Requests in the DDZ administratively with no Board and Commission or City Council review.18 Service extension requests outside the full purpose jurisdiction and inside the Drinking Water Protection Zone are reviewed by the Environmental Commission, the Planning Commission, and Austin City Council. Artificial Intelligence Data Centers According to the Austin City Manager, AI is challenging the definition of “high growth.”19 “An AI race is ongoing where speed to deployment is everything with little regard to cost. An AI data center could be built in as little as 18 months for the same amount of [electricity] load as a high-density mixed-use development covering thousands of acres that may take 20-25 years to fully build out.”20 Data center growth is occurring at a pace and scale that traditional infrastructure planning and siting processes have difficulty matching. Texas is the nation’s fastest growing data center market with a 142% increase in its share of the data center market expected by the 15 https://services.austintexas.gov/edims/document.cfm?id=472609. Semiconductors can improve water recycling, but newer semiconductors are larger and produce ever more advanced chips, requiring large amounts of ultrapure water. The Samsung semiconductor in Austin uses approximately 2.4 billion gallons of water per year, or 6.6 million gallons per day. Samsung’s new semiconductor facility in Taylor, which will make advanced 2nm chips, is projected to use 15 million gallons of water per day. https://www.statesman.com/story/business/technology/2022/08/01/if-samsungs-texas-expansion- happens-where-will-the-water-come-from/65385569007/. On average Austin Water provides about 150 million gallons of water per day to all of its users. 16 A dense AI data center configuration may reduce spatial footprint but increase thermal intensity (and thus energy needs and water cooling needs). Data and Infrastructure Growth in Texas: Energy, Infrastructure, and Policy Pathways, Bureau of Economic Geology at the University of Texas at Austin (available at https://compass.beg.utexas.edu/assets/publications/Data_Center_White_Paper_BEG.pdf). 17 Resolution 2026-0527 (Adopted May 7, 2026) https://services.austintexas.gov/edims/document.cfm?id=473268. 18 Austin City Code § 25-9-35. 19 Staff Response to Artificial Intelligence Resolution 20250424-05. 20 Staff Response to Artificial Intelligence Resolution 20250424-05. 4 end of 2028.21 Data centers are eligible for state tax exemptions.22 From 2024-2025 the amount of state tax exemptions for data centers grew from $148.8 million to $1.02 billion.23 Water plays a crucial role in the operation of data centers - indirectly, to produce the electricity that powers data center operations, and directly, to cool the servers and other equipment. Nationally, the water use for cooling alone is expected to increase by 2-3x by 2028.24 Statewide data center water consumption is estimated to increase from 25 billion gallons in 2025 (0.4% of state water usage annually) to 29-161 billion gallons in 2030, a 16- 540% increase (0.5%-2.7% statewide) in 5 years.25 Due to the sudden growth of data centers, there are no estimates for water use attributed to data centers in the Austin Water Forward Plan (adopted 2024) or the draft Texas Water Plan (released April 2026).26 Water use from data centers is incorporated into the commercial baseline demand category. Because Austin does not have a land use classification for data centers, Austin Water identifies its current data center customers based only on online research. For those customers it has identified, “the water service demands can vary depending on the time of year, scale of the data center, and the method of cooling. Some have similar demands to those of a typical office building; however, larger-scale data centers can have substantial water demands, particularly if they are utilizing a cooling technology with evaporative cooling towers.”27 Because of the fundamental transformation in scale and complexity in data centers from traditional IT workloads to high-performance computing and hyperscale cloud operations, historical water use from data centers identified in Austin may not be predictive of future water consumption. According to the UT COMPASS Research Consortium the emergency of gigawatt scale AI data centers complicates the resource consumption metrics: “Operators prioritize cooling technologies that reduce immediate operational expenses and long term total cost of ownership….The trade-offs on energy use, water, use, land use and material use efficiency cannot be simultaneously maximized; these trade-offs are often not resolved through sustainability metrics but through financial optimization: capital and operational expenditure, return on investment, and total cost of ownership considerations. In this context, profit-maximizing behavior frequently privileges efficiency gains that are measurable in utility bills or hardware performance.” If the City of Austin succeeds in attracting new water users in advanced manufacturing, semiconductors, and/or data management that could significantly alter our current water use 21 https://communityimpact.com/austin/central-austin/texas-legislature/2026/04/16/texas-legislators-begin- digging-into-water-use-other-data-center-impacts-ahead-of-2027-session/. 22 https://comptroller.texas.gov/taxes/data-centers/. 23 https://www.texastribune.org/2026/04/08/texas-data-centers-sales-tax-break-billion-dolla. 24 Thirsty Data and the Lone Star State: The Impact of Data Center Growth on Texas’ Water Supply. Houston Advanced Research Center, 6, January 2026. 25 Texas Water Foundation: Gallons + Gigawatts: Texas Data Center Water Use and Policy Considerations. 26 https://www.twdb.texas.gov/waterplanning/swp/2027/index.asp. 27 Staff Response to Artificial Intelligence Resolution 20250424-05. 5 profile, including negating water conservation gains. For example, the Water Forward 2024 plan estimates 6,500 acre-feet estimated yield per year from water conservation (including utility side water loss control).28 One new semiconductor manufacturing facility operating at the water use level of Austin’s current top water user (a semiconductor manufacturer) would use 6,800 acre- feet per year and negate those conservation savings. Reclaimed Water Programs One of the most promising solutions for offsetting potable water demand in commercial and industrial water use is replacing potable water use with recycled water. Recycled water can be generated onsite or come from a centralized recycled distribution system. Austin has been a leader in recycled and onsite water use requirements and should continue to strengthen our recycled water programs as new water users are attracted to the city. Austin Water’s centralized reclaimed water is treated and distributed via a distribution system emanating from Austin Water’s two major wastewater treatment plants. The centralized reclaimed water system is made up of four pump stations, two pressure zones, 72.8 miles of main, and six water storage facilities. The system supplies approximately 5,100-acre feet of water to 185 properties annually. Austin Water also treats and provides reclaimed water from three small-scale decentralized wastewater treatment plants. The Reclaimed Water Mandatory Connection Ordinance, adopted by Austin City Council in September 2021, mandates that any commercial, multi-family or mixed-use development project within 250 feet of a reclaimed water line must connect to the reclaimed water system for irrigation, cooling, toilet flushing, and other significant non-potable water uses. For large developments with 250,000 square feet or more of gross floor area, the connection mandate extends to 500 feet.29 Cooling towers are an important water use within commercial, industrial, and institutional water use. Under current code, most new developments with cooling towers are only required to make up 10% of their evaporative losses with reuse water, even though 50% or more is achievable with current technology.30 Facilities that use large amounts of water for cooling could be required to submit an evaluation of alternative methods of cooling in order to demonstrate the method that minimizes water usage. 31 28 Water Forward Plan 2024, p. 31. 29 Water Forward Plan 2024, p. 19.; Austin City Code Section 25-9-412. 30 Staff Response to Artificial Intelligence Resolution 20250424-05. “New data centers that are not within proximity to a reclaimed water line are required to use an onsite alternative water source to meet a percentage of their makeup water needed to replace water evaporated in cooling towers. Under current code, most new developments with cooling towers are required to make up 10% of their evaporative losses with reuse water. These projects can typically offset 10-25 percent of their makeup water with onsite alternative sources, however, 50 percent or more offset is achievable if stormwater or wastewater is collected for reuse.”; 31 See e.g. Virginia House Bill 2377 (would have required localities to consider alternatives to water- based cooling methods before approving data centers): https://lis.virginia.gov/bill- details/20251/HB2377/text/HB2377 6 Recommendations Austin has the opportunity to update its regulatory and incentive framework to prepare for this new era of high-tech water use and economic development. It is critical for our water supply planning efforts to that commercial and industrial sectors shift potable water demand to recycled water. The economic development program is an opportunity to incentive net zero water use and promote the availability of Austin’s affordable reclaimed water system, onsite water reuse systems, and sewer mining as part of Austin’s economic development ecosystem. Current policies and regulations need to be updated to create an incentive and regulatory framework that will: 1. Require recycled water for all aspects of water use in data centers.32 2. Require recycled water for all commercial and industrial cooling and submit a cooling technology alternatives analysis for high water use facilities. 3. Pursue expanding the requirement for Board and Commission and City Council approval of Service Extension Requests in the Desired Development Zone to customers identified through the Austin Water Benchmarking process of potentially using more than a minimum volume of water. The minimum volume of water that would trigger this review should be developed and recommended to Council in collaboration with Austin Water and stakeholders (Water and Wastewater Commission and Water Forward Task Force). 4. Modify Austin City Code requirements for utilizing either onsite water reuse and/or centralized reclaimed to be triggered by the volume of water projected to be used by a customer in addition to distance and square footage triggers. Expand Austin City Code distance triggers for connecting to centralized reclaimed water system based on a customer's distance from the system to capture more users (currently only triggered at 250 feet for 250,000 square foot and 500 feet for 500,000 square foot). 5. Adopt water budgeting to be in place as of Jan. 1, 2028, for all commercial and industrial customers (current and future) above a certain volume threshold. The volume threshold should be developed and recommended to Council in collaboration with Austin Water and stakeholders (Water and Wastewater Commission and Water Forward Task Force). As part of water budgeting, develop and implement an inclining block rate structure for all customers with a water budget that sends a strong price signal to encourage water conservation by these customers. 32 Staff response to Artificial Intelligence Resolution 20250424-055: https://services.austintexas.gov/edims/document.cfm?id=464924 “Using recycled water for all aspects of water use in data centers is recommended to reduce reliance on the City’s limited drinking water supplies. There are current City codes that regulate water use and reuse in cooling systems, but there is potential to increase the amount of recycled water, particularly in these large-scale facilities, that is used for evaporative cooling. Additional research and outreach would be needed to develop policies for recycled water use in data centers and related power generation and microchip manufacturing facilities.”; Environmental Commission Recommendation 2026-0401-004, Data Center Environmental Management (April 1, 2026)(“ Require the Data Center to use reclaimed water, and to invest directly into expanding the City’s purpose pipe program via the creation of a water use mitigation fund, or similar.). 7 6. Initiate a review of water consumption in Austin Energy production facilities to determine if additional water savings could be achieved in anticipation of increased energy loads from data centers.33 7. Include in the economic development framework initiated by Council on May 7: a. Ensure the active inventories of city and privately owned development-ready sites include proximity to the Go Purple centralized reclaimed water system; and as this real estate inventory is developed consider if the Go Purple master plan should be modified to better align with the properties identified that will be proposed for economic development. b. Apply Chapter 380 tax rebates only to companies committing to non-potable water use for industrial applications and cooling. c. Strengthen the standards for projects with extraordinary infrastructure requirements so that high water consumption is not traded for unspecified and unrelated community benefit. d. Define net zero water use and add to performance terms with defined timelines. e. Add water efficiency to building performance standards. f. Assure Austin Water’s strategic role in economic development recruitment and establish a protocol for Austin Water’s participation in business recruitment conversations. 8. Conduct a cost-benefit analysis of the bucks for business system to determine the costs incurred and water savings achieved and whether this program should be further developed to increase uptake or needs to be reworked to increase utilization. 9. Increase investment and focus in addressing utility side water loss and expand conservation programs such as rebates for landscape transformation. 33 “Different power plants use different amounts of water for each kWh generation, depending on the cooling techniques…Similar to the potential for data centers to use more recycled water sources for evaporative cooling, electricity generation facilities are able to offset 50- 100% of the water required to makeup evaporative losses with recycled water sources.” Staff Response to Artificial Intelligence Resolution 20250424-05. 8