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I have a Power BI workbook that I have created in Desktop. It sources from a SQL Server database. I can access this database with account x. My Azure tenant admin has created a data source for this database in our gateway (within the Power BI service), and I have access to this gateway. The admin supplied account y in connecting to this data source. How does this work when I go to refresh the dataset that this workbook creates when I publish it to the service? That is, when I schedule a refresh on the dataset, will it dial into the SQL Server database using account y provided in the data source definition (virtually ignoring / dropping account x's credentials)?

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Yep. That's exactly how it works. The automated refresh will use account 'Y.'

Data sources that have been deployed to some hosted location will almost always disregard the credentials used to create the dataset and instead use credentials that are specifically supplied for the refresh. These 'service' accounts will typically have different rules about password resets, have the lowest appropriate levels of access, and be under the prevue of system administrators rather than report authors. Its a very standard practice. It protects against misuse, error, loss of accounts, and segregates actual user activity from automated behaviors in the logs.

However, it is a little odd to me that your admin 'created the datasource' -- is that correct? Or did the admin just wire up the gateway to the datasource that was deployed when you published?

If you want to use a datasource that is already published, then you need to connect to that datasource from PowerBI desktop. Otherwise you'll be pushing out something new that has nothing to do with the resources that your admin created.