Arizona Regulators Approve Power Deal for Major Tucson Data Center, Citing Ratepayer Protections
December 4, 2025
The Arizona Corporation Commission has given its approval to a critical power supply agreement for a significant new data center development in Tucson, a decision backed by the state's leading business organizations who argue it sets a responsible precedent for attracting high-tech investment without burdening existing utility customers. The move comes as states nationwide compete for energy-intensive data center projects, balancing the promise of economic growth against the imperative of grid stability and fair electricity rates.
On Wednesday, the commission approved Tucson Electric Power's (TEP) proposed Energy Supply Agreement (ESA) with Humphrey’s Peak Power, LLC, for the initial phase of a large-scale data center project in southeast Tucson, previously referenced as "Project Blue." The approval followed supportive testimony from the Arizona Chamber of Commerce & Industry and the Arizona Manufacturers Council (AMC).
Central to the debate was the principle that "growth pays for growth." Business leaders emphasized that the agreement includes stringent safeguards designed to prevent costs from being shifted to residential or small business ratepayers. Grace Appelbe, executive director of the AMC, testified that the project will pay the standard commission-approved rate for TEP's largest users, receiving no discounts or subsidies. "Arizona’s employers rely on stable, affordable, and reliable energy," Appelbe told commissioners. "Our ability to attract major investment—especially high-tech and manufacturing projects—depends on a regulatory environment that provides certainty while protecting existing customers."
Key protective measures integrated into the deal include full cost recovery at standard rates, robust credit requirements, minimum demand payments, and termination fees to mitigate financial risk for the utility. For its initial phase requiring up to 286 megawatts (MW) of capacity, the data center will be served entirely by TEP's existing resources and clean-energy assets already under development, avoiding immediate need for new power generation. "These protections ensure that if the project doesn’t build out as expected, there is no cost-shifting to residential or small business customers," Appelbe stated.
Beyond protecting ratepayers, the business coalition highlighted the project's substantial economic benefits, including major capital investment, construction activity, high-wage jobs, and long-term tax revenue. In a joint letter to the commission, they also argued that large, consistent users like hyperscale data centers can contribute to grid efficiency. By providing a steady 24/7 load, such facilities help spread the utility's fixed costs across more kilowatt-hours, potentially stabilizing rates for all customers. "In a traditionally regulated state like Arizona, major loads, such as data centers, will help lower the revenue requirement from all other customers, reducing upward pressure on rates," the letter explained.
Looking ahead, TEP has indicated that while the initial 286 MW phase will use existing capacity, future expansion will require the customer to fund new generation resources to meet additional demand. The business community expressed confidence in this framework, noting TEP's completion of necessary technical studies to ensure ongoing grid reliability. Appelbe concluded her testimony by framing the approval as a vital market signal. "Approving this agreement sends a clear signal that Arizona can meet the energy needs of major employers while keeping costs fair for everyone," she said.
Source: chamberbusinessnews
