The Arizona Corporation Commission on Wednesday approved Tucson Electric Power’s proposed Energy Supply Agreement, or ESA, for a major new data center project following testimony from leading members of Arizona’s business community.
The Arizona Chamber of Commerce & Industry and the Arizona Manufacturers Council argued that the agreement establishes a model for responsible economic development, ensuring that large-scale industrial users pay their fair share while bolstering the state’s competitiveness for high-tech investment.
Grace Appelbe, executive director of the AMC, testified at the hearing, emphasizing that the agreement prioritizes the stability and affordability of Arizona’s energy grid.
“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.”
“Growth pays for growth”
At the center of the hearing was the ESA between TEP and Humphrey’s Peak Power, LLC, regarding the initial phase of a southeast Tucson data center previously known as “Project Blue.”
Business leaders praised the agreement for adhering to a strict “growth pays for growth” principle. According to the testimony and filings submitted by the Chamber and AMC, the deal includes robust safeguards to prevent cost-shifting to residential or small business customers.
“The customer will pay the Commission-approved rate for TEP’s largest users, without any discounts or incentives,” Appelbe testified.
Key provisions of the agreement designed to protect existing ratepayers include:
- Full cost recovery: The project will pay standard rates with no subsidies.
- Risk mitigation: The contract includes credit requirements, minimum demand payments, and termination fees.
- Resource adequacy: The initial phase will be served using existing resources and clean-energy assets already in development, avoiding the need for immediate new 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 said.
Economic benefits and grid efficiency
In a letter submitted to Commission Chairman Kevin Thompson and the commissioners, the Chamber and AMC highlighted the broader economic advantages of attracting hyperscale data centers. These projects generate significant capital investment, construction activity, high-wage jobs, and long-term tax revenue.
Beyond direct economic injections, the business groups argued that high-load customers actually help stabilize rates for all users. By providing consistent, 24/7 energy usage, data centers help spread the utility’s fixed system costs across more kilowatt-hours.
“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 Chamber and AMC wrote in their joint letter.
Outlook
TEP has indicated that while the initial phase will utilize existing capacity (up to 286 MW), future phases will require the customer to fund new resources to meet their demand.
The business community expressed support for this framework, noting that TEP has completed the rigorous technical studies required to ensure reliability is maintained.
Appelbe concluded her testimony by urging the Commission to approve the agreement, framing it as a signal to the market that Arizona can accommodate major employers responsibly.
“Approving this agreement sends a clear signal that Arizona can meet the energy needs of major employers while keeping costs fair for everyone,” Appelbe said.
