Arizona Commission Moves To Prevent Ratepayers From Subsidizing Data Centers, Large Power Users
By Matthew Holloway |
The Arizona Corporation Commission unanimously approved a new review process Wednesday designed to prevent existing electric cooperative customers from paying for transmission and infrastructure required by data centers, manufacturers, and other large electricity users.
The framework was jointly proposed by Arizona Electric Power Cooperative, which provides wholesale electricity, and five distribution cooperatives: Duncan Valley Electric Cooperative, Sulphur Springs Valley Electric Cooperative, Mohave Electric Cooperative, Graham County Electric Cooperative, and Trico Electric Cooperative.
The cooperatives sought the process as they hold discussions with several prospective large-load businesses considering facilities within their service territories. Commission Chairman Nick Myers said those customers are showing increasing interest in rural Arizona.
“Large load customers are becoming increasingly interested in rural areas of Arizona,” Myers said in the Commission’s announcement. “This new process allows rural Arizona to capture the economic growth responsibly without being subsidized by other customers of the utilities.”
Prospective projects would negotiate electric service agreements involving Arizona Electric Power Cooperative as the wholesale electricity provider, a distribution cooperative serving the project site and the large-load business as the retail customer.
Each proposed agreement would follow a common set of guidelines and application requirements before undergoing review by the Commission’s Utilities Division staff. Commissioners would retain authority to approve, deny, or amend each agreement, according to the approved framework (Docket No. E-01773A-26-0123).
Staff reviews must consider whether an agreement serves the public interest, whether its rates are reasonable, and whether it prevents other customer classes from subsidizing the large-load customer’s commercial operations. The Commission said large-load customers will be responsible for costs associated with serving their projects, including new transmission and infrastructure construction.
“This further protects ratepayers from potentially subsidizing costs attributed to serving ‘cost causers’ such as manufacturing facilities and data centers,” Commissioner Kevin Thompson said.
Commissioner Lea Márquez Peterson said the process accounts for differences among the cooperatives and the communities they serve.
Márquez Peterson said the cooperatives are structured differently and represent diverse communities across the state.
“It’s important that the process for onboarding large loads reflects this difference,” she said. “I was proud to support their effort to streamline their processes and to protect their members and ratepayers.”
The decision advances the Commission’s “Growth Pays for Growth” approach, under which the costs of infrastructure needed to serve new industrial-scale electricity demand are assigned to the customers creating that demand.
The Commission has been studying the effect of data centers and other large-load businesses on Arizona’s electric system since Thompson opened a statewide docket in 2025. The inquiry has examined utility tariffs, new customer classifications, energy service agreements, independent generation, and other mechanisms intended to protect residential and small business customers from cost shifts.
At an April workshop, the Commission reported that approximately 1,300 megawatts of data center development was under construction in Arizona and more than 4,000 megawatts was in the planning stages. Commissioners and utility representatives discussed the generation, transmission, and distribution investments that would be needed to serve that demand.
Commission officials said Arizona’s existing utility rates and regulatory mechanisms have required data center developers to pay their share of power-generation and infrastructure expansion. The Commission opened the broader proceeding to determine whether additional policies would be needed as the number and size of proposed facilities increase.
Participants in the April large-load workshop discussed combining utility-specific rates with individual energy service agreements. Those agreements can include longer contract terms, minimum billing requirements, collateral and credit requirements, termination provisions, and the direct assignment of generation, transmission, and distribution costs to the large customer.
The newly approved cooperative framework uses project-specific service agreements while establishing a common process for Commission review. It also allows individual cooperatives to negotiate terms reflecting their systems and service territories.
“This new large load process gives Arizona cooperative utilities a clear standardized framework for bringing data centers and large load users online while protecting existing ratepayers from bearing the costs,” Myers said.
Matthew Holloway is a senior reporter for AZ Free News. Follow him on X for his latest stories, or email tips to Matthew@azfreenews.com.
