Anybody who has driven around the Phoenix metro area knows that Arizona is a magnet for massive data centers. It’s those giant warehouse-looking buildings with electrical substations nearby and really small parking lots (very few people actually are employed at these giant power-hungry box buildings). Those warehouse-sized facilities you see store digital data and power AI.
Tech companies see Arizona as an ideal location due to cheap land and captive utility regulators.
The problem is that these massive facilities use gobs of electricity and water which ends up posing a threat to public health, water security, and the household budgets of everyday Arizonans.
Here’s how.
The proliferation of data centers puts pressure on monopoly utilities like Arizona Public Service and Tucson Electric Power to seek new energy sources and build out costly infrastructure (e.g., gas-fired power plants, transmission lines, substations).
The big public health concern is who pays? Will it be the data centers who are driving the demand or residential ratepayers who risk footing the bill through higher utility rates?
To meet the data center demand surge APS and TEP will likely press to build more methane-burning gas plants, which will increase greenhouse gas emissions and worsen local air pollution.
But there’s a less visible and potentially more damaging risk. The cost of building out the infrastructure to serve data centers like the power plants, substations, and transmission lines aren’t necessarily being paid for by the data centers.
Instead, the data centers cozy relationship with utilities like APS and TEP (and the ACC’s cozy relationship with APS & TEP) end up facilitating rate hikes with little assurance that costs due to data centers won’t be piled onto regular residential customers.
APS already secured an 8% residential rate increase and is now asking for another 14%. TEP is doing the same. And these hikes hit hardest where families can least afford them.
In Arizona, energy bills are often the second-largest household expense after rent. High electricity rates leaves low income families with even less money for food, school supplies, and healthcare, all while living with the stress of rising monthly bills.
A core problem? Arizona lacks clear standards to ensure data centers pay for all the infrastructure required to satisfy their demand.
In Arizona, the Arizona Corporation Commission is the regulatory body tasked with ensuring that utilities operate in the public interest. This includes:
- Reviewing and approving rate hikes proposed by utilities;
- Requiring utilities to justify capital expenditures;
- Allocating costs based on who caused them (known as “cost causation”);
- Holding public hearings where advocates can push back on unfair rate design; and
- Making final decisions about whether to approve rate requests.
The ACC can reject rate proposals that shift disproportionate costs to residential customers. It also has authority to require special rate structures or impact fees that place more of the burden on large industrial users with political connections and the ability to provide large campaign contributions (like data centers).
But… protections for residential ratepayers are only as strong as the Commission’s willingness to:
- Independently scrutinize forecasts and financial impacts;
- Reject unjustified investments; and
- Impose fair cost-allocation rules.
The tools exist for the Commission to protect residential rate payers, but that depends on the ideology and political will of the Commissioners, data transparency and whether or not Commissioners and staff use unbiased analyses.
Meanwhile, the Data Center Coalition, an industry trade group, has plainly said it doesn’t believe rate protections for residential customers are necessary. See Arizona utilities: Data centers could nearly triple energy demand
Without better safeguards to ensure data centers aren’t cost shifting infrastructure costs on to residential customers ordinary Arizonans will be stuck with the environmental and financial fallout… with damaging results for public health.
We need stronger oversight from the ACC, more transparency about who pays for what, and written policies that put health, fairness, and affordability first. Otherwise, the cost of powering Arizona data centers will come down on the people least able to afford it and who aren’t causing it.
It would surely help if voters would elect ACC commissioners who protect residential customers rather than power company executives and monopoly utility shareholders.
Summary
Arizona’s utilities are under pressure to meet growing electricity demands from data centers which cause expensive infrastructure costs. The Arizona Corporation Commission has the authority to protect residential customers from subsidizing those costs—but only if it actively enforces cost-causation principles and rejects unfair rate hikes.
Without strong oversight and transparency, residential ratepayers will be unfairly forced to pick up the tab for infrastructure that primarily benefits private data companies.
