Published: September 5, 2025
By: Concentric Staff Writer
Key Takeaways:
- Arizona is moving to repeal its renewable energy standard mandate, saying it has led to excessive and artificial costs to state ratepayers.
- Arizona’s power demand is expected to increase sharply due to economic growth, including the construction of new data centers.
- The projected increase in demand led state officials to recently approve a new, multi-billion-dollar natural gas pipeline to meet expected rising demand.
- Tucson city officials recently rejected a new data center, Project Blue, related to Amazon Web Services, but the developer is exploring alternate sites that could lead to the facility still being constructed.
Arizona is putting the brakes on its renewable energy mandate as electricity demand explodes in the state and it recently rejected a proposal for a massive new data center—although the project is almost certain to resurface.
The state is gearing up for major increases in demand for energy and water with at least 20 data centers proposed, leading to the approval of a new natural gas pipeline to help bolster natural gas-fired power plants.
Perhaps the most significant development in the state is a decision by the Arizona Corporation Commission (ACC) to repeal that state’s renewable energy standard. The ACC at its Aug. 14 open meeting directed its staff to take the next step to repeal the Renewable Energy Standard and Tariff (REST) established by the commission in 2006. The regulation required the state’s utilities to generate a certain percentage of their electricity from renewable resources, with a goal of 15 percent by 2006.
“The idea that the deployment of renewables in Arizona will come to a halt if REST is repealed is doom and gloom fear-mongering at its worst,” ACC Chair Kevin Thompson said in a written statement. “If renewables are truly the most affordable and reliable option, as we are frequently reminded by advocates, the generational technology should be able to prevail on its own without the need for mandates that have added millions of dollars in extra costs for ratepayers each year.”
Arizona utilities have already met the renewable standard requirements, but commission members called the rules outdated and said renewable resources should be “able to stand on their own,” according to Commission Member Rene Lopez, quoted in the press release.
The ACC said it estimates the renewable standard rules have resulted in about $2.3 billion in surcharges on state ratepayer bills since 2006. This has led to an artificial increase in the cost of energy, they said. Under the ACC decision, commission staff must file a Notice of Rulemaking Docket Opening with the Office of the Secretary of State by Sept. 19, according to the release. The commission will hold three public hearings on the matter Nov. 10 in Tucson, Nov. 12 telephonically, and Nov. 13 in Phoenix.
Amid the concerns of demand growth and water availability, the Tucson City Council recently rejected a plan for a massive data center near the city.
Project Blue’s primary development site was in Pima County, with the initial phase of the project due to become operational as soon as 2027, according to city council documents. A second phase was under exploration by the developer, which would also utilize reclaimed water. A feasibility study was underway for a third site, meaning that development could proceed at a different site in the future.
Water usage is closely tied to climate and weather conditions, according to the city council documents, and could vary in any given year. After build-out of the primary and secondary projects, Project Blue’s water usage was projected to not exceed 6 percent of the state’s reclaimed water portfolio, or 1 percent of the city’s available water.
The city council on Aug. 6 directed its staff to reject the data center as proposed and directed its city manager and staff to end negotiations regarding the Project Blue development agreement and related annexation. It also directed staff to “take any other steps necessary to end the process for the consideration of the annexation.”
However, the data center project is still alive and could be developed at a different site. Tucson Electric Power on Aug. 25 submitted to the ACC an energy supply agreement for the data center, being developed by Beale Infrastructure.
The rejection of Project Blue comes as the ACC realizes it needs additional natural gas supply—native natural gas is scant in the state—to meet rising demand.
The actions come as Arizona utilities have experienced record demand this summer, with the state seeing a new temperature peak of 118 degrees Fahrenheit on Aug. 7. There were also record temperatures in Prescott, which hit a record of 99 degrees that day, and Yuma, tying its record of 114 degrees that day.
Energy Transfer LP on Aug. 6 announced it reached a positive financial investment decision for the expansion of its $5.3 billion Transwestern Pipeline to increase the supply of Permian Basin natural gas in Arizona and New Mexico.
“Transwestern’s Desert Southwest pipeline expansion will provide reliable economic supplies of natural gas to support the long-term energy needs for utilities and energy providers in the region driven by population growth, high-tech industry demand and data center expansion,” the company said in a news release.
The project includes 516 miles of 42-inch pipeline with a capacity of 1.5 billion cubic feet per day. The extension will enhance reliability and provide additional options to serve demand in the Southwestern U.S., the company said. It is expected to be in service by the fourth quarter of 2029. About $600 million has been approved for funds during construction and already has “significant” long-term commitments from customers with an expectation that remaining capacity will be subscribed after an open season is launched later this quarter.
The developer said it will prioritize U.S. steel pipe manufacturers and will utilize up to 5,000 local workers and union labor construction jobs. Energy Transfer also operates nearly 200 natural gas-fired power plants and about 140,000 miles of pipeline and related infrastructure, it said.
Arizona falls sixth on the list of states projected to see the highest percentage of data center load, following Virginia, Texas, California, Illinois, and Oregon, according to a report from the Electric Power Research Institute (EPRI). Assisting in meeting this demand are the plentiful solar resources in the state, amid a low risk of natural disasters and overall market growth, EPRI said. Challenges include water scarcity and a need for sustainable cooling infrastructure.
Data centers accounted for about 7.43 percent of electricity load in the state in 2023, according to EPRI, which is projected to grow to about 8.81 percent by 2030 in a “low-growth” scenario and 12.73 percent in a high-growth scenario.
Arizona is currently working to balance its need for new demand while regulating massive new requirements on its power grid and revisiting its renewable energy goals.
Sources used in this article:
Decision by the Arizona Corporation Commission
Project Blue Updated Fact Sheet_250713
Motions Adopted Under Aug. 6, 2025, Study Session Item 8/Project Blue
Request to Approve Special Agreement for Electric Service
APS Customers Set New All-Time Record For Peak Energy Use
Powering Intelligence: Analyzing Artificial Intelligence and Data Center Energy Consumption
—
All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
