E-00000A-25-0069

The docket discusses several financial and timeline risks and concerns related to the rapid growth of data centers in Arizona:

Financial Risks:
- Stranded costs: Data centers typically have a useful life of 10-15 years, while the generation and transmission infrastructure built to serve them lasts 40+ years. If data centers close or underutilize their contracted capacity before these costs are recovered, remaining ratepayers may be left to cover the “stranded” infrastructure costs, potentially resulting in significant rate hikes or utility insolvency 1, 1, 1, 1.
- Cost shifts: Without adequate safeguards, costs associated with expanding generation and transmission capacity to serve data centers could be shifted to other customer classes, especially residential customers. Utilities are revising rate structures, such as creating separate rate classes and enforcing minimum bill requirements, to ensure data center customers directly bear these costs 2, 3, 3, 3.
- Insufficient financial guarantees: There is concern that guarantees from shell companies owning data centers are inadequate, and that meaningful financial protection—such as third-party surety bonds—should be required to safeguard ratepayers 1, 1, 1, 1.

Timeline Risks:
- Infrastructure lead times: Utilities face the challenge of quickly locating, permitting, and building new generation and transmission infrastructure to match the rapid pace of data center load growth. Failure to do so could result in unmet demand or overbuilding, each with financial consequences 2, 3, 3.
- Misalignment of asset lives: The shorter lifespan of data center operations compared to the longer depreciation schedules for utility infrastructure introduces risk if data centers cease operations early, leaving unrecovered costs 1, 1, 1, 1.

Overall, the docket emphasizes the need for upfront recovery of infrastructure costs, robust contractual protections, and transparent processes to protect both utilities and non-data center ratepayers from these financial and timeline risks.

The docket identifies several areas of growth, primarily:

Data Center Load Growth:
- Utilities in Arizona, such as APS and SRP, are experiencing unprecedented and significant load growth driven by data centers. APS has committed to serving about 3,296 MW of data center load (with 1,215 MW from existing facilities) and has seen interest from prospective customers totaling approximately 17,000 MW. SRP projects that data centers will account for 60% of its peak load growth and 70% of total energy sales over the next decade, with over two dozen potential data center projects in its pipeline and a potential demand of 12,000 MW 1, 2, 3.

Key Considerations for Data Center Growth:
- Infrastructure Investment: The scale and rapid pace of data center load growth require major investments in new generation resources, transmission, and distribution infrastructure.
- Cost Allocation and Recovery: Both APS and SRP emphasize mechanisms to ensure that costs related to serving data centers are not shifted to other customer classes. This includes separate rate classes, revised cost allocation methods, minimum bill requirements, and mandatory prepayment for infrastructure upgrades.
- Financial Protections: Utilities are implementing contract provisions such as minimum bills, load ramp projections, and financial protections to mitigate risk, including the risk of stranded costs if data centers fail or underutilize capacity. There is concern that data centers' shorter useful life (10-15 years) compared to utility infrastructure (40+ years) creates a risk of stranded costs that would burden other ratepayers unless addressed upfront with measures like surety bonds or accelerated cost recovery 1, 2, 3, 4.
- Speed to Power: There is urgency to provide rapid interconnection for data centers due to their business models, with lessons from other states highlighting risks of delays and the need for distributed energy resources or virtual power plants to meet demand quickly 5.
- Economic Development: The growth in data centers is seen as economically beneficial, positioning Phoenix and Maricopa County as top data center markets nationally, but requires balancing economic opportunities with protections for existing ratepayers 2, 6.
- Risk of Stranded Assets: Concerns exist about long-term stranded costs if data centers do not operate long enough to cover the costs of associated infrastructure, potentially leading to rate increases or threatening utility solvency 4.

Other Growth Areas:
- Electrification: There is also mention of increased energy demand from electrification of homes, vehicles, and advanced manufacturing, though the focus of this docket is on data centers as the primary driver of near-term load growth 2, 3.

Key considerations across all these areas include ensuring fairness in cost allocation, maintaining grid reliability, mitigating financial risks to existing ratepayers, and aligning regulatory policy with rapid infrastructure development.

The stakeholders in Arizona Corporation Commission Docket No. E-00000A-25-0069 regarding data centers and rate classifications include:

1. Arizona Public Service Company (APS)
- Position: Supports creating a separate rate schedule for data centers (XHLF), direct cost assignment, and contractual mechanisms to ensure data center customers cover the costs they drive. APS is focused on preventing cost shifts to non-data center customers and ensuring "growth pays for growth" 1, 1.
- Proposal: Revised cost allocation, minimum bill requirements, load ramp projections, and strict financial protection terms for data centers.

2. Salt River Project (SRP)
- Position: Supports dedicated substation service, prepaid infrastructure costs, minimum billing requirements, and transitioning to a cluster load impact study to avoid cost shifts from data centers to other customers, particularly residential ratepayers 2.
- Proposal: Updated E-67 rate plan for large load substations, cluster study process, and infrastructure investment to meet data center load.

3. Underground Arizona (Advocacy/Watchdog Group)
- Position: Strongly supports measures to prevent cost spillover/stranded costs from data centers to ratepayers. Endorses APS's separate rate class but urges even stricter upfront cost recovery (e.g., surety bonds), warning of long-term stranded cost risk if data centers fail or underperform. Opposes utilities and ratepayers bearing these risks 3, 3.
- Proposal: Upfront cost recovery or third-party guarantees to protect ratepayers and utilities.

4. SunSpec Alliance (Industry/DER Stakeholder Group)
- Position: Neutral to supportive of enabling rapid interconnection for data centers by leveraging distributed energy resources, virtual power plants, and renewables to meet demand growth. Focus is on technical solutions for speed and reliability rather than rate structure 4.
- Proposal: Enable VPPs, distributed batteries, renewable energy, and updated interconnection standards.

5. Individual Public Commenters:
- Stefan Sommer: Opposed to data center load growth and water use until policies require all new generation to be clean renewables; emphasizes Arizona's solar potential 5.
- Shelly Gordon (Arizonans for Community Choice): Neutral; calls for transparency, public workshops, and full disclosure of long-term impacts and costs. Raises questions about who pays for energy, water, and infrastructure if data centers cease operation 6.
- Lee Stanfield: Neutral; argues that businesses (data centers) should pay for all infrastructure expansion needed for their operations or provide their own energy and water. Urges public hearings 7.

6. Arizona Corporation Commission (Regulators)
- Position: Opened the docket to review rate classifications and ensure non-data center customers are protected from rising costs linked to data center expansion. Exploring more transparent rates, utility mechanisms, and user-funded utility-scale generation 8.

Summary of stakeholder positions:
- For strict cost allocation/upfront guarantees on data centers: APS, SRP, Underground Arizona, some public commenters.
- For rapid integration and technical innovation: SunSpec Alliance.
- Against unchecked data center growth or in favor of renewable requirements/greater transparency: Some public commenters (Stefan Sommer, Shelly Gordon, Lee Stanfield).
- The Commission is positioned as a facilitator, seeking balance between economic development and ratepayer protection.

Key events and submissions in the Arizona Corporation Commission's review of rate classifications and issues relating to data centers (Docket No. E-00000A-25-0069) include:

- April 3, 2025: Chair Kevin Thompson opens the docket, initiating a formal inquiry into existing rate classifications and the potential creation of more transparent rates for data center customers. The announcement highlights the need for balancing economic opportunities from data centers with financial protections for other ratepayers 1.
- May 15, 2025: The Interwest Energy Alliance submits comments supporting user-funded utility-scale generation initiatives and resource tariffs to manage large customer load growth and protect the general rate base 2.
- June 12, 2025: The Data Center Coalition (DCC) provides input emphasizing the importance of cost-causation principles, equitable rate design, and collaboration among stakeholders, noting that data centers already pay their share of infrastructure costs 3, 3.
- June 17, 2025: Salt River Project (SRP) submits comments detailing data center load projections, infrastructure investments, and measures to prevent improper cost shifts to existing customers, including new contractual and billing requirements for large load customers 4, 4, 4, 4.
- July 18, 2025: Arizona Public Service (APS) files comments describing significant data center load growth, proposals for revised rate classes and cost allocations, and new contract provisions to mitigate risk and prevent cost shifts to non-data center customers 5.
- July 24, 2025: Underground Arizona submits comments highlighting the risks of long-term stranded costs if data center infrastructure costs are not fully recovered within the typical data center operational lifespan 6.
- July 25, 2025: Arizona Technology Council submits feedback advocating for an "all of the above" approach to energy supply for data centers, recommending support for renewables, natural gas, and nuclear generation to meet future demands 7.

These submissions reflect an ongoing process with stakeholder engagement and regulatory review throughout 2025.

The docket concerns the Arizona Corporation Commission’s inquiry into how rapid data center growth is impacting electric utilities and ratepayers in Arizona. Key points include:

- Arizona utilities are experiencing unprecedented electricity demand growth from data centers. APS has committed to serving about 3,296 MW of data center load, with prospective interest reaching 17,000 MW; SRP estimates data centers will account for 60% of its peak load growth and 70% of total energy sales over the next decade, with a potential total demand of 12,000 MW 1, 2, 2.
- Utilities are making major investments in new generation, transmission, and distribution infrastructure to serve this load, but are concerned about protecting existing customers from bearing these costs 1, 2.
- APS and SRP are implementing measures such as:
- Creating separate rate classes for data centers.
- Requiring data centers to prepay for infrastructure and meet minimum billing requirements.
- Revising cost allocation and rate designs to directly assign costs to the customer classes driving them.
- Financial protections in contracts, including load ramp projections and minimum bills 1, 2.
- There is concern about long-term stranded costs if data centers shut down or underutilize capacity, since the useful life of data centers (10–15 years) is much shorter than that of utility infrastructure (40+ years). Stakeholders urge robust upfront cost recovery or financial guarantees to prevent future rate hikes for non-data center customers 3, 3.
- The docket highlights the urgency to develop regulatory, contractual, and technical solutions to ensure that “growth pays for growth,” and that other ratepayers are not subsidizing large, high-load-factor customers like data centers 1, 2, 2.

In summary, the docket is focused on ensuring the fair allocation of costs and risks related to the explosive growth of data centers in Arizona, with the goal of protecting non-data center ratepayers and utility financial stability.