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The Arizona Corporation Commission on Wednesday approved Tucson Electric Power鈥檚 proposed Energy Supply Agreement, or ESA, for a major new data center project following testimony from leading members of Arizona鈥檚 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鈥檚 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鈥檚 energy grid.

鈥淎rizona鈥檚 employers rely on stable, affordable, and reliable energy,鈥� Appelbe told commissioners. 鈥淥ur ability to attract major investment鈥攅specially high-tech and manufacturing projects鈥攄epends on a regulatory environment that provides certainty while protecting existing customers.鈥�

鈥淕rowth pays for growth鈥�

At the center of the hearing was the ESA between TEP and Humphrey鈥檚 Peak Power, LLC, regarding the initial phase of a southeast Tucson data center previously known as 鈥淧roject Blue.鈥�

Business leaders praised the agreement for adhering to a strict 鈥済rowth pays for growth鈥� 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.

鈥淭he customer will pay the Commission-approved rate for TEP鈥檚 largest users, without any discounts or incentives,鈥� 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.

鈥淭hese protections ensure that if the project doesn鈥檛 build out as expected, there is no cost-shifting to residential or small business customers,鈥� 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鈥檚 fixed system costs across more kilowatt-hours.

鈥淚n 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,鈥� 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.

鈥淎pproving this agreement sends a clear signal that Arizona can meet the energy needs of major employers while keeping costs fair for everyone,鈥� Appelbe said.