Facing unprecedented data center growth, regulators launched a review to protect ratepayers. One researcher says secret contracts must go.
PHOENIX — Transparency. Transparency. Transparency.
It’s what researchers and consumers constantly say is necessary to ensure Arizonans do not unjustly pay for the growth of electricity-hungry data centers.
While a leader in energy regulation moved to consider more oversight, his comments also attracted skepticism.
Thompson: Financially Protect Ratepayers
Arizona Corporation Commission Chairman Kevin Thompson opened a legal docket to consider “possible creation of more transparent rates for data center customers and the public.”
“As data centers continue to expand… it’s important to balance the economic opportunities with the need to financially protect other ratepayers,” Thompson wrote in an April 3 letter.
That announcement also included a declaration that data centers are currently “paying their fair share.”
One energy researcher said that is impossible to know, and worries Thompson is making premature assumptions. Data centers have secret contracts with utilities regarding power supplies and purchase agreements.
“It’s not out of the realm of possibility that these contracts are fair for consumers,” said Ari Peskoe of the Harvard Electricity Law Initiative. “But we can’t just take the monopolist utility’s word for it.”
Peskoe’s team at Harvard reviewed 50 regulatory hearings around the country and concluded it is “all but impossible” to verify claims by utilities they are not shifting data center costs onto consumers.
APS and Consumer Advocates Support Review
The potential for the data center boom to place a financial burden on residential customersis well-documented.
Now, stakeholders, consumers and utilities will have the opportunity to weigh in on data center policy moving forward.
An APS spokesperson said they look forward to participating in the process and a senior vice president of APS has not minced words when describing the challenge posed by data center growth.
“We are super concerned about spreading those costs onto our residential customers,” said Jose Esparza of APS, adding he expects data centers to push the grid’s peak load 40% by 2031.
The state agency representing consumers also welcomes the process.
“It is certainly something we are concerned about and want to know more,” said Cynthia Zwick of RUCO, the state agency representing consumers. “The commission has made it clear that growth should pay for growth.”
Peskoe: Confidential contracts should end
A spokesperson for the ACC confirms that utilities and data centers negotiate financial agreements outside the commission’s scope. But the spokesperson said negotiated rates that are deviations from approved tariffs are subject to Commission review and approval.
Peskoe said that approval process lacks teeth. Instead, he said the commission should eliminate confidential contracts altogether.
“One recommendation is a public, transparent process that leads to tariffs unique to data centers. These tariffs can be updated annually,” he said.
How Are Current APS Rates Impacting Homeowners and Data Centers?
One indicator of how rates impact all power customers is the annual data of revenue collected by utilities. It reflects the average cost per kWh paid by customers.
The APS Revenue Analysis of 2024 shows homeowners collectively consumed 4.2% more power in 2024 and they paid an average cost that was 7.4% more per kWh.
Non-residential customers – including businesses, schools, churches, data centers – consumed 10% more power in 2024 and they paid an average cost of 3% more per kWh.
In other words, homeowner prices are increasing faster while their energy usage is growing at a slower rate.
APS: Data Centers Are Both Industrial and Commercial
Rates are different than cost, and 12News has not been able to determine the average costs that data centers paid per kWh in 2024. A new rate hike for all customer classes went into effect in March 2024. It increased average rates 6.4% for “large customers” and 3.4% for “extra-large customers.”
APS spokeswoman Ann Porter said data centers fall into both the commercial and industrial sectors.
“The actual rates that customers in a particular class pay are always the same as described in our tariff sheets. But their average cost per kWh is determined by how they use energy,” Porter said. “This is why educating customers that they have some control over what they pay is so important.”
The data shows these cost comparisons between 2023 and 2024:
- APS Industrial customers paid 2% less per kWh
- APS Commercial customers paid 3.5% more per kWh
- APS Residential customers paid 7.4% more per kWh
Report: Data Centers 'Upending' Model of Regulation
A new report from the Harvard Electricity Law Initiative claims data centers are “upending” a long-standing model of utility regulation. Utilities are now competing with other regional utilities to attract big-money data centers.
“The sudden surge in electricity use by data centers… is shifting utilities’ attention away from societal needs and to the wishes of a few energy-intensive consumers,” the paper concludes.
“The subjectivity and complexity of ratemaking conceal utility attempts to funnel revenue to their competitive lines of business by overcharging captive ratepayers,” Peskoe wrote.
Peskoe: 'I Appreciate Chair Thompson’s Question'
APS leaders have testified at the commission they have measures in place to prevent residential customers from subsidizing data center growth, and APS President Ted Geisler said recently the utility is ensuring “growth pays for growth.”
In November 2024, Thompson asked APS in a meeting to verbally confirm that the cost of one new transmission project in the West Valley for a data center would not be passed on to homeowners’ bills. APS answered it would not.
“I certainly appreciate Chair Thompson’s question there. That’s what regulators should be asking. But unfortunately, regulators themselves and the public simply don’t have enough information,” Peskoe said.
Thompson Claims Power Needs Were Growing 'Exponentially' Before Data Centers
Thompson’s letter also makes an unsupported claim about the difference between data center growth and growth from other sectors.
“Arizona’s power generation and infrastructure needs have been exponentially growing long before the recent influx of data center development and large industrial users,” Thompson wrote.
But APS data does not show a picture of exponential growth before the surge of data centers.
APS “Peak Demand” data from 2009 to 2022 increased 6% over 13 years.
- APS peak demand grew from 7,218 MW in 2009 to a high of 7,660 MW in 2020
- APS peak demand dipped to 7,587 MW in 2022
- The annual growth rate over that period was 0.54%
12News asked Thompson by email what evidence he had to support his claim of “exponential” growth before data centers. Thompson declined to respond.
“If the docket is opened based on unsubstantiated and inaccurate premises, whether it’s related to exponential growth or the claim that data centers are paying their fair share, it goes to the Commission’s credibility of whether they can be objective and data-driven,” said Abhay Padgaonkar, a longtime consumer advocate.
No Smoking Gun
Asked if researchers found a smoking gun that shows a direct link nationally between data center growth and unjust rates, Peskoe said they did not.
However, he cited a recent lawsuit that he said showed how a utility was able to offer massive discounts to a power customer, while shifting those costs to homeowners behind the scenes.
“That’s exactly what we’re concerned about here because utilities are competing to attract profitable businesses,” Peskoe said.
Peskoe also recommends a “bring your own power” policy for data centers.
It would require them to make agreements with power companies outside Arizona, preventing consumers in Arizona from sharing those costs.
Asked about potential solutions, Thompson declined to comment.
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