In short
Arizona has no law that requires an AI data center to use clean energy. The state repealed its renewable energy mandate for utilities on March 4, 2026. ACC press release, Utility Dive Clean energy commitments by AI data centers in Arizona are voluntary. They come through private agreements with utilities, corporate pledges, or side deals with counties. The ACC is focused on cost allocation. It opened a docket to explore whether AI data centers should pay the full cost of new generation and grid upgrades that serve them, rather than spreading those costs across all ratepayers. azcc.gov The legislature is considering bills that would require such cost protection. No bill pending in Arizona would force AI data centers to buy a set share of clean energy. Policy is shifting to make AI data centers bear their own infrastructure costs, not to impose clean energy procurement mandates.
What is the current status of clean energy rules for AI data centers in Arizona
No Arizona rule requires a data center to use clean energy. The state’s former Renewable Energy Standard and Tariff (REST) applied to electric utilities, not to end users. That standard was repealed. The ACC, which regulates electric service under the Arizona Constitution, has not imposed any clean energy condition specific to data centers. AI data centers that claim 100 percent clean power do so through voluntary contracts, corporate goals, or utility special agreements approved by the ACC. No state statute mandates a minimum renewable energy percentage for a large power customer. Recent federal actions have opened more land for data center development. Those actions removed the clean energy strings that had been attached to federal land leases.
The repealed Renewable Energy Standard and Tariff (REST) rules
Until March 2026, the REST rules required investor-owned utilities and electric cooperatives in Arizona to get 15 percent of their retail electricity sales from renewable resources by 2025. azcc.gov, azcc.gov The rules included a surcharge mechanism that passed the cost of meeting the standard through to ratepayers. That surcharge raised about $2.3 billion from ratepayers since 2006. azcc.gov On August 14, 2025, the ACC voted unanimously to begin the repeal. The final repeal took effect on March 4, 2026. The ACC found that utilities had already exceeded the 15 percent target. Arizona Public Service (APS) reported about 19 percent renewable energy in its 2024 portfolio. Tucson Electric Power (TEP) reported about 29 percent. The Commission concluded that continuing the mandate would impose unnecessary costs while the market had already moved past it. The repeal stopped the surcharge and ended the legal obligation for utilities to meet that fixed renewable percentage.
The repeal is not final in every sense. Arizona Attorney General Kris Mayes filed an application for rehearing on March 30, 2026, arguing that the ACC did not complete a legally required economic analysis before acting. State Impact Center The legal challenge is pending. Even if the repeal were overturned, the REST never directly required an AI data center to use clean energy. It created a utility obligation, and the cost of meeting it was spread across all customers, including AI data centers, through rates.
No direct clean energy mandate for end users
Arizona law does not say that an AI data center or any other large customer must buy a minimum share of renewable power. Clean energy procurement for a new AI data center campus is a business decision. A developer may choose to contract with the utility for a renewable energy supply, or it may not. For example, Project Blue, a large AI data center campus near Tucson, committed under a side agreement with Pima County to use commercially reasonable efforts to match 100 percent of its energy consumption with renewable energy. Tucson Sentinel That commitment was a condition of the deal the developer made with the county and the utility, not a requirement of Arizona law. Other operators, such as QTS in Phoenix and EdgeCore in Mesa, have made similar voluntary renewable energy arrangements with their utility, Salt River Project (SRP). Site Selection Magazine In each case, the clean energy came from a negotiated contract, not from a state mandate.
Federal lands and clean energy conditions
Arizona is roughly 39 percent federal land. Executive Order 14318, issued on July 23, 2025, opened federal lands to AI data center development. Executive Order 14318, 90 Fed. Reg. 35385 The order reversed an earlier Biden administration rule that had required clean energy and prevailing wage commitments on federal land leases for AI data centers. This change means that a developer can site an AI data center on federal land in Arizona without any federal clean energy requirement attached to the land lease. The state itself still imposes no such requirement. As a result, an AI data center on federal or state land in Arizona today can operate on whatever energy mix the local utility provides or the developer arranges privately.
What is the Arizona Corporation Commission doing about data center energy costs
The ACC has constitutional authority over public service corporations in Arizona. Ariz. Const. art. XV, § 3 The Commission is actively examining how the costs of serving large new loads, such as AI data centers, are assigned. The concern is that if a utility builds new generation or transmission to serve an AI data center, the cost might be spread across all ratepayers, even though the facility primarily benefits one customer. The ACC has opened a formal docket to study this question and consider new rate classifications.
ACC Data Center Docket No. E-00000A-25-0069
In April 2025, ACC Chairman Kevin Thompson opened a docket to review whether current rate structures properly protect Arizona households and small businesses from bearing the infrastructure costs of data centers. azcc.gov Chairman Thompson stated that AI data centers should shoulder the costs of building new electricity generation and infrastructure that solely benefits a particular business. The docket explores several areas. These include whether existing rate classes are appropriate for AI data center loads, how to apply cost causation principles, how to handle behind the meter generation (power produced on the AI data center customer’s own site), and whether new policies specific to AI data center customers are needed. The proceeding could result in rules that require a new AI data center to pay its full incremental cost of service, including a share of any new power plant or transmission line built to serve it. No final decision has been announced.
APS Marginal Cost Large Load Tariff, Docket E-01345A-25-0105
On June 13, 2025, APS proposed a large load tariff that would base the rates for new large customers on the utility’s marginal cost of serving them. Energy report A marginal cost tariff looks at what it actually costs to produce and deliver the next unit of power to that customer, rather than averaging costs across all customers. If approved by the ACC, the tariff would directly affect the energy costs of AI data centers in APS’s territory, which covers much of the Phoenix area. The status of the APS proposal is pending ACC review. The existence of the docket, together with the Commission’s broader AI data center docket, signals that large loads will likely face rates that are more closely tied to their own impact on the grid. This is a shift from a model in which all customers share the cost of system expansion equally.
How is the Arizona legislature shaping energy rules for data centers
The Arizona legislature has introduced bills that would codify cost protection principles, not impose clean energy mandates. One key bill also touched on nuclear power siting for AI data centers but was vetoed.
H.B. 2756, rating and contract oversight for data centers
In the 2026 session, House Bill 2756 was introduced to require the ACC to adopt rules for extra high load factor customers. azleg.gov, Law firm analysis, Arizona Capitol Times The rules would set minimum billing requirements, specify the form of service contracts including the length and payment terms for grid upgrades, and mandate ACC review and approval of all such contracts at least 30 days before they are signed. They would also require the utility to file a cost of service study that shows how costs are allocated to the large customer, and to submit quarterly interconnection reports. The bill directs the ACC to hold a workshop within 90 days of its effective date on whether the revenues and costs from extra high load factor customers increase or decrease residential electric bills. The bill is a direct legislative response to the rapid load growth from AI data centers. Its final passage remained unconfirmed as of late May 2026.
H.B. 2774, nuclear siting exemption, vetoed
A 2025 bill would have allowed a small modular nuclear reactor (SMR) to be built co-located with a large industrial energy user without a certificate of environmental compatibility and exempt from county zoning restrictions in counties with fewer than 500,000 residents. Arizona Senate Fact Sheet, HB2774 bill text, Senate Fact Sheet In counties with fewer than 500,000 people, it would also have exempted the reactor from county zoning restrictions. Governor Katie Hobbs vetoed the bill. She stated that the technology is not yet commercially operational. Several SMR bills advanced out of committee in the 2026 session. Versions of SMR bills that preempt county authority are likely to face another veto. Arizona Capitol Times, Arizona Capitol Times Arizona does get 27 percent of its electricity from nuclear power, all from the Palo Verde Generating Station. Arizona Capitol Times But the path for co-locating new nuclear generation at an AI data center campus remains blocked for now.
The Arizona Energy Promise Taskforce recommendations
Governor Hobbs created the Arizona Energy Promise Taskforce through Executive Order 2025-13 in September 2025. Executive Order 2025-13 The taskforce published 31 recommendations on April 2, 2026. Arizona Capitol Times The recommendations are not binding law, but they show where policy may head. Several directly affect AI data center development. One recommendation calls for revisiting the state’s AI data center tax incentive, which extends equipment tax breaks to equipment certified before December 31, 2033. News report, Law firm analysis The Data Center Coalition, Microsoft, and Google objected to that recommendation. Arizona Capitol Times The taskforce suggested that any future tax incentive for an AI data center be tied to clear standards. The report describes Michigan’s Enterprise Data Center Sales and Use Tax Exemption program as an informational case study (not a recommendation), which requires at least 30 new jobs paying 150 percent of the regional median wage, maintained through at least 2050 (or 2065 for a brownfield or former power plant site), and a green building certification such as LEED, ENERGY STAR, or BREEAM within three years of operation. Arizona Energy Promise Taskforce report A green building certification encourages energy efficiency but is not the same as a clean energy procurement mandate. The taskforce also recommended that the state explore bring your own capacity (BYOC) programs. A BYOC program would let a large customer secure its own power supply, on site or through a contract, and then use the utility grid for backup or delivery. That could make it easier for an AI data center operator to meet its own clean energy goals independently.
How real AI data centers handle clean energy in Arizona today
AI data center operators in Arizona that claim clean energy credentials do so through voluntary measures. The table below shows several notable examples.
[TABLE 1, four examples of Arizona data centers and their clean energy arrangements.]
| AI Data Center | Location | Utility | Clean Energy Commitment | Key Details |
|---|---|---|---|---|
| Project Blue (Beale Infrastructure) | Tucson | TEP | 100 percent renewable energy matching through TEP special contract and interim REC purchases | 290 acres, ~286 MW of contracted capacity by 2028 (down from an originally proposed 630 MW campus), closed-loop air cooling that uses no water but more power, $15M community benefits. TEP agreement approved by ACC 4-1 Dec. 3, 2025. AG Mayes sued ACC in Feb. 2026. Construction began April 2026. |
| QTS Phoenix | Phoenix | SRP | 100 percent renewable power by 2025 | SRP provides renewable solutions sourced from its grid and new dedicated renewable projects. |
| EdgeCore Mesa | Mesa | SRP | SRP assisted with immediate renewable energy and efficient operations | 1.25 million sq ft, supports 225 MW of critical load. |
| Aligned Data Centers Phoenix | Phoenix | APS | 100 percent renewable power, carbon-neutral by 2040, water-free cooling | Multiple facilities, redevelopment of a former tech manufacturing site, uses closed-loop chilled water and ultra-efficient air cooling. |
The clean energy claims in the table are corporate statements or contract terms. They are not required by Arizona law. Project Blue illustrates the point. The developer agreed to a 100 percent renewable match to win county support. The ACC separately approved a special utility contract. Tucson Sentinel Even so, the arrangement faced a legal challenge from the Attorney General, who argued the agreement allowed TEP and Beale Infrastructure to change electricity rates without Commission approval. AZPM The push for renewable energy came from the developer’s own commitments, not from a state rule.
The ACC has used the experience under the old REST rules to caution against mandated above market renewable costs. The Commission points to the Solana Generating Station near Gila Bend. That concentrated solar plant was built under a 30 year contract that locked APS into a rate of about $0.15 per kilowatt hour. Recent all source bids for new generation in Arizona have come in at $0.02 to $0.03 per kilowatt hour. azcc.gov The ACC uses this contrast to argue against new mandates and for letting the market set prices.
The energy outlook and why it matters for AI data centers
Arizona AI data center load is growing rapidly. As of October 2025, the state had about 1 GW of existing AI data center demand. APS projects an additional 10,000 MW of new AI data center load by 2029. SRP projects an additional 4,500 MW by 2029. SWEEP report EPRI projects that AI data centers could consume 12.73 percent of all Arizona electricity by 2030 in a high growth scenario, up from 7.43 percent in 2023. EPRI white paper Meeting that load will require substantial new generation and transmission.
The ACC has already acknowledged Integrated Resource Plans from APS, TEP, and UniSource Energy that plan to add thousands of megawatts from a mix of solar, wind, battery storage, and natural gas. ACC IRP decision, ACC IRP workshop A major natural gas infrastructure project is also in the works. Energy Transfer LP announced on August 6, 2025 a $5.3 billion Transwestern Pipeline expansion, a 516 mile, 42 inch pipe with 1.5 billion cubic feet per day of capacity, to serve Arizona, New Mexico, and Texas. The company cited AI data center expansion as a driver. Concentric Energy Advisors
In this environment, the White House Ratepayer Protection Pledge, signed on March 4, 2026 by Amazon, Google, Meta, Microsoft, OpenAI, Oracle, and xAI, commits signatories to build, bring, or buy all new generation, pay for delivery upgrades, negotiate separate take or pay rate structures, fund local workforce development, and coordinate backup generation with grid operators. Law firm analysis The vocabulary of the pledge appears in Arizona’s H.B. 2756 and in similar bills across more than a dozen states. The trend is clear. The companies themselves are promising to bear their own grid costs. State policy is moving to enforce that same principle.
Local governments are also shaping where and how AI data centers can be built, independent of clean energy rules. Phoenix adopted zoning rules in December 2024 that steer AI data centers away from employment centers. Chandler permits AI data centers only in certain planning areas and requires mandatory noise studies. Mesa grandfathered existing projects but requires waivers for new ones. Tucson has used water use ordinances as a way to limit AI data center construction. Law firm analysis A developer must follow these local rules whether or not the project uses clean energy.
Open questions and what to watch
Several moving pieces will define the energy rules for AI data centers in Arizona through the end of 2026.
- The ACC REST repeal remains under legal challenge. A rehearing could reinstate a version of the mandate, though that would affect utilities more than AI data centers directly.
- The final status of H.B. 2756 is unconfirmed. If enacted, it would impose contract approval steps, cost of service studies, and interconnection reporting requirements that add process and cost certainty for developers and protection for other ratepayers.
- The APS large load tariff is pending before the ACC. Its approval would set a cost based rate precedent for large AI data center loads in the state’s largest electric service territory.
- The Arizona Energy Promise Taskforce recommendations, including a possible rework of the AI data center tax incentive to add job and green building requirements, may be taken up by the legislature or the governor in future sessions.
- SMR legislation is advancing but faces a likely veto if it preempts local zoning. The technology’s development timeline means it is not a near term solution.
- The ultimate end user for Project Blue remains uncertain. Amazon Web Services reportedly walked away and Meta was reported to be under consideration but not confirmed. Tucson Sentinel The project shows both the scale of clean energy ambition and the commercial and political friction that can arise.
Key takeaways
- No Arizona law mandates that an AI data center buy or use clean energy. Any renewable energy commitment is voluntary or a negotiated part of a utility special contract.
- The REST rules that once required utilities to source 15 percent renewable energy were repealed on March 4, 2026, though the repeal faces a pending legal challenge.
- The ACC is focused on cost causation. Expect new or proposed tariffs and docket outcomes that make AI data centers pay their own incremental grid costs rather than shifting them to other customers.
- APS has already filed a marginal cost large load tariff that would directly affect AI data center energy rates if approved.
- H.B. 2756 would require ACC rules on billing, contract review, and cost allocation for extra high load factor customers like AI data centers.
- Federal E.O. 14318 removes clean energy conditions on federal land leases. This makes large federal tracts in Arizona potentially available for AI data centers without a federal renewable requirement.
- Corporate clean energy pledges and the White House Ratepayer Protection Pledge align with a model where the AI data center operator brings or buys its own generation and pays for its own grid upgrades.
- Local zoning and water restrictions remain independent hurdles in many Arizona cities and counties, regardless of a project’s energy source.
- The Governor’s taskforce recommends re-examining the state AI data center tax incentive and possibly tying it to job creation and green building certification, not to a specific renewable energy procurement quota.
Frequently asked questions
Q:What was the Arizona REST and why was it repealed?
A:The Renewable Energy Standard and Tariff (REST) was a set of rules that required Arizona regulated electric utilities to get 15 percent of their retail electricity from renewable sources by 2025. azcc.gov It included a surcharge on customer bills that raised about $2.3 billion since 2006. The ACC repealed the REST on March 4, 2026 because utilities had already exceeded the target and continuing the mandate would impose additional costs without a corresponding benefit. azcc.gov Arizona Attorney General Kris Mayes has challenged the repeal, and that legal proceeding is pending.
Q:Do AI data centers in Arizona have to use renewable energy?
A:No. Arizona has no statute or regulation that requires an AI data center, or any large electricity customer, to use a specific share of clean energy. Clean energy commitments in Arizona AI data center projects are voluntary. They come from corporate environmental goals, from contract terms negotiated with the utility, or from conditions attached to local land deals, not from state energy law.
Q:What is the ACC doing about AI data center energy costs?
A:The ACC opened Docket No. E-00000A-25-0069 in April 2025 to review whether AI data centers should pay the full cost of the new generation and transmission they require, rather than having those costs spread across all utility customers. azcc.gov The docket is examining rate classification, cost causation, behind the meter generation, and possible new AI data center specific policies.
Q:What is the APS large load tariff?
A:APS filed a proposal on June 13, 2025 to create a marginal cost based rate for new large load customers, including AI data centers. Energy report A marginal cost rate aims to charge a customer the actual cost the utility incurs to serve that specific load, rather than an average of all costs. The proposal is pending ACC review.
Q:Are there any bills that would require clean energy for AI data centers?
A:No bills in Arizona would mandate an AI data center to use clean energy. The most significant energy bill, H.B. 2756, focuses on billing rules, contract oversight, and cost allocation studies. azleg.gov It does not include a renewable portfolio requirement.
Q:What is the status of nuclear power for AI data centers in Arizona?
A:Arizona gets 27 percent of its electricity from the Palo Verde Generating Station. Arizona Capitol Times A 2025 bill to allow small modular reactors at AI data centers without an environmental compatibility certificate, H.B. 2774, was vetoed by Governor Hobbs. Law firm analysis, Arizona Legislature Several SMR bills are advancing in the 2026 session, but any version that overrides local zoning is expected to face a veto.
Q:Can AI data centers locate on federal land in Arizona?
A:Yes. Executive Order 14318, issued in July 2025, opened federal lands to AI data center development and removed prior federal clean energy and prevailing wage requirements on such leases. Law firm analysis Arizona is about 39 percent federal land, so this opens meaningful new acreage. The state itself imposes no additional clean energy condition on those sites.
Q:What is the Arizona Energy Promise Taskforce and what did it recommend?
A:Governor Hobbs created the taskforce by executive order. It released 31 consensus recommendations on April 2, 2026. azgovernor.gov It recommended eliminating the state’s current AI data center tax incentive under A.R.S. § 41-1519, updating tax and financial incentives for large load customers, and exploring bring your own capacity programs. Arizona Energy Promise Taskforce report The recommendations are advisory, not law.
Q:What clean energy commitments exist at Arizona AI data centers today?
A:Several large AI data center operators have made voluntary clean energy commitments. Project Blue near Tucson pledged to match 100 percent of its load with renewable energy under a TEP special agreement approved by the ACC. QTS Phoenix and EdgeCore Mesa have secured renewable energy solutions through SRP. Aligned Data Centers Phoenix states it runs on 100 percent renewable power and targets a carbon neutral footprint by 2040. All are private arrangements, not required by Arizona regulation.
Q:What is the White House Ratepayer Protection Pledge?
A:On March 4, 2026, the White House announced a pledge signed by Amazon, Google, Meta, Microsoft, OpenAI, Oracle, and xAI. Signatories commit to build, bring, or buy all new generation for their AI data centers, pay for delivery upgrades, negotiate separate take or pay rate structures, fund local workforce development, and coordinate backup generation with grid operators. Law firm analysis The pledge is a voluntary statement, but its principles appear in Arizona’s H.B. 2756 and similar state bills.
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.