Data centers are the backbone of everything from Google searches to movie streaming. Now, with artificial intelligence adoption accelerating, the demand for these massive facilities and the power they consume is growing rapidly across the Valley.
More than 125 data centers already operate in Maricopa County, with many more seeking to establish operations in Arizona. The expansion has created excitement among entrepreneurs while raising concerns from city leaders about costs and infrastructure.
Phoenix Mayor Kate Gallego called data centers “the biggest change [she] has seen in her decade at the city”, at the July 2 city council meeting.
"Data centers, yes, I'll take it all day and keep it coming," said Andrew Bart, an AI entrepreneur whose company AlgoFace uses artificial intelligence to track human faces anonymously.
Bart believes data centers are essential for Arizona's economic growth and technological advancement.
"We need to make sure Arizona is a growing economy and we are on the forefront of whatever industry is the latest and greatest. Unequivocally, AI is that right now," Bart said.
Outside of positioning the state for economic growth, Bart also says it’s important for the U.S. to be the leader in AI.
“I have three children, there is no way in the world I want a country like China to be a leader in AI, I want the best ethical standards.” Bart said. “I want the United States to be the leader for my children and their sake.”
Potential APS rate hikes
The surge in AI applications requires significantly more power than traditional technology, creating unprecedented demands on the electrical grid.
"Our average request at this point is 500 megawatts," said Patrick Bogle, APS data center strategist.
That average data center request equals the power consumption of 500 big box stores, as these facilities operate 24 hours a day, 365 days a year.
“We’d have to build two new SRP’s and APS’s to keep up with all the requests data centers are making,” Phoenix Mayor Kate Gallego said.
"We currently have 19 gigawatts of requests for service. We can't serve that today," Bogle said. "We don't have the infrastructure to support all of the requests we have seen."
That’s where Mayor Gallego is concerned, saying she expects consumers to bear some of the costs of expanding power infrastructure to meet data center demands.
"Data centers are raising your electric price," Gallego said. "The CEO of APS was honest. Part of the reason APS asked for a 14% increase in your electric bill is to provide data centers with electricity."
Bogle said APS is working to ensure the largest energy consumers pay their fair share through specialized rate structures.
"We have an extra high load factor rate class intended for data centers,” Bogle said. “As part of our rate case that is currently filed, we have a growth pays for growth strategy, ensuring the customers causing the system to grow over time are paying that cost.”
You can read the rate hike request for yourself here.
Bogle adds that they would not agree to connect a data center if there was any concerns about it putting the grid at risk, and they are putting many data centers under a “subscription model” payment plan.
“It has allowed us to bucket the incremental costs to serving data centers to a portfolio, and data centers would take service under that portfolio,” Bogle said.
Overall, there are still concerns from Mayor Gaellgo about data centers paying their fair share, as she says small businesses pay a higher tax rate in the state.
“Right now, if you go out to your local small business, their sales tax rate is higher than a data center. This is a mature industry, they’re coming in huge numbers, I’d like to see them pay their fair share in taxes,” Gallego said.
Critics question long-term planning
Amanda Ormund, who has concerns about data center growth, worries about the financial risks if the AI economy shifts or technology becomes more efficient.
"My concern is that if the utilities build 50% more power, and either these data centers don't show up or become more energy efficient, then customers pay for that," Ormund said. "I don't think we're doing the planning."
Ormund is also concerned about the environmental impacts of increasing power output. APS has modified its environmental commitments, now aiming to be carbon neutral rather than carbon free by 2050.
Bogle says part of the challenge with serving data centers is that renewables like solar are not as effective for powering something that requires a constant connection.
"The sun is not shining overnight. We still need some power generation that can serve that power generation by a data center," Bogle said.
One of the new ways APS is proposing to add to power output is a natural gas pipeline being built from Texas to Arizona. Ormund believes other cleaner options have not been properly considered.
“This pipeline proposal has not been evaluated at the Arizona Corporation Commission, so we have not talked about other ways we could meet load growth,” Ormund said.
Policy responses emerge
The Phoenix City Council recently adopted new data center policies aimed at promoting responsible growth. Changes include updating their zoning ordinances and how much noise the centers can give off near residences.
“Phoenix is not banning data centers, we’re planning for them responsibly,” said Planning and Development Director Josh Bednarek. “The new process requires earlier discussions with City staff for each new facility to evaluate its location and ensure health and safety concerns are met to protect residents and the surrounding community.”
Mayor Gallego says the new ordinances will prevent future data centers from being a public nuisance.
“We have residents who contact my office and say…now I have a view from my front yard of a diesel turbine,” Mayor Gallego said. “So we are trying to do better and make sure we have a high level of design for these investments,”
While Phoenix has established some new guidelines and guardrails, Gallego believes state-level action is needed.
“I’m asking everyone in Arizona to pay attention,” Gallego said. “Right now, if you go out to your local small business, their sales tax rate is higher than a data center. This is a mature industry, they're coming in huge numbers, I'd like to see them pay their fair share in taxes.”
Going forward
Whether or not more data centers are allowed to come to the Valley will answer some broader questions about Arizona's technological future. Entrepreneurs like Bart believe this is a chance for Arizona to be part of the biggest technological change since the internet with AI advancement.
"It's inevitable, either they're coming here or going somewhere else," Bart said.
While others like Ormund hope our leaders plan responsibly.
"What is the impact on water, livability, on heat, policy makers have not had public discussions on is this the future we want," Ormund said.
There is some public pushback for Data Centers in Arizona. Project Blue, a major data center run by Amazon Web Services, planned to be built in Tucson, was stopped by the city council after public protests.
The first public hearings on the APS proposed rate hike will be in January.
