Data Center Site Selection in Arizona: APS, SRP, TEP, Water and Heat

Metro Phoenix built its data center market on low natural-hazard risk, available land and a business-friendly incentive program. Large campuses are still being started: in May 2026 Prime Data Centers broke ground on the first three buildings of a five-building, 240 MW campus in Avondale, in the West Valley.¹¹ Established clusters sit in Chandler in the southeast Valley, Mesa to the east and Goodyear to the west, each with different utilities, water providers and city rules.

What changed is the power side. During APS’s record demand in late July 2026, data centers used up to 630 MW, nearly 7% of the peak and about 200 MW more than during the 2025 peak; their growth accounted for half of APS’s 400 MW increase over its prior record.¹ Pinnacle West told investors in August 2026 that large loads are driving the need to roughly double APS’s generating capacity, now about 8.6 GW, within the next few years.¹² SRP reported that large data centers contributed 5.1% of its summer 2025 peak and are its fastest-growing customer segment.²

Arizona sits outside an organized wholesale market for most purposes, so vertically integrated or public power utilities plan generation and transmission themselves. That makes the utility’s resource plan and its large-load rules the core of any power date. See regulated utility vs. competitive market sites and the Mountain West and Desert Southwest regional guide; for a neighboring desert market, compare Nevada.

Start by confirming the utility service territory, because metro Phoenix is split between two very different providers. Arizona Public Service (APS) is an investor-owned utility regulated by the Arizona Corporation Commission (ACC). Salt River Project (SRP) is a public power entity that sets its own prices through its board. Tucson Electric Power (TEP) serves the Tucson area and is ACC-regulated.

SRP

In 2025 SRP introduced the Large Customer Integration Process (LCIP) for new large-load requests. After the study, SRP gives the proposed customer cost estimates for its specific upgrades, and the customer must pay those costs upfront and meet other conditions.² SRP’s E-67 commercial and industrial plan, approved in 2025, subjects new large accounts with at least 20 MW of forecasted load to minimum billing requirements.² SRP also states that it will plan to serve a data center once the project has proper zoning and local approval, which puts the city or county decision ahead of the power commitment.²

APS

APS’s pending rate case asks for $579.2 million in added revenue, which the ACC says could raise average residential bills by about 16%.³ The hearing, which ran from May 18 to July 7, 2026, focused on changes to the Extra High Load Factor (XHLF) rate that applies to large users such as data centers and manufacturers, and on a formula rate that would let APS adjust costs annually and assign increases caused by extra-large users to those customers.³ An administrative law judge’s recommended order is expected by late November, and the Commission must vote by December 31, 2026.³ Until then, treat any APS rate assumption as provisional. Both APS and SRP have also bought capacity on the Transwestern Desert Southwest pipeline expansion to fuel new gas plants, expected in service by the fourth quarter of 2029.¹³

TEP

On December 3, 2025, the ACC voted 4–1 to approve TEP’s special electric service agreement for Project Blue in Pima County, with service from TEP’s existing generation starting in 2027.¹⁴ TEP said the agreement includes protections so other customers do not subsidize the service; the Commission noted that it reviews the agreement, not the land use.¹⁴ Our guide to large-load tariffs and electric service agreements explains how these contracts are built.

Within metro Phoenix, the city often matters as much as the utility, because the city usually supplies water and controls zoning. The practical differences between submarkets come from three questions: which electric utility serves the parcel, which water provider serves it and on what terms, and whether the city has written data center rules.

• Mesa, in the East Valley, holds a 100-year assured water supply designation and applies a Large Customer Sustainable Water Allowance ordinance to users projecting half a million gallons a day or more; some must bring their own water by acquiring long-term storage credits and turning them over to the city.⁹
• Chandler is an established cloud cluster with older, smaller campuses and limited remaining large tracts. Check city rules and SRP or APS service on each parcel.
• Goodyear, Avondale and the wider West Valley offer larger tracts, and new campuses such as Prime’s 240 MW Avondale project are being built there.¹¹
• Tucson and Pima County are a separate market with TEP as the utility and stricter city water and land use rules (see below).¹⁰

Before relying on a zoning path, review the city’s general plan and any pending ordinance changes. Our guides to zoning for data centers and data center zoning ordinances and overlay districts cover what to look for.

Arizona manages groundwater most strictly inside its Active Management Areas (AMAs), including those covering the Phoenix and Tucson areas. In June 2023 the state released a new groundwater model for most of the Phoenix AMA, and ADWR stopped processing assured water supply applications for new subdivisions that propose to rely on groundwater.⁵ Land-use lawyers argued that the headlines overstated the problem and that development opportunities remain.⁵ Those rules center on residential subdivisions; an industrial user’s path depends on its water provider and any groundwater rights it can use, so confirm the details with ADWR and the provider. The map is also still changing: in December 2024 ADWR’s director designated the Willcox groundwater basin as an AMA, the first created by a director’s decision.¹⁵

City ordinances add a second layer. Tucson’s Large Quantity Water User ordinance, adopted unanimously in August 2025, applies to customers using about 7.5 million gallons a month; it requires council approval of the initial application, a conservation plan and recycled water for at least 30% of use.⁶ In August 2026 the Tucson council voted 6–1 to create large-scale data centers as a new land use requiring mayor and council approval, and to prohibit potable water for cooling unless the use is covered by the large-user ordinance.¹⁰

Because water is a public question in every Arizona hearing, a design with low water use, such as air-cooled or closed-loop cooling, or reclaimed water, can make approvals easier at the cost of more power. See water rights and groundwater for data centers, reclaimed water for cooling and water stress and drought risk.

Phoenix heat is a design input, not a footnote. By mid-September 2024, Phoenix had recorded 61 days at or above 110°F, breaking the previous record of 55 days set in 2023.⁷ Those same afternoons drive the utilities’ annual peaks, which is when data centers now draw the most attention from regulators.¹

High ambient temperatures reduce the hours when outside air alone can cool a facility and raise the power needed for mechanical cooling. Evaporative cooling works well in dry air but uses water, which runs into the rules described above. Most Arizona designs therefore trade water for electricity, and the choice affects both the utility request and the water plan. Size chillers, generators and electrical equipment for extreme design days rather than averages, and consider how hotter future summers would change that. Our guides to climate and cooling in site selection and climate change and future heat risk go deeper.

Arizona’s Computer Data Center (CDC) Program, run by the Arizona Commerce Authority with the Department of Revenue, exempts qualifying purchases of data center equipment from state, county and local transaction privilege and use taxes.¹⁶ A project must first obtain a Letter of CDC Certification. In Maricopa or Pima County it must make at least $50 million of capital investment within five years of that letter, or $25 million in other counties; owners, operators and qualified colocation tenants can count their investment together.¹⁶ Benefits generally run up to ten full calendar years after certification, or up to 20 for a qualifying sustainable redevelopment project.¹⁶

The program is under pressure. In her January 2026 State of the State address, Governor Hobbs proposed ending the exemption, approved in 2013, which she said costs the state $38 million a year.⁸ Lawmakers did not repeal it; instead, the budget she signed in June 2026 imposes a three-year moratorium on new data center sales tax breaks.⁴

1. 01Confirm the electric utility. For SRP, plan for the LCIP study, upfront upgrade payments and minimum bills at 20 MW and up.² For APS, watch the XHLF outcome due by year-end 2026.³
2. 02Get local zoning and approvals moving early, since SRP plans service after local approval and Tucson now requires council approval for large data centers.²¹⁰
3. 03Locate the parcel’s AMA and water provider,⁵ and test the cooling design against city large-user rules.⁹⁶
4. 04Design for extreme heat days, and price the extra power that a low-water design will need.⁷
5. 05Model the CDC exemption both ways while the three-year pause runs.¹⁶⁴
6. 06Confirm fiber, transmission access, buildable acreage and drainage on the specific tract.

Our methodology explains how we weigh these factors, and you can get a site reviewed before you commit to a utility study or a rezoning.