According to DCD, Arizona’s largest electrical utility, Arizona Public Service (APS), is planning to build a new 2GW natural gas power plant in Gila Bend, southwest of Phoenix, specifically designed to serve the state’s booming data center market. The Desert Sun Power Plant will be constructed in two phases, with the first phase adding general grid capacity around 2030 following completion of the Transwestern Pipeline expansion in 2029, while the second phase will exclusively serve high-consumption customers like data centers under a novel subscription model between 2031 and 2033. APS currently has about 30 data centers in its interconnection queue requesting a combined 18GW of power, with nearly 4.5GW of committed demand and over 20GW of uncommitted large load customers. Under the subscription approach, large users would fully finance the second phase, sign long-term contracts covering construction costs, and absorb financial risks in exchange for predictable power rates. This development signals a major shift in how utilities are responding to unprecedented data center energy demands.
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The Subscription Model’s Hidden Dangers
This subscription approach represents a fundamental restructuring of utility-customer relationships that carries significant, underappreciated risks. While APS frames it as protecting residential ratepayers, the model essentially privatizes power generation for wealthy tech companies while potentially creating stranded assets if data center demand patterns shift. The long-term contracts—likely spanning 15-20 years—could lock hyperscalers into gas dependency just as renewable alternatives become more cost-effective. More troubling is the precedent this sets: utilities may increasingly prioritize serving deep-pocketed corporate clients over maintaining universal service obligations. The subscription business model works well for software, but applying it to critical infrastructure creates a two-tiered energy system where corporate interests dictate grid development.
Arizona’s Deepening Energy Conundrum
Arizona’s embrace of gas-fired generation reflects the brutal mathematics of data center power demands rather than thoughtful energy planning. The state already derives 45% of its electricity from natural gas, and adding another 2GW of gas capacity represents a significant bet against the declining costs of renewables and storage. What’s particularly concerning is the timing: the plant’s second phase won’t come online until 2031-2033, by which point battery storage costs are projected to fall 40-60% and solar costs another 30-40%. The utility is essentially building infrastructure today that may be economically obsolete within a decade of operation. Meanwhile, the state’s notorious water scarcity—gas plants require significant water for cooling—creates additional environmental stress that renewable alternatives would avoid.
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The Data Center Gold Rush’s Infrastructure Strain
The scale of demand revealed in APS’s interconnection queue—18GW requested from just 30 data centers—underscores how the AI boom is overwhelming regional power grids. To put this in perspective, 18GW represents approximately 40% of Arizona’s current total generating capacity. Each major AI data center can consume as much power as a medium-sized city, and the clustering effect in favorable markets like Arizona creates localized grid crises. The Transwestern Pipeline expansion, costing $5.3 billion to add 516 miles and 1.5 Bcf per day of capacity, shows how data center growth is driving infrastructure investments far beyond the computing sector itself. This creates a self-reinforcing cycle where energy infrastructure begets more data centers, which demand more energy infrastructure.
Broader Utility Industry Implications
The APS approach likely represents a blueprint that other utilities will emulate, particularly in markets experiencing rapid data center growth like Virginia, Texas, and Georgia. Arizona Public Service is essentially creating a private power club for hyperscalers, which could accelerate the fragmentation of what has traditionally been a unified grid. The danger is that other large industrial users—manufacturing plants, semiconductor fabs, electric vehicle charging networks—may demand similar arrangements, leading to balkanized power systems where reliability becomes dependent on corporate financial health rather than public utility regulation. This model also potentially violates the principle of cost-of-service regulation that has underpinned reliable utility service for decades, replacing it with a pay-to-play approach that could leave smaller customers funding grid maintenance while large users enjoy dedicated infrastructure.
The Missed Opportunity for Sustainable Solutions
What’s most striking about this development is the lack of innovation in the proposed solution. Rather than pioneering new approaches like behind-the-meter renewables, advanced demand response, or grid-interactive data centers, APS is reaching for 20th-century technology to solve 21st-century problems. Data centers represent ideal candidates for direct renewable procurement and sophisticated load management, yet the utility’s solution is more gas plants tied to more pipelines. The timing is particularly unfortunate—between now and 2033, breakthroughs in geothermal, advanced nuclear, and long-duration storage could fundamentally change the economics of clean power. By locking into gas generation now, Arizona risks becoming an energy backwater just as other states leverage data center growth to accelerate their clean energy transitions.
