Key Points:

• Gov. Katie Hobbs rolled out an energy report addressing data center growth, energy demand

• The report was generated through the “herculean effort” of state energy stakeholders

• Hobbs urged state leaders to work in a bipartisan manner to secure Arizona’s energy future

Gov. Katie Hobbs’ office is rolling out a state strategic energy plan to address data center growth, skyrocketing energy demand and high utility bills. 

The plan is part of a three-pronged report developed by Hobbs’ Arizona Energy Promise Task force, which she created via executive order in September. The 36-member group developed 31 recommendations covering myriad energy topics in what one task force member called a “herculean effort.”

Hobbs’ Office of Resiliency, led by Director Maren Mahoney, helped the task force develop the recommendations through five working groups composed of members from the private sector, state utility companies, state agencies, nonprofit organizations, universities, and more. 

The governor told reporters after an April 2 task force meeting that the work is only just beginning, but bringing together stakeholders who typically do not agree to find common ground was no small feat. 

“I’ve never heard so many people so excited about being involved in a government task force before, but I think it’s because there is the acknowledgment that we have this really big issue of needing to plan strategically for our energy future,” Hobbs said.

Some of the task force’s recommendations are likely to be rolled out sooner rather than later, according to Mahoney. There is already interest from stakeholders in creating a statewide energy efficiency campaign as outlined in the report, which could help Arizonans weatherize their homes and upgrade old appliances for energy bill savings.

But Hobbs also acknowledged that many of the recommendations will require support and decision-making efforts from the all-Republican Arizona Corporation Commission and the Republican-controlled Legislature. Despite the anticipated opposition, she said she is confident state leaders can put aside political differences to advance the task force’s recommendations.

“(It’s) about doing what’s best for Arizona, not what’s going to benefit a political party or not,” Hobbs said. “I think we’ve shown on big issues like Ag-to-Urban, like the Diamondbacks and Axon, we can work together to do what’s right for Arizona.”

State strategic energy plan

The report outlines five energy challenges the state is currently facing: load growth, supply chain constraints, federal policy changes, extreme weather and climate change, and water use implications. The recommendations offer both near-term and long-range strategies for addressing those challenges. 

Most notably, a majority of the task force’s recommendations for the state strategic energy plan revolve around transitioning the state to renewable energy sources and away from coal and natural gas. That push may come against the ACC and Republicans in the Legislature, who remain largely supportive of President Donald Trump’s initiatives to reinvigorate the coal industry and move away from solar and wind. 

The task force recommends supporting the conversion of coal plants, increasing deployment of distributed solar projects, encouraging the development of utility-scale wind and solar projects and encouraging the adoption of “low-carbon, water-use firm” technologies. 

Hobbs said the state is ready to grant permits for renewable energy projects on state land, while the Trump administration is rejecting them on federal land. But she said the state is not in a position to fully transition away from natural gas affordably, as it is currently Arizona’s largest source of energy.

“We are not in a position where we can pick winners and losers in the energy space. We have to have an all of the above approach,” Hobbs said. 

The governor also acknowledged that many of the task force’s recommendations fall within the ACC’s regulatory and ratemaking authority. One of the commission’s staff attorneys served as a task force member and Commissioner Rene Lopez served on the task force’s nuclear working group.

“The Corporation Commission is a very important aspect of all of this,” Hobbs said. “You saw them represented in the room, and I think we’ve provided some, I don’t want to say direction, but like here’s what you can take and do.”

Framework for large load growth

The task force also developed six recommendations for addressing large load growth customers like data centers and semiconductor manufacturers. Arizona is becoming a hub for both, which increases demand on the state’s energy grid and water resources.

Two of the task force’s recommendations focus on recent community backlash to data center projects. One includes requiring or incentivizing data center developers to proactively engage with communities and invest in community priorities, while another urges collaboration with local governments to inform the public about potential projects. 

“Across the United States, a lack of transparency and clear communication about large load customers and their impacts on the energy system has contributed to public concern and opposition,” the report states.

With many Arizonans concerned about data center costs being passed on to them in their utility bills, the task force recommended exploration of bring-your-own-capacity programs. BYOC programs allow data center companies to pay utility customers for the excess energy generated by their rooftop solar panels or electric vehicle batteries, a concept known as virtual power plants. 

The report also recommends revisiting the state’s tax incentives for data center projects, although the Data Center Coalition, Microsoft and Google each objected to that recommendation. Hobbs also proposed repealing the data center tax incentive in her executive budget, but the Legislature seems relatively uninterested in getting rid of the incentive. 

Advanced energy sources

The task force also explored how emerging energy resources could be used to help meet increased demand for energy. It created eight recommendations regarding preliminary steps the state could take to advance the development of geothermal and nuclear energy. 

Twenty-seven percent of the state’s energy portfolio is nuclear — all of which comes from the APS Palo Verde Generating Station. 

The task force recommended identifying potential state tax incentives, investments and grants to help reduce the costs to build new nuclear energy projects, while also streamlining environmental review and permitting processes to accelerate development. 

However, the Arizona Public Interest Research Group disagreed with the two nuclear recommendations.

“Despite numerous attempts across the country, nuclear energy has not been able to provide finance certainty nor proven affordable for ratepayers,” the public interest group wrote in the report. 

Hobbs acknowledged the cost and environmental concerns related to the deployment of advanced nuclear technologies to reporters, but said it is important for the state to stay at the table. 

“The federal government is looking to accelerate more nuclear energy and obviously there’s safety concerns, environmental concerns that we have to make sure that we’re attending to, but we’re absolutely making sure that Arizona is a part of those conversations,” Hobbs said.

The report also outlined several recommendations for advancing the development of geothermal energy resources, a currently unutilized source in Arizona. Those recommendations primarily focus on research efforts to better understand how geothermal could be deployed in the state and barriers to entry. 

Overall, the governor, her staff and the task force members emphasized the release of the report is only the beginning of the conversation.

“We’re not all going to agree, we all did not agree, but I think the process itself has been really, really, incredibly valuable,” Mahoney of Hobbs’ Office of Resiliency, told the task force. “… This is not the end. This is the beginning of our implementation process.”