Arizona has emerged as one of the country's most closely watched regions for data center expansion, placing the state at the center of growing debates over electricity demand, water consumption and infrastructure planning as technology companies continue building large computing facilities.
The state's rapid growth in data center development has drawn attention from regulators, utility providers and policymakers who are trying to balance economic investment with concerns about resource use in one of the driest regions of the United States.
Speaking at an event in Phoenix on Tuesday, Arizona Corporation Commission member Kevin Thompson said utilities are facing unprecedented growth pressures as demand for electricity rises alongside the expansion of data centers, according to Axios.
"What took our utilities 100-plus years to build, we need to double that within the next four to five years to keep up with demand," Thompson said during the event.
Federal regulators are considering changes to the process for connecting large projects to the electric grid. The Federal Energy Regulatory Commission was scheduled to discuss proposals this week that could help accelerate grid connections while addressing concerns about who pays the costs associated with major new developments.
The issue extends beyond Arizona. States that have aggressively courted data center investment are increasingly reassessing tax incentives and infrastructure policies tied to the industry.
Arizona recently paused certain data center tax incentives for three years, while Ohio Gov. Mike DeWine halted sales tax breaks for data centers last month. Texas Gov. Greg Abbott has also called for changes to policies that provide incentives for some facilities, according to Reuters.
Maren Mahoney, director of the resiliency office for Arizona Gov. Katie Hobbs, said the state's temporary pause offers an opportunity to review whether incentives should be tailored to technologies that place less strain on local resources.
A report published earlier this year by the International Energy Agency (IEA) found that electricity consumption from data centers is rising significantly worldwide, with the United States accounting for a substantial share of that growth as technology companies expand facilities to support digital services and advanced computing applications.
Water use has become another major consideration in Arizona, where long-term drought conditions and declining Colorado River supplies have shaped public policy for years.
The trade-off between water and electricity use has become a key consideration for operators. Air cooling generally requires more electricity but less water than evaporative cooling systems.
"In Arizona, we're more concerned about our water usage," Thompson said during the Phoenix event, according to Axios, noting that many facilities have shifted toward less water-intensive approaches.
The challenges are particularly visible in the Phoenix metropolitan area, where rising temperatures have increased pressure on energy systems. The National Oceanic and Atmospheric Administration (NOAA) has documented a long-term warming trend across the Southwest, with Phoenix experiencing increasingly frequent periods of extreme heat.
Water experts say Arizona enters the data center expansion period with stricter planning requirements than many other states. Sarah Porter, director of the Kyl Center for Water Policy at Arizona State University, told Axios that decades of water management challenges have resulted in stronger rules governing water planning and transparency.
The discussion around data centers has also gained prominence amid broader concerns about national infrastructure resilience. Rising electricity demand, supply chain disruptions linked to international conflicts and geopolitical tensions affecting energy markets have increased scrutiny of how states manage critical infrastructure and resource allocation, according to recent reporting by The Wall Street Journal.
For many Arizona residents, concerns center on reliability and affordability. Thompson said residents want assurance that growing demand from data centers will not affect the availability of electricity during periods of extreme heat.
"They want to make sure their air conditioning is still running when it's 120 degrees outside," Thompson told Axios. "But they want it to be affordable as well."
