AZ Attorney General Mayes Challenges The AZ Corp Comm Approval of Project Blue’s Rate Case

Attorney General Kris Mayes (formerly an Arizona Corporation Commissioner [AZCC] herself) today requested a rehearing of the rate case for the electricity for the ‘Project Blue’ data center development in Pima County.

The AG’s Request (which interestingly lists former Congressional Candidate and environmental law professor Kirsten Engel as of counsel) lays out a compelling case that the AZCC has abdicated it’s Constitutional responsibility to set electrical rates by approving an undisclosed and non-specific side agreement between Tucson Electric Power and Beale allowing them to privately set rates for electricity between them in the future. The Request alleges that this undisclosed side agreement violates the Arizona Constitution’s specific assignment of rate setting to the AZCC. You can read the Request for Rehearing here.

AG Mayes’ says in her press release of today:

“…Arizona Attorney General Kris Mayes is contesting the Arizona Corporation Commission’s December 10, 2025 decision to authorize Tucson Electric Power’s (TEP)  private energy agreement with Humprey’s Peak Power LLC., and its affiliate Beale Infrastructure Group to power a hyperscale data center complex known as Project Blue.  

“The loophole created for the developers of this data center to secretly set electricity rates behind closed doors and outside of the public process is new, rare, and a dangerous recipe for massive price hikes for Arizona consumers,” said Attorney General Mayes. “That’s why my office is stepping in.” 

This filing signals clearly that AG Mayes intends to take this matter to the courts as a Special Action if the AZCC refuses to rehear the matter and if the procedural due process failures she cites are not addressed. The same due process issues and failure to exercise oversight by the AZCC she cites as reason for the request for rehearing are some the same conditions for which a Special Action could be filed under Arizona precedents and procedure to challenge the AZCC’s ruling in court.

Specifically, Mayes’ filing indicates that she is concerned that the secretive and undisclosed side agreement between TEP and Beale for the actual rates to be paid into the future would allow them to privately negotiate utility rates for the data centers, potentially allowing TEP and Beale to pass some portion of the capital costs of generating that power on to TEP’s other customers without oversight or disclosure.

The rehearing request includes the following reason for the Request for Rehearing:

“The stakes are high: deals whereby a data center or large load customer does not pay its fair share can result in the shifting of their significant costs to other ratepayers, discouraging growth and distorting markets in the process. Deals whereby ratepayers are not protected against sudden or unexpected changes in a data center’s operations can leave the utility’s other ratepayers holding the proverbial “bag” in the form of stranded assets. And deals that ignore important aspects of grid design can result in voltage fluctuations that can threaten grid infrastructure and risk cascading power outages.”

CORRECTED STATE OF ARIZONA’S REQUEST FOR REHEARING OF DECISION NO. 81587, Introduction, pg 3.

The Request goes on to specify some of the specific harms that could occur by the infrastructural costs of supplying additional generating capacity being passed to other TEP customers:

“During the Commission’s December 2025 Open Meeting, TEP representatives proffered numerous assertions regarding the purported advantages of TEP and Beale/Humphrey’s Electric Service Agreement (“ESA” or “Agreement”). However, a member of the Commission, Commissioner Rachel Walden, along with a significant number of TEP ratepayers, raised substantial inquiries concerning the veracity of these assertions. In her dissent to the Commission’s approval of the TEP and Beale/Humphrey’s ESA, Commissioner Rachel Walden stated her concern that the Agreement obligates TEP to acquire additional generating capacity to ensure TEP maintains a reliable 15 percent margin and that such additional generating capacity will need to be purchased at a higher incremental cost to existing rate-payers, “costs that current ratepayers would not otherwise bear until years in the future when it would be incrementally added as their IRP [Integated Resource Plan] forecasted.” She and numerous commenters expressed concern that the construction of the new switchyard necessitated by the deal will bring forward costs that will be spread among TEP’s ratepayers years ahead of schedule.”

Ibid., pg 4.

The AG’s request then lays out the basis of potential due process violations which could be alleged as the basis of a Special Action of the AZCC’s approval of this rate case (Emphases Added):

“Nevertheless, far from employing its plenary powers to ensure a full vetting of the TEP and Beale/Humphrey’s ESA, the Commission rubber-stamped it. On December 10th, 2025, the Commission approved the proposed contract without change and without holding an evidentiary hearing that would have enabled interested parties, the public, and the Commission itself to verify the claims by TEP, Beale and, Humphrey’s Peak concerning the merits of the Agreement. The record of the Commission’s consideration of the ESA is scant, especially for an agreement of this nature presenting issues of first impression. While the Commission opened a public docket on the ESA, the background documents and studies completed on the project and the ESA were not entered in the docket or available to the public. While the ESA itself is available from the docket, it is heavily redacted, including the particularly critical Section 3.2 of the ESA that governs the Tariff rate to be paid by Beale/Humphrey’s to TEP. Persons were allowed to submit written comments to the Commission docket, but only a limited number of persons were allowed to provide a short oral comment at an Open Meeting held on December 3, 2025. No other procedures were provided.

An especially egregious example of the Commission’s failure to provide adequate procedural due process to interested parties concerns its treatment of the City of Tucson (“City”), one of TEP’s largest governmental customers and an entity that could be substantially impacted should the benefits of the proposed data center not play out as planned. The Commission never responded to the City’s Request to Open Proceeding and Motion to Intervene filed November 25, 2025, and although the City requested the opportunity to speak at the Commission’s December 3, 2025 Open Meeting, its request was ignored by the Commission. In doing so, the Commission failed to provide the City with any due process. Like the State, the City has likewise requested a rehearing of Decision No. 81587 and the State supports the City’s request. City of Tucson’s Application for Rehearing, Docket No. E-01933A-25-0187 (filed Dec. 29, 2025).

The issue of whether and under what circumstances a public service corporation such as TEP may enter into a side agreement to provide power to a large load customer such as a data center is an issue of statewide importance.”

Ibid., pgs 5-6.

Taken together, these due process concerns, possible abdication of a Constitutionally designated authority, and the allegation that this is matter of first impression and of statewide importance, are clearly intended to put the Commission on notice that the basis of potential Special Action exists in the view of the Office of Attorney General. The AZCC’s legal counsel would therefore be wise to recommend that the Commission reopen the matter and at least address these due process deficiencies to avoid this fight spilling into the courts and out of the AZCC’s direct control.

Such a fight in the courts may occur in any case, and this episode simply highlights how much of a neglectful utter patsy for corporate power the AZCC has become under MAGA control and, to the right audience, is another compelling reason to take the opportunity to put two Democrats into the two Commissioner seats up for election this year.