TEP seeks OK to serve Project Blue at site rejected by Tucson council

Tucson Electric Power and the developer of Project Blue want state regulators to approve an agreement to provide electricity to the data center complex at its originally proposed site — leading County Supervisor Andrés Cano to charge they’re trying to “bypass our community will.”

TEP and developer Beale Infrastructure asked the Arizona Corporation Commission in a filing Monday to approve an agreement that would provide 286 megawatts of power to a data center complex that would be built near the Pima County Fairgrounds, nearly 20% less power than previously proposed.

The agreement leaves the door open for TEP to provide an additional 64 megawatts if the utility can find and buy that power, which would bring the total back up to the 350 megawatts originally proposed for Project Blue’s first phase.

But the return of Project Blue, nearly three weeks after the Tucson City Council voted unanimously Aug. 6 not to proceed with it, leaves a key question unanswered: Where will the water needed to cool the data centers come from?

Beale declined to respond Tuesday to questions about its planned water sources. Beale had said, before the Tucson council’s Aug. 6 vote to not proceed with the project, that it would pay the city to have an 18-mile pipeline built to deliver reclaimed water to its data center. But that option is clearly off the table for now, with the council now on record as opposing the project.

That would leave the San Francisco-based Beale with several choices. First, it could drill wells at its property to extract water. Second, it could buy water from some other source including other municipal providers or private water companies. Third, it could switch to a less thirsty technology that would rely on air cooling the data centers instead of cooling them with water.

Since the City Council vote Aug. 6, Tucson officials have not been contacted about providing water service to Project Blue at the location named in the TEP filing Monday, City Manager Tim Thomure said Tuesday. He said the city has ceased all work on the project, as directed by the mayor and council.

Various sources including Pima County Supervisor Jennifer Allen told the Star Tuesday that they believe Project Blue will choose the air-cooled route. But Beale officials, responding to questions from the Star about their plans, issued a five-paragraph statement that briefly discussed the project’s history and its future energy supply but said nothing about water.

Cano said in a social media post Monday night that the application “amounts to corporate collusion between our region’s main energy utility and an out-of-state shell company seeking to deplete our energy and water in Southern Arizona.”

“Make no mistake: this filing is designed to bypass our community’s will and lock in power for a project that has already been rejected at the local level,” Cano said. “Now that Tucson’s Mayor & Council has rejected Project Blue, Beale and TEP are asking state regulators to do what local leaders and residents refused to endorse.”

A TEP spokesman, Joe Barrios, countered on Tuesday that the utility takes issue with Cano’s “collusion” comment, noting that TEP filed a public document with the Corporation Commission. Additionally, he said, TEP reached out directly to all Tucson City Council members and Pima County supervisors “in the interest of keeping them informed.”

TEP’s filing Monday with the commission reveals TEP signed the agreement on July 22, before the City Council voted against annexing the site and providing water to it. The end user would be Amazon Web Services, according to a 2023 county memo.

“On June 17, the Pima County Board of Supervisors voted to rezone the parcel and approve a purchase and sale agreement with Beale Infrastructure to develop a technology campus that will help meet the region’s growing demand for digital infrastructure,” Beale’s statement said.

“Beale is actively pursuing community partnerships, advancing clean energy strategies, and evaluating digital infrastructure investment opportunities nationwide. In Southern Arizona, where demand is rising, Beale Infrastructure remains committed to meeting that need responsibly and sustainably. As part of that process we have engaged with TEP to provide clean energy supply for the project.”

The Board of Supervisors, with Cano and Allen voting no, sold the 290-acre parcel of land to the developer in June for nearly $21 million. Part of the deal was contingent on the land being annexed into Tucson so the project could receive service from Tucson Water, the city-owned utility.

After the City Council nixed that plan, amid loud public outcry against Project Blue — more than 1,000 residents packed a public meeting — the council pushed for and approved an ordinance regulating large water users such as data centers.

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Now, Project Blue could drill a well on its site if it chose, under state law. But it would have to get a permit from the Arizona Department of Water Resources. To do that, it would have to demonstrate in an “impact analysis” that its pumping wouldn’t lower water levels in neighboring wells that aren’t part of the new project, ADWR says. These rules apply in urban areas that, like Tucson, are treated by the state as Active Water Management Areas.

Tucson Mayor Regina Romero said Tuesday she learned about the TEP deal with Beale from the utility on Monday. As things stand, the developer could drill a well and tap into the aquifer, she acknowledged.

Tucson City Council member Paul Cunningham said TEP and Project Blue bringing this new agreement and proposal to the state shows why he believes a public electric power system is needed to replace the current electricity system run by a private utility.

“I don’t understand why they’re doing this if they claim they want to be good community partners, after the public outcry and reaction to their original proposal,” Cunningham said. “I hope that the entire community of Tucson shows up to the next ACC meeting and has their voices heard.”

County Supervisor Matt Heinz, who voted in favor of a land sale for Project Blue and for a county specific plan for the project, said that while the TEP-Beale agreement clearly references the 290-acre parcel, "They can swap it out for any other land better situated in Sahuarita, Marana or Oro Valley. This application is not like it's set in stone and they have to use the 290 acres.

"Now that Tucson took themselves out of consideration, we don’t have the same control we did have. We have a much more limited ability to control the process." 

Project Blue’s developers have been talking to other local jurisdictions as well, including Marana. But it doesn’t appear the data center developers are moving on from the project, or the location.

Cano said the energy application would be for Phase 1 of Project Blue “on a yet-to-be-disclosed property.” However, attorneys for TEP indicated in the ACC filing that the parcel of land Pima County sold is still the focus for the data center’s construction.

The agreement “is designed to meet the specific power needs of (Project Blue) while also ensuring that all other customers are protected from any cost or reliability impacts,” the filing says. “The Customer’s planned data center campus represents a significant economic opportunity for Southern Arizona” and the proposed agreement “provides substantial protection for customers,” it says.

Project Blue would not receive a discounted rate from TEP, according to the filing.

The proposed TEP-Project Blue agreement provides the project with up to 286 megawatts of electricity delivery pacity, "which TEP can satisfy entirely with existing resources and clean energy projects already under development," Beale Infrastructure's statement said.

"The contract includes numerous customer protections that ensure that reliable and affordable service for all TEP customers is not compromised, including full cost obligations, a termination fee, credit security requirements, and minimum demand payments, among others."

In his social media post, Cano included copies of a memo sent by Beale Infrastructure to Pima County Administrator Jan Lesher.

Beale says in the memo that “multiple protections” are included in the energy agreement for existing TEP customers, such as Beale paying the same approved rate “as other large customers,” that power being supplied is from TEP’s existing grid “and enabled by clean energy resources already under development,” that there would be a “gradual ramp-up” of that power supply over 18 months of service, starting in May 2027, and that termination fees are included if the agreement is cut short.

Additionally, Beale said, it will have to make minimum monthly payments to TEP to ensure that revenue “exceeds the cost of service and other customers are protected,” and that the project “will provide financial security which will guarantee its financial obligations are met and other customers are not impacted,” without going into detail on those obligations.

“TEP is not building new power plants to serve this project. Instead, the data center will use available capacity and help TEP increase its electricity sales, which benefits everyone,” Beale said in its memo. “Additionally, the company will cover all the costs to connect to TEP’s grid, so there is no cost to other customers for that either.”