Which States Have the Highest Demand Charges?

Google recently announced agreements with utilities in Indiana and Tennessee to curb power use at its AI data centers during peak grid periods, which is a demand-response strategy aimed at protecting both reliability and operating costs.

Reporting from Reuters noted that AI power demand is now outpacing available supply in several regions, with utilities inundated by new load requests from Big Tech in some areas.

What Google didn't explicitly say, but the industry immediately recognized, is that demand charges are one of the major financial forces behind this shift.

When a facility's power draw spikes, even briefly, demand charges can dominate the electric bill. For large energy users across manufacturing, healthcare, cold storage, and data centers, demand charges often account for 30–70% of monthly electricity costs, according to NREL and the Clean Energy Group.

Demand charges are no longer just a line item, but a strategic variable. And for businesses in certain states, they are becoming one of the most important levers to manage.

Demand Charges: The Hidden Cost Driver

Commercial and industrial customers are often billed not only for the energy they use (kWh), but also for their peak power demand (kW). That is, the highest 15-minute or 30-minute power draw during a billing cycle.

That single peak number can outweigh everything else on the bill combined.

And as data centers, advanced manufacturing, EV charging hubs, and logistics facilities expand, peak power profiles are becoming sharper, and as a result, the financial impact is more pronounced.

Which States Are Hit Hardest by High Demand Charges?

Using NREL's database of more than 10,000 commercial tariffs, paired with e2Companies' analysis of state-level demand-charge exposure, several states consistently rank at the top.

California

California has some of the highest maximum demand-charge tariffs in the country, often exceeding $20/kW.

Cost Drivers: Coastal congestion, wildfire-related grid investments, deep decarbonization commitments.

Arizona & Colorado

Both states are in NREL's upper tier for demand-charge rates.

Cost Drivers: Extreme summer heat, fast population growth, rapidly expanding data center footprints.

Georgia

In the upper tier, with rates commonly more than $15/kW.

Cost Drivers: Atlanta's position as a national logistics and hyperscale data-center hub.

Texas

Energy rates are often low, but demand charges and ancillary costs can be significant.

Cost Drivers: Summer peaks, rapid industrial load growth, grid-modernization investments.

Northeast & Mid-Atlantic (New York, Massachusetts, Michigan, Ohio)

Some tariff zones exceed $50/kW, among the highest in the country.

Cost Drivers: Aging infrastructure, cold-weather peaks, dense urban industrial load.

Arkansas and Other South-Central States

Not the highest per kWh, but still heavily exposed to demand-driven cost recovery.

Cost Drivers: Reliability concerns, regional grid constraints, capital investments tied to peak load.

What's Driving High Demand Charges Across These States?

1. Peak Weather Events

Summer heat in CA, AZ, TX, and GA — and winter cold snaps in MA, MI, and NY — push systems to their limits.

2. Large, 24/7 Energy Users

Data centers, cold storage, automated distribution hubs, and electric-arc steel manufacturing require large amounts of electricity fast, amplifying peak stress on the grid.

3. Infrastructure Modernization

Transmission upgrades, wildfire protections, emissions compliance, and interconnection costs are often recovered through demand-based charges.

4. Tariff Structures Designed for Cost Recovery

Peak demand reflects each customer's share of required grid capacity, so utilities design charges around it.

How Businesses Can Lower Demand Charges: Reduce Reliance During Peak Hours

Peak Shaving & Load Shifting

Even short reductions during peak windows can meaningfully lower demand charges.

As NREL notes: "Buildings whose electricity demand is highest during the day have a greater likelihood of achieving demand-charge savings from on-site generation and storage."

In high-cost states, shaving just 200–500 kW during peak intervals can produce six-figure annual savings.

Participate in Utility Rate Incentives

Many utilities now offer financial incentives for customers who can adjust their load during high-demand periods. These programs reward facilities that help stabilize the grid and reduce peak strain. Common offerings include:

• Demand response programs: Payments for reducing load when the grid is stressed or when called upon by the utility or ISO.
• Peak-day pricing: Higher rates during critical hours and lower rates during off-peak periods, creating opportunities for load shifting and strategic on-site generation.
• Capacity tag reduction: Programs that lower a facility's annual capacity obligation by reducing load during system-wide peak events.
• Critical peak rebates: Credits issued for cutting load on days when utilities declare a system peak or reliability event.

(Check out this resource to find incentives in your state.)

These incentives can significantly reduce annual energy costs, but they require a facility to respond predictably and without disrupting operations. That's where many organizations struggle: responding to a demand response event shouldn’t put production schedules, equipment health, or customer commitments at risk.

The key is having a system capable of responding instantly and reliably when the grid calls for it.

How e2Companies' Virtual Utility^® Turns Demand Charges Into a Controllable Cost

Demand charges spike when a facility's load is unpredictable. e2Companies' Virtual Utility^® gives businesses the ability to control those peaks by combining on-site generation, fast-discharge energy storage, and continuous real-time monitoring into one integrated platform. Instead of reacting to utility costs, your facility can actively shape them.

R3Di^® System

The R3Di^® System is the foundation for Virtual Utility^® and delivers the performance needed to manage peaks without compromising operations. It combines:

• Prime-rated natural gas generation for long-duration, dispatchable power
• LiFePO₄ (LFP) energy storage for fast-discharge response and instantaneous transitions
• UPS-grade, no-blip power conditioning that protects sensitive equipment
• Enough runtime and capacity to support sustained grid peaks or outages

This gives facilities a reliable resource that can pick up load, cap demand, and support production whenever the grid becomes stressed.

Grove365^™ Monitoring

The intelligence of Virtual Utility^® comes from Grove365^™, our 24/7/365 operations and optimization platform. Grove365 continuously monitors:

• Grid conditions and ISO signals
• Weather patterns and peak-day forecasts
• Utility prices and tariff triggers
• Facility load profiles and equipment behavior

When a peak window approaches, Grove365 automatically dispatches R3Di^® to shave demand or participate in demand-response events. This allows the system to respond instantly and consistently, without requiring manual intervention or disrupting operations.

Why This Model Works

With the Virtual Utility^®, your facility can:

• Cap peak demand (kW) at a predictable, manageable level
• Reduce exposure to high demand-charge tariffs
• Earn revenue through DR and peak-reduction programs
• Improve resiliency and power quality with conditioned, no-blip power
• Integrate existing assets, including diesel generators or solar systems
• Support electrification (EV fleets, automation, AI workloads) without stressing the grid

Instead of absorbing the impact of volatile grid events, you control how (and when) your facility interacts with the grid.

Where This Strategy Delivers the Greatest Value

The economics are strongest in markets where:

• Demand charges exceed $15–$20/kW
• Load growth is accelerating, such as data centers, advanced manufacturing, cold storage, or EV fleets
• Utility programs offer DR, peak shaving incentives, or capacity credits
• Grid volatility increases reliability risks

In these states, the combination of demand-charge reduction, incentive revenue, and improved reliability often produces a measurable and meaningful return on investment – one that gives businesses a competitive advantage over facilities that depend solely on the grid.

Take the Next Step

High demand charges don't have to be a fixed cost. Whether you're expanding operations, adding new loads, or simply trying to stabilize your energy budget, you have options to take control of your peak demand.

First, you can find utility rate incentives in your area. And if you're ready to see how much you could save with on-site power generation and monitoring through Virtual Utility^®, use our calculator to estimate your costs and savings.