Which states have the best business energy environment?

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By Arthur Murray
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Which state had the best business energy environment in August, the latest month for which statistics are available from the U.S. Energy Information Administration? That depends on the type of business and the type of energy.

The Choose Energy Business Electricity Index, which provides a blended view of electricity rates across the country, shows Louisiana ranks first for the month. The proprietary index weighs commercial, industrial, and – because workers must have a place to live – residential rates to determine where businesses can get the best deal on electricity rates.

First, some definitions:

  • Residential electricity – used in places where people live.
  • Commercial electricity – used in retail and other businesses that try to make money.
  • Industrial electricity – used in manufacturing or factories.

The Choose Energy Business Electricity Index ranks the top and bottom states like this:

States with the best scores Index score States with worst scores Index score
Louisiana 21.4 Hawaii 82.4
Oklahoma 21.6 Alaska 56.0
Washington 22.1 California 52.3
Idaho 22.6 Massachusetts 47.2
West Virginia 23.4 Rhode Island 47.2
Arkansas 23.4 Connecticut 47.1
Kentucky 23.5 New Hampshire 44.1
Oregon 23.7 Vermont 41.0
Utah 23.8 New Jersey 36.5
Virginia 23.8 Maine 34.1

What’s behind Louisiana’s top ranking? The state had the lowest average rates in August for industrial and residential electricity – 5.20 and 9.57 cents per kilowatt hour (kWh), respective. It also had the sixth-lowest commercial rate at 8.60 cents/kWh.

Why the index might not tell the whole business energy story

Rates are a great way to measure business electricity costs, but they aren’t the end-all and be-all. Why? Because usage also plays a major factor in a company’s bottom line.

For example, Louisiana industrial electricity users consume much more industrial electricity – 159,426 kWh hours per month – than the U.S. average of 99,221 kWh. That means the average industrial user in the state pays a monthly bill of $8,290 – much higher than the $7,382 national average. Those numbers put Louisiana in 26th among states (1 = cheapest).

Following are states with the cheapest average bills for industrial users:

State Average bill State Average bill
Nebraska $1,195 Kansas $2,936
Idaho $1,733 Oregon $2,970
Montana $2,122 New Mexico $3,914
Arkansas $2,629 Washington $4,189
Maryland $2,840 California $4,253

As for the states with the highest average bills for industrial users, Tennessee tops the list, shattering that national average. Here are the 10 states with the most expensive average industrial bills:

State Average bill State Average bill
Tennessee $103,182 South Carolina $30,844
Hawaii $92,743 Wisconsin $28,374
Vermont $62,959 Virginia $27,170
Illinois $41,990 Iowa $25,167
Michigan $31,982 Nevada $25,074

What about commercial customers? Commercial businesses in Idaho pay the lowest commercial electricity rates in the country, and they also benefit from low average monthly usage. It adds up to average monthly commercial electricity bills of only $378 – way below the U.S. average of $681.

Following are the 10 states with the lowest average commercial electricity bills:

State Average bill State Average bill
Idaho $378 Vermont $462
West Virginia $392 Maine $478
Montana $398 Nebraska $489
Pennsylvania $427 Colorado $497
Arkansas $453 South Carolina $500

The highest average monthly commercial electricity bills occur in Hawaii – $1,225 a month. Following are the 10 states with the highest average monthly bills:

State Average bill State Average bill
Hawaii 1,225 Massachusetts 859
Connecticutt 1,122 Arizona 836
California 1,072 Virginia 819
Maryland 929 Alaska 816
New York 880 Rhode Island 794

What’s it all mean? Idaho, Montana, and Nebraska businesses – industrial or commercial – have lower average monthly bills than most other states. Those states were 5th, 17th, and 27th, respectively, in the index. Business bills in Hawaii, not surprisingly, are much higher. It was 50th in the index.

But wait, there’s more. There’s more to business energy than electricity.

What about industrial natural gas rates?

Industrial energy consumers love natural gas – it’s considered cheap and reliable. So it would be a mistake to leave that commodity out of the discussion.

Oklahoma had the lowest price – $1.86 per 1,000 cubic feet. The average U.S. rate is $3.20. Following are the 10 states with the lowest prices:

State August rate State August rate
Oklahoma $1.87 Kentucky $3.44
North Dakota $2.07 New Mexico $3.59
Louisiana $2.84 Idaho $3.68
Kansas $3.20 Arizona $3.73
Alabama $3.33 Nebraska $3.73

The highest prices – again – are in Hawaii: $20.59. On the mainland, Delaware’s rate of $10.31 was next up. Following are the 10 states with the highest prices.

State August rate State August rate
Hawaii 20.59 California 7.09
Delaware 10.31 Nevada 7.05
Rhode Island 10.28 Michigan 6.98
Maryland 9.10 Arkansas 6.91
Massachusetts 8.60 Washington 6.87

Why business energy costs matter

In a word, recruiting.  Energy costs play a major role – along with location and trained workforce – in site selection when companies move or open businesses. Richard Clements, executive vice president of the Greater Oklahoma City Chamber of Commerce, tells Choose Energy that relocation decisions for businesses are made on a case-by-case basis. “As a project’s demand for electricity increases, the price of electricity plays a more important role in the final location decision,” he says.

“Most site location processes segment costs and arrive at a total project cost based on location differences,” he says. “In other words, they spreadsheet their costs in many categories (transportation, real estate, labor, energy, taxes, etc.), divide them by startup and ongoing costs, then look at the long-term average of all costs. If the company uses a lot of electricity, that component becomes more and more important in the final decision.”

Arthur Murray directs ChooseEnergy.com’s newsroom, taking advantage of nearly 30 years of newspaper and magazine experience. His articles have appeared on Zillow.com, Business.com, Nasdaq.com, and USNews.com, among others. You may reach him at amurray@chooseenergy.com.