When Elon Musk moved some Tesla operations, including its headquarters, to Texas, the transfer from California was in part because the electricity car maker wasn’t happy about state regulations. But Musk also mentioned higher costs in the Golden State. Other tech giants including Hewlett Packard and Oracle likewise have mentioned costs as reasons for moving.
Why business electricity rates matter
Company officials in the U.S. and overseas confirm that utility prices play a major role in considering expenses for a relocation.
Andrew Cunningham, founder of Reno, NV-based pest control company DailyPest, tells a story that illustrates just how much utility rates matter. “I am a business owner and we are currently based out of Nevada. Having some of the cheapest in the country, we did not think much of the importance of gas and electric costs. At least not until we were denied a supplementary business loan to build a satellite office in Tulsa, where natural gas costs are much higher than here in Reno.”
The problem, Cunningham says, came when DailyPest sought a loan for a new office. “The underwriters for the bank do not cut corners when doing their diligence. We run a successful business and never in a million years would I have considered that approval of a loan can boil down to utility prices.”
“We were not focused on expanding into a low rate area,” he says. “It turns out that in some areas, the added cost of climate policies can have an impact on their utility systems. These costs could range from generation to transmission, and they are likely hidden within the terms of the utility provider. Running a business where our offices need to be bright, warm, and dry almost all year long has influenced us to carefully assess the environmental policies and utility situation before making any big steps.”
Focusing the search for a relocation site
William Taylor, career development manager at VelvetJobs, a job placement company in Los Angeles, says lower electric and natural gas rates often are at the forefront of a search. “Commercial and industrial businesses use a lot of electricity for their operations, and they are constantly in the pursuit of reducing their energy costs.
“When it comes time to relocate, they will mainly consider moving operations to states where natural gas and electricity rates are lower than where they currently are so as to minimize these costs.”
States with the lowest business electricity and natural gas rates
|State||Commercial rate (cents/kWh)||State||Industrial rate (cents/kWh)|
|State||Industrial natural gas rate (dollars per 1,000 cubic feet)||State||Industrial natural gas rate (dollars per 1,000 cubic feet)|
Energy considerations aren’t just a U.S. thing
The importance of energy rates in a site search also is true outside the U.S., according to Anton Konopliov, founder and CEO of London-based Palma Violets Loans. “Electricity and heating are only two of the many fundamentals that every company should provide in every business location to ensure good productivity rates that is what ultimately drives the company to success,” Konopliov says. “Taking this into consideration, the area’s electricity and natural gas rates are crucial parts of forecasting the business’s viability once it relocates there.”
Adrian Faull, director of Australia-based Fix Electrical, says there’s another factor to take into account. “The role of natural gas and electricity rates, as well as incentives for solar, should be a priority consideration for any commercial or industrial business looking to move their operations to another state. These can differ pretty drastically from state to state.”
He advises considering the following:
- What are the rates for the type of energy you’ll be using?
- Have those rates been stable over time? How much have rates in different states increased over the past 5 years?
“The current rate is important, but so is the potential stability of that rate,” Faull notes. “Of course, past performance isn’t a guarantee against unpleasant surprises on your energy bill, but it is a good indication of what you might expect.”
Konopliov and others say it’s important to figure the variables out before a move. “Companies’ budgets are monitored and road mapped before it’s actually spent,” he notes. “Since these budgets are majorly dented by utility costs as part of the business’s operating expenses, it only goes without saying that not knowing your business potential location’s electricity and natural gas rates would be the equivalent of running a business with your eyes shut.”
Other business energy considerations
Faull notes that rates aren’t the only factor to consider when determining costs: “With the rising popularity of renewable energies, it would also be wise for businesses to consider what tax credits, rebates and incentives are available in different states.
“If you don’t currently use solar, you might find yourself making the switch for your business in the future, so consider what states provide the most robust and stable financial incentives to make the switch,” he says. “This could end up saving you a lot of money in the future, not only on a solar installation but on your energy bills afterwards.”
Vinay Amin, CEO of Henderson, NV-based vitamin and supplement company Eu Natural, also points to energy factors other than price. “Modern consumers are hyper-aware of the values held by the businesses they patronage,” Amin says. “As such, if a business is aligned with sustainability, then relocating their operations to a state that uses green energy to create electricity (such as Washington, California, Oregon or Texas) would heavily influence the relocation decision.
“Such a move demonstrates to their target audience the business’s commitment to their values, which in turn creates a more loyal, valuable customer base,” he says.
One other energy relocation factor
Jim Pendergast is senior VP of altLINE Sobanco, a division of The Southern Bank Company, based in Gadsden, AL. The company specializes in factoring and alternative financing for commercial clients.
Pendergast acknowledges that avoiding high electricity and natural gas rates makes sense on its face, “especially if you manage warehouses or industrial commercial spaces courting the highest-average utility costs.” Then he adds: “The problem is the grass usually isn’t always greener.
“Receiving more favorable utility rates generally requires a long-distance relocation in order to see real margin gains. But relocating a business in itself can make those overhead savings a wash,” he says. “That move requires new office space, infrastructure, labor, and equipment, not to mention potential local service partnerships and contracts just to restart operations again.
“Then there’s the myriad of connected costs such as registering your business, new state or county tax requirements, and more. It’s expensive, and all because you wanted to shave ten cents off per square foot on electricity? Sometimes it doesn’t add up. Sometimes it does.”
Arthur Murray directs content strategy for ChooseEnergy.com, taking advantage of more than 20 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 firstname.lastname@example.org.
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