ENERGY COST INDEX 2012: RANKING THE STATES

Transcription

1 ENERGY COST INDEX 2012: RANKING THE STATES Raymond J. Keating Chief Economist Small Business & Entrepreneurship Council June 2012 Protecting small business, promoting entrepreneurship

2 Energy Cost Index 2012: Ranking the States Summary High energy costs take a heavy toll on consumers, as well as on businesses of all types and sizes. That is most certainly the case with small businesses that so often operate on very thin margins. For example, a rise in the price at the gas pump often is said to be similar to a broad-based tax increase in terms of its negative effect on the economy. Whether directly or indirectly, there s no way to fully get around the effects of high energy costs. For most businesses, including small firms, two big energy questions loom. First, what do you pay at the gas pump? Second, what do you pay for electricity? As for prices at the pump, consider the results of a survey done by TechnoMetrica for the Small Business & Entrepreneurship Council released in late March 2012 on how small firms are impacted by higher gas prices: 72 percent of respondents say that higher gas prices are impacting their business. 41 percent of small business owners said higher prices were affecting their plans to hire. 22 percent of small business owners have cut back on employee hours. 40 percent of small business owners have raised their prices. 43 percent of respondents agreed with the following statement: My business will not survive if energy prices continue to remain high or increase further. (23 percent strongly agreed with the statement.) Much the same goes for electricity costs, of course. Indeed, electricity costs often rank among a firm s biggest expenses. For example, Bob Farber, president of Quality Perforating Inc., a Carbondale manufacturer of pierced coils, sheets and components, in Scranton, PA, was quoted in a May 25, 2010, article in the Scranton Times-Tribune observing, For a business like ours, electricity is probably our biggest fixed cost because all our machines are electric. It s important to keep in mind that energy costs can be affected by a variety of factors. For example, energy demand tied to economic growth both at home and internationally certainly matters. Then there is the question of what limits are placed on energy production. For example, in the U.S., 90 percent of public lands are excluded from oil and gas production, and the Atlantic and Pacific coasts, along with the eastern Gulf of Mexico, are off base in terms of offshore oil and gas exploration and development. Of course, political uncertainty factors into the price equation, such as how governmental risks 2

3 and threats are playing out in, for example, the Middle East and North Africa, Venezuela, Nigeria and Russia. U.S. monetary policy is critical as well, as it determines inflation and the value of the dollar, which both play into commodity prices, including oil, and therefore, have a direct impact on gasoline prices. The particular resources used to generate electricity also will have a clear impact on the cost of electricity. Consider the following from a May 8, 2012, International Business Times article written by Todd Westby, who is a small business owner: Electricity prices are a big concern for me. And on a tight budget, I can only account for so much to go toward the electricity bill before I have to pass this cost onto my customers. Luckily for me, I live in a state where more than 70 percent of the energy is powered by coal. Nebraska's dependence on coal has had tremendous results that businesses and families can appreciate. Our state has the 11th lowest electricity prices in the U.S. And as I look at coal pricing over the last few decades, I've seen one very important fact: it's stable. There is little fluctuation in the already affordable cost of coal from year to year. In our uncertain economic times, confidence in low-cost electricity is one fewer obstacle to overcome on the road to recovery. For good measure, government mandates, regulations, subsidies and taxes factor into the energy cost equation. And it s not just the federal government that comes into play, but governmental entities in the states as well. In fact, governmental factors explain part of the difference in energy prices from state to state. For example, what taxes are levied in each state and at what level, such as gasoline and diesel taxes? What mandates are imposed that either directly or indirectly affect energy prices, including renewable energy portfolio mandates on electricity producers, as well as state or regional efforts to reduce carbon-dioxide emissions? Energy cost differentials between states speak to the competitiveness of each state in terms of attracting and keeping businesses, and how competitive those businesses will be in the marketplace. Measuring the States: SBE Council s Energy Cost Index 2012 looks at the two major energy costs mentioned above that affect small businesses, individuals and families. One is the price of regular gasoline at the pump and the other is the cost of electricity (average revenue per kilowatthour for all sectors). Each one is calculated as an index, and combined into an overall cost index. The Energy Cost Index 2012 provides a bottom line ranking of the 50 states and the District of Columbia on energy prices. Lowest Cost States: At the top or the lowest cost states are: 1) Arkansas, 2) Louisiana, 3) Oklahoma, 4t) Iowa, 4t) Kentucky, 6) Missouri, 7) Wyoming, 8) Idaho, 9) North Dakota, 10) Nebraska, 11) Utah, 12) Mississippi, 13t) Alabama, 13t) South Carolina, and 13t) South Dakota. Highest Cost States: At the other end are the highest cost states (including the District of Columbia): 37) Delaware, 38) Michigan, 39) Maryland, 40) District of Columbia, 41) Maine, 42) New Jersey, 43) Rhode Island, 44) Massachusetts, 45) New Hampshire, 46) California, 47) Vermont, 48) New York, 49) Connecticut, 50) Alaska, and 51) Hawaii. 3

4 Energy Cost Index 2012 Rank State Gas Price Index Electricity Cost Index Energy Cost Index 1 Arkansas Louisiana Oklahoma t Iowa t Kentucky Missouri Wyoming Idaho North Dakota Nebraska Utah Mississippi t Alabama t South Carolina t South Dakota t Kansas t Tennessee t Georgia t Indiana t Minnesota t New Mexico t West Virginia t Montana t Texas t North Carolina t Washington Virginia Ohio t Arizona t Colorado t Illinois t Nevada Oregon Pennsylvania t Florida t Wisconsin Delaware Michigan Maryland District of Columbia Maine New Jersey Rhode Island Massachusetts

5 45 New Hampshire California Vermont New York Connecticut Alaska Hawaii Data Sources: Gas price index from gas prices provided by the AAA s website accessed on May 21, 2012, and electricity cost index is an index of state s average revenue per kilowatthour for electricity utilities (data for 2012 through February from the U.S. Energy Information Administration). Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. Contact Information: Small Business & Entrepreneurship Council (SBE Council) 301 Maple Avenue West, Suite 690 Vienna, VA Telephone: Fax: Or [email protected] 5