Oklahoma ranks first in the Green Energy Solutions Business Energy Index

State, rankBusiness IndexState, rankBusiness Index
1. Oklahoma19.326. Arizona25.7
2. Nevada20.827. Mississippi26.3
3. Washington20.928. South Dakota26.3
4. Idaho21.129 North Dakota26.6
5. Utah21.430. Florida26.7
6. Texas21.731. Colorado26.7
7. Louisiana22.232. Kansas27.6
8. Arkansas22.333. Alabama28.3
9. Missouri22.434. Maryland28.5
10. North Carolina23.335. Minnesota28.7
11. Kentucky23.736. Delaware28.7
12. Oregon24.037. Indiana29.0
13. Georgia24.038. Michigan29.4
14. New Mexico24.039. Wisconsin29.6
15. Iowa24.340. New York30.3
16. Virginia24.441. New Jersey35.3
17. West Virginia24.742. Maine35.8
18. Tennesee24.943. California40.3
19. Pennsylvania25.144. Vermont40.7
20. Montana25.145. New Hampshire45.6
21. Wyoming25.346. Massachusets48.0
22. South Carolina25.347. Connecticut50.0
23. Nebraska25.648. Rhode Island50.5
24. Ohio25.749. Alaska59.0
25. Illinois25.750. Hawaii87.0

The blended Business Energy index gives some insight into the strength of a state’s business infrastructure and its desirability as a recruiting destination, though other factors also play a role.

Based on April 2019 data compiled by the U.S. Energy Information Administration, Oklahoma claims the top spot in the rankings by virtue of having the lowest average rates for commercial electricity – 7.25 cents per kilowatt hour (kWh) – and industrial electricity at 4.55 cents/kWh. It placed 11th for residential electricity – 11.17 cents/kWh.

How energy costs can affect site selection

Richard Clements, executive vice president of the Greater Oklahoma City Chamber of Commerce, says 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.”

Oklahoma, which finished first this month, undoubtedly benefits by having low commercial and industrial rates. Many states have much wider spreads between their commercial and industrial rates – New York’s industrial rates are the nation’s 8th-lowest, but its commercial rates are 42nd – making its overall rank 40th.

“To the extent that electric rates are a significant part of a project’s expense structure, industrial rates are clearly the most important,” Clements says. “Demand and usage determine in which category a business is classified. The larger users that consume the most electricity are classified as industrial even if they aren’t a manufacturer. For instance, a large data center that might have the cost of electricity as the single biggest cost component of its operation would be on an industrial rate.”

One often-overlooked aspect of the energy mix is the availability of electricity from renewable sources. “The availability of green options can be a compelling issue,” Clements says. “Many companies have set internal standards for the consumption of electricity from renewable sources. If a utility doesn’t have it available as an affordable option, it could effectively eliminate a prospective location from being considered.”

States compete on energy rates

Energy consultant Stephanie Bell of Bell Consulting LLC says low energy prices have helped Kentucky compete with other states. “I worked for the Kentucky Public Service Commission for over 20 years as a regulator of utilities. The Kentucky economy benefits from a large sector of manufacturing.”

The state finished 11th on the Green Energy Solutions Business Energy Index. “Kentucky is home to several car manufacturers, steel industries, and also has two aluminum smelters located in western Kentucky. Aluminum smelters are the largest energy consumers of any industrial facility,” Bell says.

She also points out one overlooked factor: “In most states the industrial sector provides subsidies to both the residential and commercial markets. Kentucky is no exception.” The state’s residential rate is 10.91 cents/kWh – the nation’s 8th lowest.

She also notes that green power increasingly is becoming a factor for business site selection. “Many companies such as Facebook, Google and Amazon won’t even consider a state that doesn’t offer green tariffs,” Bell says. “European-based companies require a certain amount of renewable energy or green power to be utilized. Most utilities have some sort of green tariff they can offer to industry.”

How the Business Energy Index is calculated

Green Energy Solutions data analysts crunched the numbers on electricity use by state to find an index that gives the best representation of electricity needs for businesses. Our index includes equally weighted values for commercial and industrial energy based on monthly state average prices as calculated by the U.S. Energy Information Administration. State average residential electricity prices also are included, because a company’s employees have to live somewhere, but they are given a much lower weight in the index.