Special Holiday E&E #31

Energy Cost Index and Thanksgiving

by Raymond J. Keating

Thanksgiving is a time for families to gather together, usually around a large meal.  That will involve a significant use of energy, including for traveling and cooking.  No doubt, Thanksgiving is an energy intensive holiday.

However, the cost of that energy - whether filling up the gas tank for a drive to Grandma's house or powering kitchen appliances or fueling the small businesses that serve consumers on Thanksgiving - varies by state.

Energy costs, of course, are affected by assorted factors.  Obviously, it's about supply and demand.  As pertaining to oil, it's also about various political risks around the globe.  The types of energy sources matter as well.  For example, is electricity generated from coal or natural gas? 

But government intervention in the marketplace also comes into play through taxes, regulations, restrictions and mandates.

These governmental factors explain part of the difference in energy prices from state to state.  For example, what taxes are imposed at the gas pump? What fuels are mandated by either the federal government or by the states either directly or indirectly?  And so on.

The following energy cost index - which is partially derived from the larger "Small Business Survival Index 2007," which ranks the states according to their public policy climates for entrepreneurship - looks at the two major energy costs affecting small businesses, individuals and families.

One is the price of regular gasoline at the pump and the other is the cost of electricity.  Each are calculated as indices and then combined into one energy cost index.  This index really provides a bottom line ranking on energy prices.

At the top - or the lowest cost states - are 1) Wyoming, 1) Idaho, 3) West Virginia, 4) Kentucky, 5) Indiana, 6) Arkansas, 7) Washington, 7) South Carolina, 9) Utah, 9) Tennessee, and 11) North Dakota, and 11) Nebraska.  At the other end are the highest cost states (including the District of Columbia) - 39) District of Columbia, 40) Vermont, 41) Maryland, 42) Maine, 43) Alaska, 43) Rhode Island, 45) New Hampshire, 46) New Jersey, 47) California, 48) Massachusetts, 49) New York, 49) Connecticut, and 51) Hawaii.

So, energy for Thanksgiving is far more costly in states like Massachusetts, New York, Connecticut and Hawaii, versus Wyoming, Idaho, West Virginia and Kentucky.

What needs to be done?  In the end, elected officials need to be aware of how their policies impact the costs of energy.  Unfortunately, costs too often do not come into the equation, and therefore, businesses, consumers and the economy suffer.

Energy Cost Index for the States

Data Sources: Gas price index from gas prices provided by the AAA's website http://www.fuelgaugereport.com/ with prices updated on 11/19/2007, and electricity cost index is an index of state's average revenue per kilowatthour for electricity utilities (data for January to June 2007 from the U.S. Energy Information Administration).

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.