A few months back Wallet Hub published a report ranking each state on monthly energy costs. The categories included total energy cost, monthly electricity cost, monthly natural gas cost, monthly fuel cost and monthly home heating cost. Georgia was ranked as having the third highest monthly energy cost—a point that has gotten some attention the past few weeks, yet deserves context and clarification.
I’ve been very forward in pointing out that the state of Georgia has some of the lowest electricity rates in the country and that the new units under construction at Plant Vogtle are critical long-term assets for keeping those rates affordable while maintaining reliability and hedging against a future carbon tax (Figure 1; Gattie Link 1; Gattie Link 2; Gattie Link 3; Gattie Link 4). Consequently, I’ve had a few folks ask how these low electricity rates result in Georgia having the third highest energy costs among all states, as reported in the Wallet Hub study.
It’s a fair question, but it needs to be clarified that the characterization of Georgia having the third highest monthly energy costs is in reference to total energy consumption. This includes electricity, natural gas, home heating oil and gasoline. When considering electricity only, the Wallet Hub report lists Georgia as having the fourth highest monthly electricity costs. However, the Energy Information Administration reported in its November 2017 compilation of average monthly residential bills that Georgia ranked as having the ninth highest monthly electricity bills (Table 3, at end of this blog). Nonetheless, a more detailed explanation is warranted given the fact that Georgia does indeed have, and historically has had, residential rates that are consistently below the national average and below those in other states with high GDPs (Figure 1, below; Gattie Link 5).
The Wallet Hub analysis reported only consumption data, without reference to key factors that impact consumption—two of these factors being average household income and local weather. Electricity consumption is directly dependent upon home insulation, weatherproofing and the extent to which modern, efficient appliances can be installed, all of which are in turn dependent upon the availability of expendable income for upgrades. Not to mention, this often applies only to homeowners who have control over such upgrades as opposed to renters. In addition, local weather is a fundamental driver of electricity usage. It’s a matter of fact that higher cooling costs are associated with regions where summers are hot and humid, and one metric used for analyzing this is known as “Cooling Degree Days”. Without giving a long explanation, suffice it to say that a high number of cooling degree days means higher cooling needs whereas a low number of cooling degree days corresponds to lower cooling needs.
It stands to reason, then, that states with lower cooling needs will have a corresponding lower monthly consumption of electricity, and states with higher median household income (thus, expendable income for energy efficiency measures) have the capacity to reduce consumption even further. Moreover, even a higher median income can often offset, in part, higher electricity rates if energy efficiency measures are aggressively pursued and are within the financial needs of the homeowner.
Expendable income, along with low rates and low cooling needs are three key factors in monthly electricity costs and, when taken into account, Georgia’s ranking, as well as the ranking of other states, has more meaning (Table 1). The full table is given at the end of this blog (Table 3). However, here are some summary conclusions that correspond with Table 1:
Top 15 GDPs in the U.S.
A summary of the top fifteen GDPs in the U.S. gives a more focused view of how electricity rates, median household income and cooling degree days generally relate to monthly electricity cost (Table 2). In particular, among all top fifteen GDPs, Florida, Texas and Georgia have the three highest number of cooling degree days (i.e., greatest cooling needs), three of the six lowest median household incomes and three of the six lowest electricity rates. If it weren’t for the low electricity rates, these monthly costs would be financially challenging, to say the least.
Overall monthly electricity costs are dependent on several variables, not the least of which is electricity rate. To this end, utilities and state public service commissions have a direct impact on rates, and in this regard, Georgia is more than nationally competitive. In addition, consumer characteristics and climate must be taken into account in order to gain insight on possible policy actions that can be taken in order to effectively address energy costs beyond the fence line of the power plant—particularly monthly energy costs for low-income families. Georgia’s monthly electricity costs are consistent with states having extremely high cooling needs and low average median household incomes. Moreover, this is in large part due to the nuclear power assets constructed over thirty years ago at Plant Hatch and Plant Vogtle. The construction of Units 3&4 at Plant Vogtle will allow Georgia to continue that trend of nationally competitive low electricity rates and they will provide an invaluable hedge against a future tax on carbon emissions, which is only a political matter of time.
Median Household Income: U.S. Census Bureau; Link: U.S. Census Bureau
Monthly Electricity Costs: U.S. Energy Information Administration
Cooling Degree Days: National Oceanic and Atmospheric Administration