A Look at Wallet Hub's State Energy Cost Rankings

In July, the personal finance site WalletHub published an article comparing residential energy costs by state. In their ranking from most to least energy-expensive, last/best is New Mexico, coming in with total monthly energy cost of $376, and first/worst is Wyoming, at $1,591.

Wait – $1,591? Can Wyoming residents really be paying over 1.5k a month for energy? For that matter, is $376 really as good as it gets?

WalletHub does provide their methodology: They report that the average monthly bill for a given energy source was determined by multiplying the average consumption of that source by its average retail price, and summing the results for all sources for a state then gives that state’s average monthly energy bill. That’s certainly reasonable, though perhaps not as much detail as one would like.^[1] If you’re reading this blog, you’re probably already aware of energy offerings that can complicate the idea of an “average retail price,” such as time-of-use rates and net metering (perhaps you’re even tracking them through PR Quinlan’s Policy Plugin!). WalletHub’s rankings were produced by credentialed analysts, so they are surely aware of these complications as well, we’re just not told whether they undertook the (admittedly quite complicated) task of incorporating them into their averages.

Regardless of what WalletHub doesn’t tell us, what they do say still indicates that their totals are a little misleading. So, let’s get out the PRQ pick and shovel to dig a little deeper.

Giving Motor Fuel a Miss

The first and largest oddity is that WalletHub includes “Monthly Motor-Fuel Costs” in their calculations. True, fuel is an energy sector product, but not one that would fall under “monthly energy costs” as the phrase is normally used when thinking about home electricity and gas usage. One could argue that that its inclusion is necessary to accurately compare states with disparate rates of electric vehicle (EV) ownership. However, 84% of states have EV-adoption rates under 4% (even including hybrids) and only Washington and California have rates above 6%.^[2] So, at worst, a motor-fuel-less comparison seems more Honeycrisp-to-Cortland than apples-to-oranges. Further, based on WalletHub’s simplified methodology, it’s unclear whether their motor fuel calculations take into account diesel or non-EV alternative fuel vehicles, which account for a roughly equal percentage of registrations as EVs.

So, what happens if we take out fuel costs?

The biggest ratings shift is for Alabama, where eliminating $204 in fuel costs drops it from 13^th-most expensive to 23^rd. In fact, New Mexico sees the biggest relative drop in its total energy costs at almost 50%, but it has nowhere to go in the rankings having already come in as the least expensive. On the other side of things, New York moves from 28^th to 21^st, and New Jersey is the biggest loser, jumping eight spots to 14^th. Wyoming maintains the “top” spot, however, as its $1,313 total now more than doubles that of runner-up North Dakota. What gives?

Leave the lamps, trim the burning

Its perhaps unsurprising that none of the ten most energy-expensive states are known for mild winters. The issue isn’t just low temperatures, though, it’s also how residents live with them. WalletHub not only includes motor-fuel costs in their calculations, they also include the cost of home heating oil.^[3] And, while New England has by far the highest number of oil-heated residences,^[4] the Upper Midwest and Plains states see the most significant interaction of heating oil use and brutal cold.

Unlike motor fuel costs, the cost of heating a home is clearly relevant here, regardless of how its done. Nevertheless, only ~6% of U.S. homes actually use oil for heating.^[5] So, just for fun, let’s take a look at what happens if we restrict the WalletHub data to just the electricity and natural gas numbers most consumers are used to dealing with. TABLE TWO

Now we’re seeing numbers that look a little more familiar to most families – as well as some real movement in the rankings! When we went from WalletHub’s ranking to one that excluded motor-fuel, states moved about two spots on average. Here, the average shift is over 16. Wyoming doesn’t just cede the top spot to Hawaii; it drops all the way to the bottom third, coming in at #37. Two of its neighbors fall even more precipitously. Montana drops all the way from #4 to #43, and Utah moves from #12 to just barely unseat New Mexico as the least energy-expensive state. The hardest hit in the rankings are, naturally, warm-weather states. Hawaii’s claim to #1 is a jump from #29, and Texas and Florida both move up 36 spots to #11 and #8 respectively.

What does this mean for retail energy competition, which is a topic we spend a lot of time on at P.R. Quinlan? Well, using just WalletHub’s rankings, we can see a mix of competitive states and non-competitive states all over the spectrum. At a minimum, it suggests that states with vertically-integrated utilities are just as likely to have high monthly energy prices as competitive states. 

Of course, neither WalletHub’s rankings nor any of the above are the ranking of states by energy costs, and we could talk for a few thousand words more about how to construct an even more accurate model for consumer energy costs.. But as a set, they give a fuller picture overall. And, while P.R. Quinlan isn’t normally in the business of giving housing advice, I think the rankings safely let us say: You should move to New Mexico and buy some blankets.^[6]

^[1] In full, the calculation provided is “(Average Monthly Consumption of Electricity * Average Retail Price of Electricity) + (Average Monthly Consumption of Natural Gas * Average Residential Price of Natural Gas) + (Average Monthly Consumption of Home Heating Oil * Average Residential Price of Home Heating Oil) + (Average Motor-Fuel Price * (Miles Traveled/Average Motor-Fuel Consumption/Number of Drivers in the State)) = Average Monthly Energy Bill in the State.” WalletHub also provides the names of their data sources (e.g. U.S. Census Bureau and U.S. Energy Information Administration), though without direct citation, a moderate effort wasn’t sufficient to replicate their results.

^[2] U.S. Department of Energy Alternative Fuels Data Center: Light-Duty Vehicle Registration Counts by State. (Last retrieved: 8/13/24.) Percentages are based on registrations of vehicles with known fuel types in 2022, the last year with available data.

^[3] Oddly, WalletHub doesn’t include the costs of the other major non-natural-gas heating fuel: propane. Though this is perhaps due to difficulties in disaggregating the data to determine how much is used specifically for heating.

^[4] U.S. Energy Information Administration: Heating oil explained.

^[5] U.S. Energy Information Administration: Short-Term Energy Outlook.

^[6] Note: This is not actually advice. You should not move based on a blog post… Buy as many blankets as you want though.