Solar panels near Boston Harbor. Photo credit: Flickr/Jeff Gunn

In what's becoming an annual occurrence, Massachusetts ranks as the nation's top state for energy efficiency. The annual scorecard compiled by the American Council for an Energy-Efficient Economy has now given Massachusetts top honors for three straight years. California, which has a reputation as an energy leader is again in the number two spot. It's followed this year by New York, Oregon and Connecticut.

A top-notch effort
Massachusetts has maintained its lead thanks to an array of energy-efficiency initiatives including energy audits, rebates for upgrades and demand-reduction incentives. Under the state's Green Communities Act, it has a plan in place to save 2.5% of its electricity and more than 1% of its natural gas usage by focusing on cost-effective energy efficiency. Over the next three years the fully funded program is expected to yield net consumer savings of more than $6.2 billion.

The state also requires its utilities to offer energy efficiency programs. Because of this, utilities like Ni Source (NYSE:NI) and National Grid (NYSE:NGG) have partnered together to sponsor the Mass Save initiative. The utilities work with the Massachusetts Department of Energy resources to provide a number of services and incentives that are focused on promoting energy efficiency.

Number two, but still great
California continues to be one of the nation's leaders in energy efficiency. It is one of the few states that has adopted a commercial building energy disclosure requirement. It also offers incentives for energy efficient investments to both the public and private sector. California has plans to become even more efficient next year as new building standards go into effect. The new standards will improve the energy efficiency of residential construction by 25% and non-residential buildings by 30%.

The new standards could put pressure on the margins of the state's top homebuilders like KB Homes (NYSE:KBH) and PulteGroup (NYSE:PHM). While KB Homes is already an award winning leader in building energy efficient homes, it might need to do more. For example, 80% of its communities offer solar power systems as a standard or optional system. To meet the new standards it might need to make solar a standard feature across all of its communities in the state. The same goes for PulteGroup. Not only that but home builders typically offer buyers optional energy-efficient features like tankless hot water heaters or radiant barriers. These might need to now be standard features in the homes that are built in the state.

Needs improvement
Looking at the rest of the list, which can be viewed here, shows that the most energy efficient states are either in the Northeast or out on the West Coast. Those that need the most improvement are North Dakota, which ranks dead last, followed by Wyoming, South Dakota, Alaska and Mississippi.

While North Dakota supplies our nation with a lot of energy now that it is the second largest oil producing state, that doesn't earn it a pass. California, incidentally is the nation's third largest oil producer. One of North Dakota's biggest areas to improve is the fact that it hasn't put much pressure on its utilities to run energy efficiency programs. Further, the state has no energy efficiency resource standards, nor does it treat energy efficiency as a resource in and of itself. The state could be doing a lot more, including doing a better job of getting natural gas flaring from the Bakken under control.

If there is a model for North Dakota, and other states needing improvement to follow it's Mississippi. While the state still ranks in the bottom five, it is among the nation's most improved over the past year joining Maine, Kansas, Ohio and West Virginia. Last year Mississippi passed comprehensive energy legislation that included a major energy efficiency component. Among the bill's provisions is an energy code for commercial and state owned buildings. Because of that, it has the potential to be a leader in energy efficiency in its region.

Final thoughts
America is making a lot of progress on becoming a more efficient user of our energy resources. States like Massachusetts and California are leading the way. Neither, however, is relying on last year's successes as both are moving forward to become even more energy efficient. That'll make it tough for challengers to unseat them, but it's still a challenge worth pursuing.