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The Winter Behind, The Summer Ahead:

A Harsh Spring Faces Low-Income Energy Consumers

Meg Power, PhD.

 This analysis updates the US Department of Energy Residential Energy Consumption Survey data (RECS, Energy Information Administration, U.S.D.O.E. 1999) to measure how the high-energy prices and the weather last winter affected the low- and moderate-income families who are eligible for federal Energy Assistance and Weatherization services.  All energy data are taken from RECS or the EIA Short Term Energy Outlook 4/6/01; weather data is from the EIA STEO Query System.

American Consumers' Energy Bills: 2000-2001

All households faced unexpected financial pressure from rapidly rising energy costs last winter, but low-income energy consumers faced true hardship.  On April 6, 2001 the Department of Energy’s (DOE) Short-Term Energy Outlook reported on the past heating season’s residential fuel costs and made projections for the coming summer. Its data reported average costs for all residential fuels and data on winter weather was included to permit estimates of usage. This analysis presents the figures on the energy bills of the neediest household consumers in the nation separately from the majority of families, who have incomes that are moderate and higher.

The Neediest Consumers

Families that have incomes at or below 60% of the median income of their state are eligible for federal Low-Income Home Energy Assistance Payments (LIHEAP) or the US Department of Energy's Weatherization Assistance Program energy efficiency services.  That income ceiling is now roughly $21,000 for a family of three, and this report refers to them as 'low-income'; in 2000, about 29 million households fit this definition. [i]   This analysis covers a sample representing nearly 27 million of the households in that group, a population is roughly equivalent to the lowest income quartile of US households.

Far fewer than the number eligible participated in either federal energy program this year; most states limit such assistance to the households with very low incomes.  In fact, the typical family that becomes a LIHEAP recipient has a household income lower than the Poverty guideline, which is now $14,150 for a family of three; in 1998, US DHHS reported clients served had incomes lower than $9000 annually.²    This winter, many states broadened eligibility for assistance payments, but just over 4 million of the 29 million eligible households received help from the LIHEAP program.

Energy Market Jolts: Higher prices, Much Higher Bills

Winter prices for natural gas and all petroleum products, including natural gas, were far higher than in previous years.  Heating oil prices were 36% higher than in the 1999-2000 winters and over 50% higher than in 1998-99; residential natural gas cost 42% more per cubic foot than in 1999-2000.

These figures represent near-catastrophe for the poor for two reasons.  First, their incomes are very low; in addition the level of their income is generally fixed.  The rate of change compounds the problem.  In FY 1999, the typical eligible low-income consumer spent 14% of all their annual income for all household energy bills (a calculation termed 'Energy Burden'), as compared to the 19% expected over this year.  Even though many of these needy families realized some increase in income over the past five years, the cost of energy will wipe out much of the gain in living standard they might have enjoyed. 

The poor will need to spend about one fifth of their income to remain as warm or cool and to use other appliances as in they did in 1997.  In that year, their bills were lower, and their mean burden was 15.5 %, leaving 4% more of their annual income available for necessities of life.  The other households will also spend more, about $500 more, than in 1997 but their Energy Burden will be 0.9% (.009) more than in 1997, or 4.6% on average.  Table A shows the expected national average of 12-month energy bills and the energy burdens expected for two groups:  first, the low-income households eligible for Energy Assistance, and last, the 74 million other consumers not poor enough to qualify for federal energy programs. 

Table A.  Projected October 2000-September 2001 Total Residential Energy Expenditures and Energy Burden: Low Income Households and all other Consumers.

The national averages above hide substantial variation, and the annual estimates hide the sharp impact of the winter heating bills for those most affected. 

Table B below shows that the burden depends on the main heating fuel used by the consumer.  Electricity prices in many places did not change significantly through March of 2001; fuel adjustment changes can be expected shortly, but EIA predicts no significant increases for several years.

Table B.  Yearly impact of Energy Costs by Main Heat Fuel, Low-Income and All Other Households, 2000-2001  

The contrast between the energy burdens of families in the group that is not eligible for help, i.e. three quarters of all energy users, and the burdens of the poor is considerable.  Figure 1 below suggests why the poor who do not have enough disposable income to meet basic needs and common  contingencies at any time, now face dramatic reductions in their remaining budget.  

Figure 1.   Energy Burdens of Low Income Consumers  v. All Others

Table C below shows only the winter costs for both the heating fuel and all energy used from October through March.  During the winter, the majority of poor ran up bills equal to nearly 30% of the season’s income.

Table C.  Winter Energy Costs and Burdens for Low-Income Consumers in

2000-2001

Most low-income households get their income from wages and/or Social Security.  The seasonal load of these bills is especially difficult for workers with hourly wage jobs that face post-holiday or weather-related work slowdowns at the coldest season.

Geography:

Climate obviously has a major impact on energy bills, but the mix of consumer fuels available and the cost of delivering them are also determined by location.  While natural gas heats a majority of all U.S. homes in every region, the Northeast is home to most U.S. fuel oil users, and Midwesterners are predominantly natural gas users.  Table D below shows the expected oil and gas bills in the Northeast and Midwest, clearly these are far higher than even the national figures above.  Electric heat users, who live disproportionately in warmer states now face summer bills as high as their winter costs.  On average, all households spend 35-40% of their energy budget between May and October if the summer weather is normal.  In the South – the summer bills will be about the same as the Oct-March bills, unless weather is not normal.

Table D.  1999-2000 and 2000-2001:  Expected Bills for Low-Income Households in the Northeast and Midwest: 

Utility Disconnections, Denial of Service

In 1997, a year with lower temperatures and far lower prices, more than 1.1 million low-income families had their heat shut off for ten days or more in winter because they could not pay.⁴   Most states do not have regulations prohibiting utility shutoffs other than during 24-hour periods where the temperatures remain below freezing.  Several recent surveys document unprecedented consumer  arrearages (see the National Energy Assistance Directors’ Association report at www.neada.org also the LIHEAP Clearinghouse at www.ncat.org.) 

Gloomy Forecast: 2000-2001 is not an aberration.

The price/usage shock is amplified because of reduced demand for heat fuels during the previous two winters and may be interpreted as an unusual occurrence.  According to the Department of Energy, winter bills for gas were 42% above 1999-00 and changes for oil products were 52% more than in 1998-99.  While the weather was 10% colder than the previous year, it was just 7% above the norm (measured in gas – weighted heated degree-days).  This national average varied from almost 15% colder in the South to normal in the West.

Further, retail prices, while at record highs, are predicted to remain at comparable levels for several years (EIA, AEO, 2001)

Programs To Help Low-Income Consumers

The assistance resources available are far short of the needs ahead this winter.

Weatherization:

The Department of Energy Weatherization Assistance Program has efficiency investment resources that have to date been extended to fewer than 20% of all eligible units.  It focuses on homes with high potential to save energy and with especially vulnerable families; at current prices, a typical 'weatherized' consumer spent about $240 less on natural gas this winter than would have been the case before the house was weatherized.    That modest figure means a good deal more to those with tight budgets, as it represents a savings of over two percent of their household income. 

The Weatherization Program had planned to improve an additional 200,000 low-income homes by FY 2001, but deep budget cuts in FY 1995 and subsequent years now mean that about $48 million was billed to poor families this year that could have been avoided if the original program levels had been maintained.  When the current Administration’s Budget for FY 2002 restores the program to historic levels, savings worth about $30 million per year will be added annually.                         

Figure 2.  Federal Low-Income Energy Benefits, FY 2001 and Est. FY 2002

Figure 2 shows both LIHEAP Block Grant Funding in the states and the contribution of the DOE Weatherization investments already in place in low-income houses; this winter, the avoided costs to five million consumer households may be nearly $1.2 billion, or 55% of the projected LIHEAP expenditures in FY 2001.

Energy Assistance:

Figure 3 shows the relationship between the 2000-01 bills of the eligible population; added together, the 29 million eligible families will have spent over $44 billion by the end of the summer. LIHEAP funds available total just over $2.2 billion and the President’s Budget for FY 2002 LIHEAP  is $1.4 billion.  Numerous surveys of state and local officials have documented that LIHEAP funds are fully committed, that 4.1 million clients have already been assisted, a 50% increase over last year, but a 30% decrease from 1981 caseloads (www.neada.org), and that more funding is needed for the coming summer just to keep up with last year’s caseload.

Figure 3.  All Expenditures of Low-Income Households v. LIHEAP 2001 & 2002

The early winter  threat of persistent high prices for residential natural gas was realized, and, as a result, energy market shocks have affected more residential consumers profoundly than ever  in the post-war period.  The aggregate effect, if projections are correct, will be to transfer significant wealth from individual customers to the energy sector.  Today’s public sector low-income energy resources and regulations are dwarfed by the challenge.

The analysis was performed with support from the Office of State and Local Programs of the U.S. Dept of Energy, but it has not been reviewed by the Dept. of Energy; its contents may not reflect the views of the Department.

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