The Winter Energy Outlook 

for the Poor:

Low-Income Consumers' Energy Bills
in the Winter of 2000-2001

December 20, 2000

by:

Meg Power, Ph.D.

Executive Director

Economic Opportunity Studies

Washington, D.C.

Analysis of these data is part of continuing research activity funded by the U.S. Department of Energy, Office of Building Technology and State, Local, and Community Programs.  The conclusions and opinions expressed may not represent the views of the Department of Energy.

The Winter Energy Outlook for the Poor:

Low-Income Consumers' energy Bills in the Winter of 2000-2001

This analysis uses updates of the US Department of Energy Residential Energy Consumption Survey data to measure how the high energy prices expected this winter will affect the 27 million low- and moderate-income families eligible for federal Energy Assistance and Weatherization services. It assumes normal weather as defined by the National Oceanic and Atmospheric Administration.

All households face rapidly rising energy costs this year, but low-income energy consumers face true hardship. On December 6, the Department of Energy (DOE) revised its residential fuel cost projections upward for the third time in two months.

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 energy efficiency services. That income ceiling is roughly $21,000 for a family of three, and this report refers to them as 'low-income'; in 2000 about 27 million households fit this definition. Fewer than 15% participated in either federal energy program last 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.

Energy Market Jolts: Higher prices, Much Higher Bills

Winter prices for all petroleum products including natural gas are outpacing already pessimistic expectations. Heating oil prices were projected by DOE to remain 65% higher than in 1997, a level 29% above last winter; residential customers’ natural gas will cost 40% more than in 1999 per cubic foot.

However, this year's bills will be even higher, as last winter was abnormally warm. For natural gas users DOE expects bills to be more than 50% above last winter; fuel oil users, already hit hard in 2000, can expect bills about 35% higher; users of propane heat can expect bills at least 10% higher; electrically-heated homes will see costs somewhat higher than last year, and 9% higher than in 1997. (This DOE electricity estimate assumes that wholesale price spikes currently seen in West coast markets are not passed through to residential customers.)

For the poor, these figures are catastrophic. Their incomes are not only low, but relatively fixed. Even though many of these families realized some increase in income from 1997 to the present, the cost of energy will wipe out much of the gain in living standard they might have enjoyed . The rate of change compounds the problem. In 1997, the typical eligible low-income consumer spent 14% of all annual income for all household energy bills (a calculation termed 'Energy Burden'), as compared to the 19% expected. Figures 1A and 1B show the speed with which the burden and cost of energy have increased in three years. Figure 1B reflects only the bills for oil and gas heat.

Table A shows the expected national average 12-month energy bills and the energy burdens expected for three groups: the poorest, all the low-income households eligible for Energy Assistance, and the 74 million other consumers not poor enough to qualify for federal programs.

Table A. Expected Average 2000-2001 Household Energy Bills & Energy Burden, by Income Level

* The Poverty Guideline 2000 =$14,150 for a three-person family. ** Eligible = approximately 175% Poverty or less

The national averages above hide substantial variation, and annual estimates hide the sharp impact of the winter bills for the heating fuels most affected. Table B below shows only the winter costs expected for both the heating fuel and the other energy, mainly electricity, for which the poor will have to pay.

Table B. Expected Average 2000-2001 Winter Energy Costs for Low-Income Consumers

*RECs uses a regression model to identify that part of the heat fuel which is used for space heating. All winter uses of the main heat fuel are in the same column. Other electricity and auxiliary fuel usage are in the 'other energy bills' column.

Hard Choices and Real Dangers

As the incomes of most low-income families are relatively fixed, they can only be raised by adding work hours. Yet most eligible households already include a worker, unless they are made up of elderly retirees or the disabled. Few have savings or capital to draw upon. 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.

Energy Crises: Utility Disconnections, Denial of Service

In 1997, a year with similar temperatures but 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. Most states do not have regulations prohibiting utility shutoffs other than during 24 hour periods where the temperatures remain below freezing. This year's bills will create a heavier burden. The poor use only four percent less heating fuel than the rest of the population's average, but their incomes average less than a third of the U.S. median income. Those who depend on delivered fuels are not likely to have extensive credit arrangements, and must usually find cash or be denied deliveries.

The Outlook Through the Rest of 2001 for Low-Income Families

While Table B projects costs through this winter, Table C below shows the annual impact of high energy costs if prices remain at comparable levels until Fall 2001. For the period April – September, air conditioning costs for a normal summer have been added to the expected spring and summer bills for the other common household uses. The far right column offers the comparable Energy Burden to be expected by the averag-e consumer with income too high to qualify for assistance. Clearly, the impact of energy market changes differs dramatically among income groups.

Table C. Expected Year-long Energy Costs and Energy Burdens for Low-Income Consumers
and All Other Households, 2000 - 2001

While the low-income families heating with fuel oil or gas can expect to spend about a quarter of their entire annual income on energy bills, by contrast, the group that is not eligible for assistance will spend about five percent. Of course, while their burden is far lower, energy will consume a two percent higher share of total income than it did two years ago.

Variations in Impact
The figures above are averages. There is great variation within the low-income groups and these are shown in tables attached with the Report. Income levels and location affect the impact of energy in dramatic ways.

Poverty

The group of consumers eligible for assistance includes a number of moderate-income families, and a majority have incomes higher than the federal Poverty Guideline. All will face genuine sacrifice to pay energy bills. However, more than 12 million households with resources ranging from far below to just at the Poverty Guideline will be in extreme circumstances with little prospect of relief. Table D shows this most vulnerable group of consumers. Most recipients of LIHEAP and Weatherization Assistance are in this population, but the vast majority of these needy families do not receive any help. Typically, they are responsible for paying their own heating and cooling bills from personal resources.

Table D. The Very Poor: 2000-2001 Energy Costs and Burdens of the
12 Million Households in Poverty

Fuel oil and natural gas users living in Poverty can expect to be billed about a third of all their extremely limited annual household budget for utilities and fuel. In fact, their situation skews the national averages reported for all the poor. Clearly, the remaining resources make it impossible to meet the most basic household needs.

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 E below shows the expected oil and gas bills in the Northeast and Midwest with comparisons to historic levels.

Table E. Winter 1999-2000 and Winter 2000-2001: Expected Heat Fuel Bills for Low- and Moderate-Income Households in the Northeast and Midwest:

Figure 2 shows the low-income population distribution among regions and within the regions by the heating fuels used in their homes. Clearly, all regions have significant natural gas usage, while the Midwest is the most gas-dependent. The markets for electricity affect all consumers, but the major winter electric heating load is in the South and West.

Figure 2. Regional Distribution of Fuels

Programs: Energy Conservation, PAYMENT SUPPORT

The programs available fall 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 the prices projected, a typical 'weatherized' consumer will spend about $285 less on natural gas this winter than would have been the case before the house was weatherized. The comparable figure for the weatherized oil-heated home will be nearly the same, $280. That modest figure means a good deal more to those with tight budgets, as it represents a savings of 1.5% - 2% of all their resources. The Weatherization program had planned to improve an additional 200,000 low-income homes by FY 2001, but budget cuts in FY 1995 and subsequent years now mean that about $56 million will be billed to families this year that could have been avoided if the original program had been maintained.

Figure 3 shows the contribution of Weatherization investments already in place in low-income housing. This winter the avoided costs to five million consumers will be nearly $1 billion, or 50% of the projected LIHEAP expenditures in 2001.

Figure 3.

Energy Assistance:

Figure 4 shows the relationship between the bills the eligible population will receive in the next few months and the LIHEAP funds available.

Figure 4.

Clearly many of the poor cannot meet their needs by relying on their own resources in combination with the available funding. At no time in the past half century have energy market shocks affected so many residential consumers so profoundly. The aggregate effect, if projections are correct, will transfer significant wealth to the energy sector. At this date, nearly Christmas 2000, community-level contingency plans for avoiding potential family economic hardships do not seem to be in place.