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Struggling families about to take another hit: Home heating costs projected to soar

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The U.S. Energy Information Administration (EIA) recently projected that the cost of home heating for households will increase by 30 percent compared to last year, a level we have not seen since 2014. Energy costs have been low in recent years, allowing households to reallocate funds to other necessities. This winter, the higher prices will come as a shock to families that have become used to lower prices.

How high will energy costs get?

The cost of home heating varies widely depending on whether the household uses electricity, natural gas, or delivered fuels such as fuel oil or propane. The bad news is the cost of all fuels is expected to rise this winter, with natural gas and delivered fuels to see the biggest increase. Last year, a home that used natural gas paid about $573 in heating costs during the winter months. This year EIA estimates they will pay about $746. Heating oil costs will increase from $1,210 to $1,734, electricity from $1,192 to $1,268 and propane from $1,368 to $2,012.

For low-income families, the price increase is significant and could cause many to have to choose between heating their home this winter and paying for food, medicine and other essentials. About 29 percent of Americans who were surveyed had to reduce or forego expenses for basic household necessities to pay an energy bill in the last year, according to the U.S. Census Bureau’s Household Pulse Survey. And that was before natural gas prices started to rise.

Why are prices so high?

The many reasons for these increased prices are out of the hands of consumers — and even the utilities that serve them. The supply of natural gas is down considerably due to increased demand for natural gas last summer by electric utilities, increased exports of natural gas, shortages in Europe, and rising demand for all fuels as a result of the improving economy. This is in addition to supply disruptions causing gas wells to shut down in the Gulf as a result of Hurricane Ida. With so many factors placing a strain on the supply, there is no one solution to increase supply and thereby lower prices.

What can be done? 

The federal program that helps struggling families, the Low Income Home Energy Assistance Program (LIHEAP), will not be able to keep up at current funding levels. First, the amount of money in LIHEAP does not increase when prices rise. A household that receives a $400 LIHEAP grant when their bill is $500 will get the same amount of money when their bill is $800, placing the entire burden of the increased cost on the household. At the national level, this means the purchasing power of the program — the amount of fuel that can be purchased at current funding levels — will be reduced. The National Energy Assistance Directors Association estimates the program will have a shortfall of $2.5 billion as a result of this reduction.

Second, many families that could afford last year’s lower cost of home energy will not be able to afford this year’s much higher prices. Faced with projected inflation and higher gasoline prices on top of higher home heating costs, these families will need to turn to LIHEAP to make ends meet, straining the program even further.

Third, with rising prices, we expect electric and gas arrearages could again grow to last year’s pandemic level of about $32 billion, as compared to a normal range of about $12 billion.

Lastly, the Biden administration recently issued a statement calling for states to use their LIHEAP funds to help families purchase cooling equipment and confront the rising temperatures caused by climate change. While the program is set up to provide cooling assistance in many states, the program’s current funding is not sufficient to fulfill that request, particularly considering the strain it is already under due to increased fuel prices.

Simply put, we have had a long period of affordable energy in this country, and those days are over.

We just didn’t expect them to end so quickly.

Congress needs to do the right thing and help low income families stay warm this winter by paying their home energy bills. There is not much in the short term that can be done to lower prices, but Congress can step in and provide funding for those families that do not have the resources to pay for the high cost of home heating this winter.

My organization, the National Energy Assistance Directors Association, representing the state LIHEAP directors, recently called on Congress to provide an additional $5 billion as part of the Build Back Better act to help offset the reduction in the programs purchasing power, address rising arrearages, and summer cooling needs. Low-income families live from paycheck-to-paycheck and have little savings. LIHEAP offers them a lifeline to get through the winter heating and summer cooling seasons. Increasing funding for LIHEAP now will help families avoid having to choose between paying for heating and other key essentials.

Mark Wolfe is an energy economist who serves as the executive director of the National Energy Assistance Directors Association, representing state directors of the Low Income Home Energy Assistance Program (LIHEAP).

Tags electricity prices Energy economics home heating fuel propane Low-Income Home Energy Assistance Program Natural gas prices Resource economics U.S. Energy Information Administration

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