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The Impact of Higher Energy Prices on Winter Heating Costs: Many Consumers Over Age 65 To Be Hit Hard

Key Findings

This paper examines the impact of higher energy prices on the winter heating costs of older consumers (those age 65 and older). Projected heating related expenditures for older consumers during the 2007–08 winter heating season were developed using the U.S. Department of Energy's Residential Energy Consumption Survey (RECS) and Short-Term Energy Outlook (STEO). Our analysis found the following:

  • Older consumers with the lowest incomes will experience the greatest cost burdens. Thirty-five percent of older households have total household incomes of less than $20,000, and they will experience the greatest energy burden (Table 1).
  • Older consumers who heat with oil will experience the greatest cost increases. Heating costs for users of fuel oil are projected to be 38 percent higher than last winter, while costs for users of natural gas are projected to be 7 percent higher (Figure 1).
  • Older consumers in the Northeast and Midwest will experience the highest heating costs. Winter fuel oil heating costs for older consumers in the Northeast are projected to be $2,019, a 37 percent increase over the previous heating season. Older consumers in the Midwest who use natural gas are projected to pay $983, a 10 percent increase over the 2006–07 heating season (Figure 4). Forty-two percent of persons age 65 and older live in the Midwest and Northeast regions of the U.S.
  • Rising heating expenditures by low-income consumers far exceed available resources for low-income energy assistance programs. Data from the Energy Information Administration (EIA) indicate that average home heating expenditures increased by 62 percent between 2001–02 and 2006–07. During this same period, funding for the federal Low-Income Home Energy Assistance Program (LIHEAP) increased by only 17 percent. Further, the average grant to recipients is expected to be 9 percent lower than the grant they received in 2001–02 (Figure 3). Without substantial increases in energy assistance, many older consumers may be unable to adequately heat their residences in the coming months.

Background

Since the mid-1990s, home heating costs have been increasing as a result of an overall rise in energy costs. Further, energy costs have increased faster than the purchasing power of low-income consumers. As a result, winter heating costs for the 2007–08 winter are projected to be higher than the previous winter (Figure 1) and will present a greater burden on low-income consumers (Table 1).

Figure 1: Winter Heating Costs for Consumers Age 65+ by Heating Fuel Type

Sources: Residential Energy Consumption Survey 2001; Short Term Energy Outlook, January 2008 (Table WF01).

Because more than half (56 percent) of older households in the United States use natural gas as their primary heating fuel (Figure 2), changes in the price of natural gas will have the biggest influence on the heating costs of older consumers. The EIA projects that households heating with natural gas can expect to pay 9 percent more to heat their homes this winter.

Figure 2: Primary Heating Fuel Used by Consumers Age 65+

Source: Residential Energy Consumption Survey, 2001.

Methodology

This Data Digest analyzes data from both the RECS survey and the January 2008 STEO report to examine heating-related energy consumption and expenditures among consumers age 65 and older based on income, heating fuel used, and geographic location. These data are also used to project older consumers' heating-related energy consumption and expenditures for during the 2007–08 winter.

Energy costs and consumption for space heating for consumers age 65 and older are based on 2001 RECS data. These results are compared to income data and heating fuel type to create a table of 2001 fuel expenditures and costs for older consumers by heating fuel type and income level.

Space heating costs and consumption totals for the winters of 2001–02, 2003–04, 2004–05, and 2005–06, 2006–07 and projected totals for 2007–08 were calculated by updating the 2001 RECS data with each subsequent year's listed unit prices for natural gas, fuel oil, and electricity from STEO. To account for differences in heating fuel consumption since 2001, consumption for each fuel type was adjusted according to the differences in annual consumption indicated by the latest STEO report.

Findings

Based on projected heating-related expenditures for older consumers during the 2007–08 winter heating season, our analysis found the following:

Income and Heating Costs

Although consumption data show that low-income older consumers tend to use less heating fuel than higher-income groups, higher winter heating costs are likely to be a greater burden on this group than on higher-income older consumers who have greater financial resources available to meet the increased costs (Table 1).

Table1:ProjectedWinter2007-08EnergyBurden for ConsumersAge65+

    Natural Gas Fuel Oil Electricity
Income Percent of 65+ Population Energy Burden Cost Energy Burden Cost Energy Burden Cost
$0-9,999 10.4% 8.2% $618 15.7% $1,177 4.9% $371
$10-19,999 24.6% 5.5% $805 13.6% $1,997 2.6% $383
$20-29,999 18.9% 3.5% $853 7.7% $1,904 1.5% $376
$30-39,999 12.7% 2.3% $778 6.4% $2,210 1.5% $533
$40-74,999 19.6% 1.7% $895 4.3% $2,245 0.9% $486
$75,000+ 14.0% 0.9% $976 2.8% $3,041 0.6% $614
All Incomes 100% 1.7% $819 4.2% $2,023 0.9% $433

Sources: Residential Energy Consumption Survey 2001; Short Term Energy Outlook, January 2008 (Table WF01).

A 2007 study estimated that LIHEAP recipients spend 20 percent of their annual income to pay home energy bills, while households with incomes above the LIHEAP federal maximum income standard spend only 3 percent of their annual income on household energy.

An estimated 5.6 million low-income consumers, the highest number in 10 years, received government assistance for energy bills in FY2006. However, even at this level, the program served only 16 percent of eligible households. Based on an analysis of EIA data, home heating expenditures increased by 62 percent between 2001–02 and 2006–07. In contrast, during this same period, funding for LIHEAP increased by only 17 percent. In addition, the average grant amount for heating assistance declined substantially after the winter of 2005–06 (Table 2).

Table2:EstimatedAveragePercentofHomeHeatingPurchasedwithLIHEAP(AllAges,2001-07)

Fiscal Year Heating Oil Natural Gas Electricity Average LIHEAP Grant
2001-2002 50.2% 67.7% 42.8% $345
2002-2003 36.7% 58.2% 50.0% $349
2003-2004 35.1% 42.8% 44.1% $317
2004-2005 29.0% 36.7% 44.4% $347
2005-2006 31.7% 48.0% 58.1% $454
2006-2007 22.9% 38.8% 38.3% $314

Sources: The Low Income Home Energy Assistance Program: Providing Heating and Cooling Assistance to Low-Income Families during a Period of High Energy Prices. National Energy Assistance Directors Association, February 2007.

As a result, the amount of the average LIHEAP grant has fallen relative to average heating expenditures (Figure 3).

Figure 3: Expenditures for Heating Fuels vs. Average LIHEAP Grants, 2001–02 to 2006–07

Sources: Residential Energy Consumption Survey 2001; Short Term Energy Outlook, January 2008 (Table WF01); LIHEAP Survey 2007, National Energy Assistance Directors' Association.

Types of Fuels and Geographic Differences
For winter 2007–08, projected heating costs for older consumers using heating oil and natural gas as their primary heating fuel will exceed those for the 2006–07 heating season. Older consumers using heating oil are projected to pay $2,023 (a 38 percent increase) to heat their homes, compared to $819 (a 7 percent increase) for those using natural gas, and $433 for those using electricity.

Heating costs also differ based on geographic location. These costs are projected to be highest in the Northeastern and Midwestern census regions, where heating oil and natural gas are the primary heating fuels and temperatures are coldest (Figure 4).

Figure 4: Heating Costs for Consumers 65+ by Census Region and Primary Heating Fuel

Sources: Residential Energy Consumption Survey 2001; Short Term Energy Outlook, January 2008 (Table WF01).

The census regions can be further subdivided into nine census divisions (see Table 3).

Table3:ProjectedWinterHeatingCostsforConsumers65+byCensusDivisionandPrimaryHeatingFuel

  2006-07 2007-08 Percent
Change
New England (fuel oil): MN, NH, VT, MA, RI, CT $1,811 $2,515 38.8%
Middle Atlantic (natural gas): NY, NJ, PA $988 $1,103 11.6%
East North Central (natural gas): OH, IN, IL, MI, WI $935 $1,029 10.1%
West North Central (natural gas): MN, IA, MO, ND, SD, NE, KS $773 $851 10.1%
South Atlantic (electricity): DE, MD, DC, VA, WV, NC, SC, GA, FL $246 $242 -1.9%
East South Central (electricity): KY, TN, AL, MS $547 $543 -0.8%
West South Central (natural gas): AR, LA, OK, TX $552 $590 7.0%
Mountain (natural gas): MT, ID, WY, CO, NM, AZ, UT, NV $546 $569 4.2%
Pacific (natural gas): WA, OR, CA, AK, HI $373 $388 4.2%

Sources: Residential Energy Consumption Survey 2001; Short Term Energy Outlook, January 2008 (Table WF01).

Conclusion

Many older consumers face substantial increases in their winter heating bills this year because of rising energy costs. Costs will be greatest for those older consumers who use heating oil and natural gas as primary heating fuels as well as those living in the Northeastern and Midwestern census regions.

Older consumers with incomes of less than $20,000 will be especially burdened by the high winter heating costs. Because heating expenditures are growing far faster than energy assistance spending, many older consumers earning under $20,000 will likely find it harder to afford their winter heating bills this winter.

However, low-income individuals are not the only people concerned about being able to afford their heating bills this winter. Energy assistance administrators report that the number of individuals from higher-income groups applying for help with heating bills has increased over previous years. Without substantial increases in energy assistance, many older consumers may be unable to heat their residences adequately in the coming months.

  1. Consumers of this age are more likely to rely on fixed incomes, which can make meeting increased heating expenditures more difficult.
  2. The Census Bureau estimates that over 15 million older consumers live in these regions
  3. Eisenberg, J. F. “The Impact of Forecasted Energy Prices Increases on Low-Income Consumers.” Washington, DC: U.S. Department of Energy (October 2005).
  4. Winter heating costs refer only to the actual cost of heating the residence. Costs for energy used for other purposes, such as lighting or heating water, are not included in these calculations.
  5. This is due to an increase in the price of natural gas, coupled with an increase in consumption.
  6. The Residential Energy Consumption Survey (RECS) is a national statistical survey that collects energy-related data for occupied primary housing units. RECS provides demographic characteristics of the household, heating fuel type, energy consumption, and expenditures as well as other information that relates to energy use.
  7. The Energy Information Administration (EIA), the statistical agency of the U.S. Department of Energy, produces energy data, analysis, and forecasting. Short Term Energy Outlook (STEO) is an EIA monthly publication that contains current and projected prices of various fuel types (including natural gas, fuel oil, electricity, and petroleum).
  8. The RECS survey was updated in 2005; however, as of the writing of this report, these data have not been released.
  9. Table WF01. Selected U.S. Average Consumer Prices and Expenditures for Heating Fuels for the Winter.
  10. Burden, which represents the portion of household income needed to meet projected winter heating costs, is calculated by taking the estimated median for each income group in Table 1 and dividing this number by the average projected fuel cost for each group.
  11. The increasing burden of energy costs on low-income consumers, American Gas Association, September 27, 2007.
  12. Ibid.
  13. Ibid.

Written by Ann McLarty Jackson and Neal Walters, AARP Public Policy Institute
January 2008
©2008 AARP
All rights are reserved and content may be reproduced, downloaded, disseminated, or transferred, for single use, or by nonprofit organizations for educational purposes, if correct attribution is made to AARP.
Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049

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