Why winter energy bills are at their highest in a decade

For households struggling to pay their energy bills, it could mean a long, cold winter.

According to US census data, about 22 percent of American households were unable to pay their energy bills last year. Despite paying, tens of millions of households have struggled to meet the bills – whether that means refusing food or medicine, keeping their homes at unhealthy temperatures, or using broken appliances.

And prices rise. Compared to last season, the average household will spend 28 percent more this year to heat their homes with gas, according to the US Energy Information Administration. The amount will be higher if the winter turns out to be colder than expected, and hides some regional variations: in Southern California, one utility warned of a “shockingly high” January bill.

During the worst of the season, low-income families are “extremely stressed and stretched,” said Mark Wolfe, executive director of the National Association of Energy Assistance Directors and Energy Program Consortium, an organization that helps low-income consumers.

Certain buffers that have helped families, such as the enhanced child tax credit, also have done, giving consumers less disposable income to handle inflation.

“I don’t think a lot of people think of utility bills as something that puts people in a precarious position,” said Karishma Chouhan, co-founder of a Chicago-area mutual aid group, Community Utilities, which helps people pay their bills. “Utility bills aren’t something you think about every month – unless you suddenly have to think about it, because there’s something to pay.”

The US has an established program – the Low Income Household Energy Assistance Program, or LIHEAP – that is intended to help people pay their utility bills. But the program does not have enough money to help every household in need. And this year, it’s on a collision course with a projected spike in what people pay to heat their homes.

Why is the price going up?

Gasoline prices are now lower than they were a year ago, down from the highs seen this August. That is not true for the price of natural gas, used to heat homes or used in power plants to generate electricity.

December is the worst month. The wholesale price for natural gas, called Henry Hub, is 47 percent higher than last year. So everything that uses gasoline is also more expensive.

The war in Ukraine and the subsequent ban on Russian gas by many countries have raised global prices, but that is not the full story. Natural gas prices have been normal since the war began. Even the price of Henry Hub has dropped since the summer. However, something else is happening – and there is another way US policy is driving up prices.

Since 2016, the US has built new terminals that can export gas in a more concentrated liquid form. For most of the past decade, the U.S. has had a gas glut — hydraulic fracturing is releasing more supply than the U.S. can consume, causing prices to drop to levels that are unprofitable for producers. But exports have now reduced that surplus of gas, as there is now a global market for American consumers to compete with.

Rising prices primarily affect nearly half of U.S. households that burn gas for heating. The Energy Information Administration estimates consumer retail prices for gas will be 22 percent higher than last winter. (The total price customers expect to pay will be higher, as they also expect people to use more gas than last year.) But electric users still face the impact of higher gas prices, as the fuel is now the dominant source in the country. power sector. The EIA expects a 6 percent increase in electricity prices, depending largely on variable factors, such as weather, how high prices go.

There are other challenges that will make this winter more difficult than the last few years. One of them is that it is ready to cool down a bit. That will also translate into higher prices, because there is more demand for heating, and there may be less supply when winter storms cause disruptions, as happened when power outages recently struck the East Coast during winter storms.

The actual effects of winter, supply chain disruptions, and energy inflation will vary depending on where you live. There is no single national gas price; the whole market is priced differently depending on the difficulty and distance of gas transportation from the source. The EIA expects the Midwest to see the highest price increase, at 27 percent, followed by 23 percent in the West, 17 percent in the Northeast, and 15 percent in the Southeast.

There is considerable uncertainty inherent in all estimates. “If spot prices continue to rise, retail prices this season may be higher than our forecast,” the EIA said.

LIHEAP should be the answer, but it cannot meet the growing needs

We are coming off a year in which U.S. natural gas prices are the highest since 2008. This winter looks to be worse than last, which will lead to more disruptions. And people can hardly bear other economic pains like inflation and higher energy prices this summer.

LIHEAP was created to address this need. It is a federally funded program, administered by the state, to help with utility bills for people with income up to about 150 percent above the poverty line, although the income limit can vary a bit by state. About $20,385 or $41,000 for a family of four based on the 2022 numbers. It usually reaches 6.7 million households per year.

But the details of the program vary by state, including the time of year. In Chicago, for example, applications are only accepted between September and May, when heating needs are greatest. States rely on federal money for LIHEAP, but they can also increase the program’s funding. Some red states get less funding for their overall programs because of a lack of investment.

The problem continues even though there is more money than LIHEAP. LIHEAP’s total funding is usually $4.1 billion through regular appropriations, but this year Congress provided an additional $2 billion in an effort to avoid inflation and rising energy prices. Even this temporary funding is not enough to continue.

“We have 32 million households that are eligible for energy assistance,” Wolfe said. “We have enough money up to about 6 million.” And it will be a tougher sell in the Republican-controlled House of Representatives for more funding this year, despite some bipartisan support for the program.

But people are constantly falling through the cracks of this system. Michelle Graff, a professor at Colorado State University studying LIHEAP, said that 82 percent of the population is eligible to use SNAP benefits for food, but only 16.7 percent are eligible for LIHEAP use.

The experience of Community Utility, a Chicago mutual aid group, offers a window into how these programs can fail.

Since May, the group has said it is helping raise money to fill it 44 requests to pay off about $10,000 in debt in the Chicago area. Some people who asked for help noted that they tried LIHEAP first, only to miss the application window, or they never heard back because of an administrative error, or the program simply ran out of money at the end of the year. Such situations make it more difficult for LIHEAP to help in an emergency.

Nor do all energy crises occur in the winter months, when the national LIHEAP spends up to 85 percent of its funds. Energy bills usually don’t go up until the winter, but in the summer, Community Utilities receives requests to help pay thousands of dollars in energy bill debt. They see the problem – high summer bills make winter harder.

The problem is that not one mutual aid group can fix it. Energy costs are rising, and programs meant to help aren’t keeping pace.

“This is a basic income issue,” Wolfe said. “Because our problem is not energy, but an income problem. In our country we have broken all the social services so that there is SNAP for food, and other programs to have energy, instead of just admitting that the family’s problem is not enough money to cover basic needs.