Consumers remain comfortable with home energy costs while pump prices edge up

Source: GM Media Stock ImageAlthough the recent rise in pump prices has dampened views on the affordability of gasoline, Americans remain generally content with what they pay for home energy. Our latest analysis, using the Spring (April) 2018 data from the U-M Energy Survey, yields a home energy affordability index of 126 (±10). Although the previous quarter (Winter 2018) saw a nominal dip in this measured of perceived affordability, this latest value remains in line with what the index has been for some time now. In short, consumers are on average comfortable with what they pay to heat their homes and run the appliances, lights, electronics and other energy-consuming devices they use in their everyday lives.

As seen in the chart below, which compares the Energy Survey’s affordability metric for home energy with that for gasoline, the Spring 2018 value is quite close to the long-term average index of 125. That means that monthly energy bills would have to rise by 125% — that is, more than double — before average consumers feel that they would have to make some changes in their day-to-day lives because of home energy costs.

Thus, this most recent value marks the second quarter of a return to the long-term average after seeing a gain in the index — indicating even more positive feelings about the affordability of home energy — over the last three quarters of 2017. In contrast, consumers are feeling progressively less comfortable with what they have to pay to fuel their cars (see the Gasoline Affordability write-up for more information).

Although U.S. consumers may use different forms of energy in their homes depending on where they live, essentially everyone uses electricity, and natural gas is used in just over two-thirds of homes. Although the Energy Information Administration (EIA) does not report monthly estimates of home energy costs, it does report monthly energy prices. This next chart shows recent trends in national average residential electricity (orange curve) and natural gas (blue curve) prices. Although we didn’t start the U-M Energy Survey until fall 2013, the graph starts in the year 2000 to show some historical context, notably the very high natural gas prices experienced in the mid-to-late 2000s before the fracking boom lowered the price of that fuel. 

Electricity prices vary seasonally, peaking in the summer months and typically seeing an annual low in January. So this chart emphasizes the 12-month running average while also showing the seasonal ups and downs that impact consumers’ power bills (unless one is on a payment plan that evens out the billing, as some utilities offer). When we started the Energy Survey in fall 2013, the average residential electricity price for the year ending that October was 12.1 cents per kilowatt-hour (¢/kWh). EIA’s latest published data give a national average electricity price of 12.9 ¢/kWh in February 2018, prior to our most recent spring survey in April. Thus, over the past four and a half years, consumers have seen only slightly higher electricity prices. Moreover, the small increase that occurred was quite gradual, especially compared to the seasonal variation.

We calculate the affordability index by comparing the energy costs that consumers say they would find to be unaffordable to the costs — in this case, their monthly home energy bills — they experience when each quarterly survey sample is taken. As explained in our overview of how the indices are calculated, an affordability index of 100 means that consumers believe energy prices would have to double (i.e., see a 100% increase) before they were considered unaffordable. In this context, “unaffordable” means that the energy cost has become so high that consumers feel they would need to change their day-to-day activities in some way. When consumers report that the price they find unaffordable is the same as what they currently pay, then the affordability index is zero.

Consumer views about the affordability of energy do vary with household income, as described in an earlier post that examined demographic factors on the topic.

Seasonal trends in how consumers feel about the reliability of energy

When we look at what consumers are telling us about various aspects of energy use over time, we sometimes find little trend in the responses. That’s the case for how Americans feel about the reliability of the energy they use in their everyday lives, for example.

One of our Energy Survey questions is, “Considering all sources of energy you usually use in everyday life, how reliable would you say they are — not at all reliable, slightly reliable, moderately reliable, or very reliable?” A prior post on the topic described how answers varied according to income; no surprise, lower income consumers found energy to be less reliable than higher income consumers found it to be. But as a chart in that post shows, consumers’ average views on the topic have changed very little over time. American’s feel that energy is quite reliable overall, and their overall perceptions of reliability are about the same now as when we launched the survey in Fall 2013.

Nevertheless, we do see a lot of variability in the responses from quarter-to-quarter. That made us ask whether there might be a seasonal pattern in the how consumers view reliability. In fact, statistical tests do reveal that a seasonality effect is significant.

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Income shapes consumer views on energy reliability

The reliability of the energy used in everyday life is central to Americans’ feelings of security in their homes and daily activities. The continuous improvements in the infrastructure that supplies energy — whether power lines for electricity or pipelines for natural gas and motor fuels — along with the many, largely unseen systems that make these energy networks work — have made reliability ever less of an issue to the average consumer.

It’s not very often, then, that we have to use candles or flashlights because the electricity is out. Americans do experience occasional power outages and sometimes major storms knock out power for numerous homes in an affected area. But overall, as our survey indicates, the vast majority of Americans find that energy is reliable.

Nevertheless, when the issue of reliability is examined in more depth, we discover that some groups of consumers feel that energy is less reliable than other groups. The specific question we ask is this:

Considering all sources of energy you usually use in everyday life, how reliable would you say they are — not at all reliable, slightly reliable, moderately reliable, or very reliable? 

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A rising belief that energy use affects global warming

This report highlights some notable trends in consumer views about the link between energy use and the environment as observed over the 17 quarterly survey samples analyzed to date, from Fall 2013 through Fall 2017. Not only do a rising number of Americans say that energy use affects the environment “a lot,” but a significantly growing portion of the population believes that global warming is the aspect of the environment most affected by energy use. That’s a view now held by 36% of U.S. consumers, compared to 25% when the survey started in Fall 2013.

Workers rescuing residents of Fayetteville, NC, homes flooded by Hurricane Matthew in October, 2016.

Rescue workers evacuating residents of homes in Fayetteville, NC, during floods caused by Hurricane Matthew, October 2016. Credit: U.S. Army National Guard

Other highlights from the report include:

  • Americans are more concerned about the effect of energy on the environment than they are about the affordability of energy, and much more concerned about the environmental and cost impacts of energy than about its reliability.
  • The belief that global warming is the environmental concern most affected by energy use has risen twice as fast among women as it has among men.
  • The South in particular has seen a large jump in the belief that global warming is the aspect of the environment most impacted by energy use, with the number of Southerners holding that view rising from 20% of in Fall 2013 to 34% as of last year.

Moreover, both the degree of belief that energy use affects the environment and levels of concern about the issue are fairly uniform across income brackets, in contrast to the differences in perspective seen by gender and by region.

For further details, download the report: A Rising Belief that Everyday Energy Use Affects Global Warming.

Women more stressed than men about energy costs today, but views vary on future costs

American consumers have been feeling fairly comfortable in general about what they pay for energy over the past year and a half. Gasoline prices averaged $2.50 per gallon until a recent uptick to $2.62 per gallon during October, the month of our most recent energy survey. Nevertheless, consumers’ feelings about their fuel costs held steady, with the latest gasoline affordability index of 100 statistically unchanged from the previous quarter. That means that the price would have to double before the average American felt serious pain at the pump. For home energy bills, the most recent affordability index of 151 differs little from the prior two quarters, remaining up by roughly 30 points compared to last fall and winter. Americans therefore report a ongoing high level of comfort with their recent household energy costs even though the national average Consumer Price Index (CPI) for Energy was up by 9% compared to its summer level.

As we’ve reported in the past, feelings about energy affordability vary predictably with household income. At any point in time, lower income respondents say that costs are closer to their household energy expense “stress points” — the levels they say would cause them to make changes in their daily lives — than the costs are for higher income households. The affordability index can be viewed as a measure of how far away consumers feel their current energy costs are from their energy cost stress points.

Another variable that turns out to have an influence on perceptions of affordability is gender. Since the beginning of the energy survey in October 2013, there has not been a single quarter in which men, on average, gave responses indicating that they felt more stressed by energy costs than women felt. Thus, as the chart below shows, the average affordability index for women has been consistently lower than it has been for men when considering both gasoline prices and home energy bills.

We investigated this trend further by statistically modeling the relationships between gender and views on energy affordability. The results are remarkably similar for the two types of energy, with average responses indicating that men feel that they can pay significantly more than women feel they can. To quantify the difference in views, we statistically modeled the views on home energy and gasoline costs in terms of the percentage differences, so that they could be compared on a common scale. We found that, on average, women believe that home energy and gasoline are 8.7% (±1.0%) and 8.3% (±0.8%) less affordable than men believe it is, respectively.

Looking at the charts above, we next wondered whether the gap between women’s and men’s feelings about affordability gets wider when the overall perception of energy affordability higher. That is to say, do men become even more optimistic than women when times are good? Our analysis indicates that this is not the case; we found no significant relationship between the overall average affordability level and the magnitude of the gap in perceptions of energy affordability.

We did, however, find significant differences in perspective in response to our questions about what consumers expect energy costs to be five years into the future. These results are shown in the next chart.

In this case, women anticipate a smaller increase in gasoline prices than men do, but the reverse it true when it comes to home energy bills. Men expect the price of motor fuel to rise by 24% on average over the next five years, while women expect a somewhat but statistically lower 21% increase in the pump price. When comes to home energy, however, women expect a 35% increase while men expect a 28% increase.

Other variables that could impact the differences between men’s and women’s perceptions of affordability are geographic region and household income. We controlled for geography by examining the gap between men’s and women’s views in each of the four regions of the country (West, Midwest, South and Northeast). We found that women consistently felt that energy was less affordable than men thought it was in all regions. Controlling for income by examining the gap in views separately for the lower, middle, and upper income terciles, we again found that men consistently had more positive views than women when it came to the affordability of energy.

What makes women more wary of energy costs than men? Our data can’t uncover the answer to that question, but these results on gender and the perceived affordability of energy are consistent with our data showing that women are more concerned than men about the impact of energy use on the environment and about energy reliability.

Environmental worry rises as concerns about energy costs fall

Over the past year, the degree of concern that American consumers express about the effect of energy on the environment has increased even as their concern about what they have to pay for energy has decreased. That’s the clear picture that emerges in the latest data from the University of Michigan Energy Survey, which has tracked U.S. consumers’ concerns about the affordability, reliability and environmental impact of energy over the past four years. As seen in this chart, 65 percent of survey respondents say that they personally worry at least a fair amount about how energy use affects the environment. That’s roughly 20 percentage points higher than the number who express that degree of concern about the affordability of energy. (See our questionnaire for the exact questions asked and their sequence in the survey.) As it has since the start of the U-M Energy Survey, concern about energy reliability is much lower, with an average of 30 percent of respondents expressing at least a fair amount of concern about whether they will reliably have electricity, heat or fuel.

Concern about the environment edged out concern about affordability even from the start of the U-M Energy Survey in fall 2013. Gasoline prices were much higher then, but environmental worries became statistically greater than concern about energy affordability even before oil prices fell in late 2014. Since then the gap between environmental concern and concern about energy costs has widened, particularly over the past year and a half (the most recent six quarterly surveys, from April 2016 through July 2017). Our next survey, taken over the month of October, is just wrapping up, but once we analyze the new data, we expect the gap between environmental and cost concerns to remain wide.

A closer look at consumer feelings about energy costs can be seen in the affordability index values, which we track separately for gasoline prices and home energy bills. The next chart shows these indices over the past four years; here, a higher index means that consumers fine energy to be more affordable, which generally correlates with a lesser degree of concern about energy costs. An affordability index of 100 means that an energy cost would have to go up by 100 percent relative to what it was when the survey was taken. Comparing this chart to the first one, it’s clear that the gap between consumers’ degrees of concern about the environment and about energy affordability widened when gasoline prices fell in late 2014, making motor fuel more affordable than it had been over the year before. As detailed in our latest article on gasoline affordability, consumers views on this score have been statistically stable over the past year. Since last summer, the index has hovered around the 100 level, meaning that pump prices would have to double before the average consumer would be motivated to change how they travel. As for home energy bills, consumers have recently found them to be significantly more affordable over the past two quarters.

We also examined how energy-related concerns vary according to a consumer’s household income. One might expect that the extent to which individuals worry about a given energy-related issue would fall as incomes rise. As seen in the next chart, that is certainly the case for concerns about the affordability and reliability of energy. (The error bars represent 95% confidence intervals.) These results are shown on a scale of 0-100, where zero represents the responses of consumers who say that they are not all concerned about an issue and 100 represents those who express a great deal of concern. As for the affordability of energy, consumers in the lower third of the distribution by self-reported household income have a concern level of 58. This metric drops to 47 for middle-income consumers and 41 for upper-income consumers, both below the neutral level of 50 that would reflect consumers being neither very concerned nor unconcerned.  Concern about the reliability of energy is lower overall, but shows a similarly clear drop off as household income rises.

Regarding the impact of energy use on the environment, lower income consumers express a somewhat greater degree of concern than others. However, on this issue the trend across income categories is much less pronounced. We see no statistically significant difference between the views of middle and upper income consumers, and the average level of concern is 62 across all income brackets. This finding refutes a view, pushed over the years by anti-regulatory pundits, that the environment is mainly a concern of the “elites,” and that lower and middle-income Americans concerned about costs don’t have the luxury of worrying about the environment. Our data show that lower-income Americans are in fact more concerned than average. In short, Americans express a relatively high level of the concern about how energy affects the environment regardless of their income.

A carbon tax: how much would be too much?

Even in a debate as heated as the one over global warming, recent proposals by some Republican elders offer hope that cooler heads might one day prevail. They propose a conservative way to address climate risk: harnessing market forces with a carbon tax while refunding dividends to consumers. If such an approach is in the cards, what would it mean for consumers, particularly for buying gasoline without too much pain at the pump?

The University of Michigan Energy Survey asks consumers how much they can afford to pay for energy before the cost becomes so high that they would have to significantly change their lifestyle. The responses are the basis for the affordability indices we publish seasonally, one for home energy and the other for gasoline. Although we don’t ask explicitly about a carbon tax, our data equip us to estimate how many consumers would be pushed outside their comfort zones by a tax of a given magnitude.

Photos of James A. Baker III, Bill McKibben, George P. Shultz and Laurene Powell Jobs

Supporters of a carbon tax include (clockwise from upper right): Bill McKibben, George Shultz, Laurene Powell Jobs and James Baker.

The Climate Leadership Council — whose headliners include former GOP cabinet members James A. Baker III, George P. Shultz and Henry M. Paulson, Jr. — has floated a proposal to tax carbon dioxide (CO2) at $40 per ton. A carbon tax of that level translates to an added 36¢ per gallon at the pump.

Motor fuel is less expensive now than it was three years ago; the national average spanning the period of higher prices through the most recent data is $2.80 per gallon. A $40 per ton carbon tax would bump the price to $3.16 per gallon. Based on our survey responses, that price would still be considered affordable by more than 90% of Americans. It is well below the $5.00 per gallon level typical of the average response to our survey question, which asks:

At what price per gallon would gasoline get so high that it becomes unaffordable to you (and your family)? 

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In their latest views on energy affordability, consumers gain a spring in their step

After starting 2017 on a low note in their views about the affordability of energy, U.S. consumers were feeling better about the situation by spring. The affordability indices for both gasoline and home energy increased from January to April. Derived from the University of Michigan’s quarterly Energy Survey, each affordability index is scaled so that a value of 100 reflects a consumer belief that energy costs would have to double (that is, go up by 100 percent) before really crimping their household lifestyle.

As of the latest data, taken during the month of April, the gasoline affordability index showed a slight increase to 105. The home energy affordability index rose significantly, reaching 148, its highest level since the U-M Energy Survey began in October 2013, as shown in the chart below. 

These gains occurred even though there was no significant change in the Index of Consumer Sentiment, which has remained quite stable since the beginning of the year. That measure of U.S. consumers’ general feelings about the state of the economy is reported monthly by the U-M Surveys of Consumers, to which the Energy Survey is a quarterly add-on.

As seen in the chart, the latest home energy affordability index surpasses all previous quarters by nearly 10 points. April 2017 also marks the first quarter for which the home energy index changed more than the gasoline index. Typically, the home energy index varies over a narrower range (38 points between its lowest and highest recorded values to date) than the gasoline index (which has seen a range of 101 points, due to the volatility of gasoline prices).

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Consumers were not as pleased with pump prices this winter as they were last winter

Credit: Andrew Philips, Postmedia Network

January 2017 marks the fourth year of the U-M Energy Survey. In previous years, consumers felt that gasoline was more affordable in January than at other times of the year. But this winter was different: the gasoline affordability index dropped 17 points to 94, the lowest score since July 2015. The decline is only partly explained by gasoline prices themselves, which did see an atypical increase in January this year. In each of the prior three years, gasoline prices fell by an average of $0.50 per gallon from October to January. This time however, the price at the pump actually increased by 9 cents per gallon. Consumers expecting a seasonal reprieve never saw one.

The latest index results also mark the ninth double-digit swing in ten quarters. Despite this volatility in the index, which tracks how consumers feel about affordability, the dollar-level responses to our survey question about “What would the price of gasoline have to reach before it became unaffordable to you?” have not changed much. In other words, the ups and downs of the index can be attribute mostly to the changes in gasoline prices, not changes in consumer views about the dollar threshold for serious pain at the pump.

In contrast to the story for gasoline, the home energy affordability index remains a model of consistency. The January 2017 value increased by a modest 3 points to 119, just below its average since October 2013 of 124. As seen in the chart below, this measure of how affordable consumers think their home energy bills are has rarely deviated from this average, now based on 14 quarters of U-M Energy Survey data.

Note that the error bars are much wider for home energy than they are for gasoline, which reflects how consumer responses about the affordability of home energy are much more variable than they are for gasoline. We suspect that this statistical “squishiness” of views on home energy costs may have something to do with consumers not having as clear an idea of what they pay for home energy as they do for the price of gasoline. The latter is, after all, highly visible and something most Americans get to look at weekly, which is about how often motorists have to fill their tanks. In contrast, home energy is billed monthly. Also, more and more consumers are on an auto-pay plan, and so may not have a very precise recollection of their electric and other home energy bills when we ask about them during the survey.

Energy reliability remains a lesser concern among most Americans

Reliability — making sure that their customers have energy 24/7 — is a top concern for power companies and other energy suppliers. Energy professionals often are surprised to hear it’s not such a great concern for customers themselves. Well, that’s a testament to just how well America’s energy companies do their jobs in keeping the juices flowing, whether in the form of electricity in the wires or gasoline at the pumps.

Our latest survey results show that, on average, two-thirds of U.S. consumers worry about the reliability of energy only a little or not at all. One-third worry about it at least a fair amount, and over the past two years only 11 percent of consumers said they worried a great deal about energy reliability. During the telephone interviews, our pollsters defined reliability as referring to whether members of a respondent’s household could get the energy they need when they need it.

The table below compares our latest quarterly sample (for Winter 2017, based on data collected throughout the month of January) to the average results for the four quarterly samples gathered last year. The number of consumers expressing higher levels of concern was a bit lower this winter than it was for the prior year on average. That pattern is consistent with what we’ve seen in the past, with the relative level of concern being lower during January than it is in April.

The spring sample, taken each April, often sees the greatest level of concern about energy reliability. Although our survey doesn’t ask specifically about power outages or other events that households might have recently experienced, we suspect that we see a heightened concern in many April samples because spring can bring strong thunderstorms in many parts of the country.

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