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.