Home Energy Affordability

On average, Americans consumers remain quite comfortable with the level of their home energy bills. Our latest analysis, using the Summer 2018 data from the U-M Energy Survey, implies a home energy affordability index of 157 (±13). That’s a significant jump from the values seen earlier this year. It is in fact an all-time high numerically, although statistically speaking it is not significantly greater than previous high values we’ve seen over the past three years.

The home energy affordability index index provides a relative measure of how consumers feel about what they have to pay to heat and cool their homes and run the appliances, lights, electronics and other energy-consuming devices they use in their everyday lives. We calculate it by comparing the level of monthly home energy bills that consumers say they would find to be unaffordable to their current bills, based on the self-reported energy bill levels reported when each quarterly survey sample is taken.

As explained in the 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 percent increase) before they were considered unaffordable. In this context, “unaffordable” means that the 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 amount they would find unaffordable is the same as what they currently pay, then the affordability index is zero.

Thus, the latest home energy affordability index value indicates that consumers, on average, believe their monthly energy bills would have to well more than double — i.e., go up by 157 percent — before reaching a level where they would feel seriously pinched by the expense.

These feelings about home energy costs differ notably from how consumers now feel about gasoline costs. As described in the gasoline affordability post, Americans are again feeling less comfortable with what they have to pay at the pump. Gasoline prices are running significantly higher this year than they were last year. As a result, the gasoline affordability index has dropped to 78, its lowest level since oil prices fell four years ago. The chart below shows the contrast between the two indices.

In short, with the most recent home energy affordability index being essentially double the level of its gasoline counterpart, it is fair to say that Americans are now twice as comfortable with their home energy bills as they are with what they have to pay to fill up their tanks.