Home Energy Affordability

Consumers remain generally content with what they have been paying for home energy. Our latest analysis, using the Winter (January) 2018 data from the U-M Energy Survey, yields a home energy affordability index of 123 (±8). That value is a significant drop from what it was this past summer and spring, showing that Americans are feeling less happy this winter than they have for the past year about what they pay to heat their homes and run the appliances, lights, electronics and other energy-consuming devices they use in their everyday lives.

Since the launch of the Energy Survey in Fall 2013, consumers have felt that energy was reasonably affordable. As can be seen in the chart below, the home energy index averaged 125 through winter 2017. The interpretation of this value is that monthly home energy bills would have to rise by 125% — that is, more than double — before average consumers would feel that they would have to make some changes in their day-to-day lives because of energy costs. This most recent quarter marks a return to that long-term average after a gain in the index — indicating even more positive feelings about the affordability of home energy — over the prior three quarters of 2017.

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 last summer’s post on the topic, the largest changes in the home energy affordability index are generally seen for consumers in the highest tercile of self-reported household income. That tendency was seen in this most recent quarter as well, when consumers in the highest tercile had a drop of 56 index points compared to drops of 15 and 5 in the lower two income terciles. In any case, views on energy affordability were less optimistic across the board. Trends in how women and men perceive home energy affordability differently also persisted this quarter, with the average index for female respondents remaining significantly lower than the average for males.