Consumers say home energy prices heading up

During the next five years, home power bills will rise by 30% but won’t become unaffordable, participants tell U-M Energy Survey

Energy consumers say they think the cost of powering their homes will rise by an average of 30 percent during the next five years, but that increase won’t be so high that it makes it unaffordable to heat, cool and light their homes, according to the latest University of Michigan Energy Survey.

The 18-question January 2014 survey from U-M finds that consumers who rent or are in the lower third of household incomes expect to see the biggest jump in home energy prices between now and 2019. Renters said they expect the increase to be nearly 50 percent, while low-income households predict an increase of about 40 percent. Respondents from both middle- and top-income households said they expect home energy prices to climb by about 25 percent.

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The responses indicate that consumers at all income levels expect to see their home energy prices increase much faster than the rate of inflation. Long-run historical inflation averages 3 percent a year, or 3.5 percent compounded over five years, a much smaller hike in prices than even the most conservative response from the U-M Energy Survey. While historical inflation rates suggests that a $100 monthly home energy bill would increase to $116, the smallest increase survey respondents said they expect to see is $125, a difference of nearly 8 percent.

But even their biggest predicted jump in prices wouldn’t make home energy unaffordable, respondents said. For that to happen, home energy bills would have to more than double, increasing by 130 percent, with a $100 monthly bill jumping to $230.

That percentage was much larger in the initial energy survey taken in October 2013, which found consumers saying prices would have to increase by 170 percent before their home energy bill would become unaffordable.

The change between the two surveys may be influenced more by the cost of energy at the time, researchers found. Between October and January, the average monthly bill reported by survey participants increased by about 22 percent, from $170 to $208. Some applied math indicates that the average where home energy becomes unaffordable was $408 in October and $428 in January, making the unaffordability level relatively consistent at an average of $420 for most households across the two surveys.

While weather and seasonal changes could explain some of the difference in responses from survey participants, the U-M researchers note that the unknown number of consumers participating in level-billing programs with their energy suppliers could mute some sensitivity to seasonal changes in home energy bills.

There were significant differences in the point where energy became unaffordable among different levels of household income, and between consumers who rent or own their own homes. The top third of incomes said their energy bills would have to increase to 2.7 times their current cost to be too expensive, while middle- and bottom-level households pegged their limits of affordability at a doubling in prices.

Between the October and January surveys, the mean increase in energy costs seen as unaffordable didn’t materially change in the bottom and top thirds of household income, but it did drop significantly in middle-income households, going from an increase of 160 percent to become unaffordable in the October survey, to about 98 percent based on the January poll. The response was similar when comparing participants based on their home ownership status, as well.

As for those consumers who already find their home energy bills to be unaffordable, researchers didn’t find any significant change between the two surveys, with about 5 percent of all respondents saying their bills were unaffordably high. In both surveys, that segment of respondents didn’t vary by region, income, home status or their self-reported knowledge of energy.