The Home Heating Crisis in Indiana

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Keeping a home heated is basic to our needs and well-being. However, unaffordable heating bills are no longer the realm of the very poor. Many Hoosiers must juggle their budgets or go without essentials to pay for home heating.

“What we are seeing now is there is a new class of customer that is challenged to pay” is a recent statement made by Mike Roeder of Vectren to the Indianapolis Star1 and refers to the growing number of ratepayers having difficulty paying their home heating bills.

Last spring, Citizens Gas calculated how many of its customers had past due balances coming out of the winter heating season. The company found that over 50% of customers were not current on their bills.

In September, the LaPorte News Dispatch reported that a man returned to his home one evening to see his significant other sitting alone in the dark. She turned to him and said that she couldn’t take it anymore. Their financial situation had deteriorated. The last straw was Northern Indiana Public Service Company (NIPSCO) shutting off their gas and electric. That night she went to a nearby railroad track, lay down, and waited for the next train.2

Across the country people are bracing for winter heating bills. In the last 3 years, they have increased 58% on average nationwide, in Indiana 55.5%. The financial strain of home heating is particularly acute in low-income households. However, there is indication that bills are becoming unaffordable to households at higher income levels. The Citizens Gas experience may point to an even more pervasive problem that is gaining a foothold on middle-income families. Hurricanes Katrina and Rita, which have disrupted natural gas production and supply, have added to the problem.

We now face a home heating crisis of monumental proportions. From 1982 (the year the federal Low-Income Home Energy Assistance Program (LIHEAP) began) to 2002 the low-income households eligible for LIHEAP rose 66%. At the same time, funding levels remained flat. Although funding was increased 20% over the last three years, under 15% of the eligible households are served nationwide and under 17% in Indiana. Benefit levels rose, on average, a meager 1.1% from 2002 to 2005.

As heating costs skyrocketed, bills have become more unaffordable even to those receiving help. The energy burden (heating and cooling) for low-income households at 50% or below of the poverty level is over 40% of gross income, whereas, the average for the population is 6%. Assuming that energy burden is affordable at 6%, researchers estimated that for those Hoosiers households at 150% to 185% of poverty, a population not eligible for LIHEAP, the energy burden climbed to 6.1% of gross income in 2004.

The response of low-income families to the recent surge in heating costs is reflected in a 2003 survey of LIHEAP-eligible households. 38% went without medical care or didn’t fill prescriptions to pay the bill. 52% paid less than the entire bill. 28% did not make the rent or mortgage payment. This is because the buying power of LIHEAP dollars has diminished and the eligible population has increased as heating costs soar.

A substantial portion of seniors reside in the households eligible for federal aid in Indiana. Many have children under 6 and people with disabilities. The 2% cost of living adjustment for seniors and persons with disabilities receiving social security cannot even come close to matching the paucity of federal funding and double-digit annual increases in heating costs.

Moreover, economic trends in Indiana do not bode well with respect to the home heating crisis. The average annual income is dropping. The dominance of service sector job creation and loss of manufacturing jobs means lower wages. Indiana was just one of seven states from 2003 to 2004 to experience an increase in poverty. And 14% of the population does not have health insurance.

A principal cause of the home heating crisis has been the utter failure of public policy. If the Katrina disaster blatantly demonstrated a lack of concern for low-income families, the home heating crisis has been just as severe and the negligence just as great. This is unfortunate because we know what public policies work and that keeping people connected is ultimately a better alternative fiscally and socially than ignoring the problem.

State-level universal service programs, of which Citizens Gas and Vectren have initiated pilot projects, provide for low-income utility rates that make bills more affordable. Coupled with federal funding and energy efficiency measures, these programs have proven to be effective. Although only a small portion of LIHEAP-eligible low-income homes have been weatherized, in 2005 they will have collectively saved $1.55 billion in heating costs. A comprehensive state-level energy efficiency program extended to all customers would save Indiana ratepayers hundreds of millions of dollars every year and further reduce financial pressure on low-income households.

To prepare for this winter, the Daniels Administration could divert incremental increases in natural gas, propane, oil and gasoline sales taxes to heating assistance, suspend the tax on LIHEAP benefits, push for regulations to reduce the burden of utility deposits on customers, and extend the moratorium on winter disconnections in duration and in scope by executive order.

The home heating crisis in Indiana and across the country has been brewing for some time and is becoming more severe. As a nation and state, we are faced with a crisis of monumental proportions and with dire consequences if not addressed. We have identified the following trends with respect to home heating:

  • The number of low-income households is growing.
  • The percentage of eligible low-income households served by the energy assistance program has been declining.
  • The percentage of heating bills covered by the energy assistance program has been declining.
  • The increasing demand for natural gas has translated into much higher natural gas commodity costs that ratepayers ultimately absorb in utility rates.
  • Coupled with these trends, consumers are now faced with double-digit growth in gasoline prices and a trend in the job market dominated by the lower wages indicative of the service sector, where a large portion of jobs is being created.
  • Moreover, the strain on household budgets caused by high heating costs is reaching beyond the population historically served by the federal low-income heating assistance program.3
  • The current public policy emphasis on drilling or importing more natural gas to curb high natural gas prices can only exacerbate the problem for Hoosiers.

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