The Home Heating Crisis in Indiana: On the Brink of Heat or Eat

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Across the country people are bracing for winter heating bills. Over 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 are indications that bills are becoming unaffordable to households at higher income levels. The Citizens Gas experience with past due payments may point to an even more pervasive problem that is gaining a foothold on middle-income families. Hurricanes Katrina and Rita, which disrupted natural gas production and supply, have added to the problem.

The Home Heating Crisis in Indiana: On the Brink of Heat or Eat

October 25, 2005

Submitted by the Citizens Action Coalition of Indiana

"The greatest of evils and the worst of crimes is poverty."
--George Bernard Shaw

TABLE OF CONTENTS

  1. Executive Summary
  2. Introduction
  3. National Trends in LIHEAP from 1982 to 2005
  4. National Trends in LIHEAP from 2002 to 2005
  5. The Plight of the Low-Income Household
  6. Trends in Indiana
  7. The Economy
  8. Heating Costs
  9. LIHEAP Households
  10. The Affordability Gap in Indiana
  11. Unaffordable Heating Bills Beyond LIHEAP
  12. Citizens Gas and Vectren Universal Service Program
  13. Public Policy and the Home Heating Crisis
  14. Comprehensive Policy Approach
  15. National Impacts
  16. State/Regional Impacts
  17. Energy Efficiency for Low-Income Households
  18. Immediate Action to Protect Low-Income Households
  19. Comprehensive Policies
  20. Action Items for the 2005/2006 Heating Season

EXECUTIVE SUMMARY

The purpose of this white paper is three-fold:

  1. To describe the impacts of rising home heating costs and shortfalls in LIHEAP funding on low-income households nationally and in Indiana;
  2. To examine the federal Low-Income Home Energy Assistance Program's (LIHEAP) ability to meet the needs of eligible households nationally and in Indiana;
  3. To recommend administrative and legislative actions that can be taken by Indiana policy makers to ameliorate the home heating crisis in both the short and long term.

NATIONAL TRENDS

Funding levels remained relatively flat as LIHEAP eligible households grew and natural gas costs soared.

  • From 1982 to 2002, the number of LIHEAP eligible households increased by 66%.
  • The percentage of total home heating bills covered for all LIHEAP eligible households fell from 23% in 1981 to 12% in 2003.
  • The number of eligible households receiving benefits dropped from 36% in 1981 to 13% in 2002.
  • Funding levels in 1981 and 2002 were just over $1. 8 billion.
  • With minor funding increases since 2002, only 14.6% of the eligible population is being served.
  • From 2002 to 2005:
    • Natural gas costs rose 58.5%.
    • LIHEAP funding increased 20%.
    • The average grant per household rose 1%.
    • The percentage of natural gas home heating costs covered by LIHEAP for LIHEAP recipients declined from 52.3% to 33.4%.
    • Cost of living increases for seniors and those with disabilities receiving supplemental security income (SSI) amounted to only 2.1%.
    • 70% of LIHEAP recipient households have annual incomes of less than $10,000.
  • The affordability gap (the ability of low-income households to pay the heating bill without skimping on food, medicine, the mortgage or rent, etc.) is growing. Researchers set the "affordable burden" for households to pay energy costs (heating/cooling) at 6% of gross household income.
  • From 2002 (based year) to 2004, "actual low-income bills exceeded affordable energy bills by $20 billion."
  • From 2002 to 2004, the affordability gap increased 10.7%.

Actual need far exceeds current federal funding levels.
In 2003, it would have taken an appropriation of $8 billion to reduce the home energy burden for all LIHEAP-eligible households to 10% of gross income.

Many LIHEAP recipients do without the basics to survive the winter. According to a national survey conducted in 2003, LIHEAP recipients responded to high heating costs with the following strategies:

  • 78% reduced basic expenses for household necessities.
  • 30% used the kitchen stove to heat the home.
  • 52% paid less than the entire heating bill.
  • 38% went without medical or dental care.
  • 28% did not make the rent or mortgage payment.
  • 22% went without food for at least one day.
  • 21% became sick because it was too cold in their homes.

Indiana Trends

The Indiana economy is producing more poverty-stricken households and lower wage jobs. From 2003 to 2004:

  • Residents living in poverty increased by 80,000 (13%), the third-highest rate of increase in the country.
  • Residents without health insurance hit 850,000, up 31,000 in one year, representing 14% of the population.
  • Median household income fell by $400, to under $43,000 per year.
  • The state has lost 50,000 manufacturing jobs since 2000.
  • Most jobs being created now are in the service sector and pay about $16,000 annually.

In 2004:

  • Indiana had the 5th-highest rate of bankruptcy in the country.1
  • The state had the 2nd-highest foreclosure rate.2

As with the nation, heating costs are skyrocketing.

  • Since 2002, heating costs for Hoosier households have risen just over 55%.
  • Indiana's major gas utilities projected a 28% to 43% increase in heating costs this winter.
  • The federal Energy Information Administration projected a 48% increase in heating costs for the Midwest.

The number of LIHEAP-eligible households in Indiana is significant and the at-risk population is growing. 2003 data suggested:

  • There were an estimated 732,774 LIHEAP-eligible households (Households at 150% of poverty).
  • The state designated households at 125% of poverty as LIHEAP-eligible.
  • 16.8% of LIHEAP-eligible households received LIHEAP assistance.
  • 47% of LIHEAP-eligible households had at least one person 60 or older.
  • 16% had at least one child under 6.
  • 24% had at least one person with a disability.

Another set of data in 2005 suggested that:

  • There are 449,237 LIHEAP-eligible households in Indiana. (Households at 150% of poverty.)
  • Of these, 126,510 households are being served.
  • 28% of LIHEAP-eligible households are being served.

The situation for heating customers in Indiana is severe. According to a 2004 national survey of 16 states:

  • Indiana ranked 5th in terms of the percentage of utility accounts in arrears.
  • Indiana ranked 2nd in terms of percentage of utility disconnections.

A 2005 study of Hoosier gas and electric customers determined that:

  • Nearly 80 percent of low-income customers finished last winter behind on their heating bill payments.
  • For low-income Hoosiers, heating bill arrearages are no longer a seasonal event. Most low-income Hoosiers are behind on their heating bills all year.
  • Indiana utilities disconnected nearly 10,000 low-income accounts from April through June 2005.
  • Many of the low-income households that have utilities disconnected each spring, do not get reconnected before the next winter.
  • Coming out of last winter, Indiana utilities reported nearly $10 million in unpaid bills among low-income customers.

LIHEAP funding levels are inadequate since the ability to afford heating bills is reaching beyond LIHEAP-eligible households. From 2004 to 2005 the Indiana LIHEAP block grant rose about 10%, including emergency funds, from $48.7 million to $53.9 million. From 2002 to 2004:

  • The affordability gap for customers from below 50% of poverty to 185% of poverty rose from $225 million to almost $300 million dollars.
  • The LIHEAP allocation rose by slightly over $2 million.
  • The affordability gap increased by 30%.
  • The average dollar amount by which actual home energy bills exceeded affordable home energy bills increased from $431 to $538.

In 2004, the energy burden was:

  • 40.6% for households below 50% of poverty.
  • 16.3% for households from 50% to 74% of poverty.
  • 11.6% for households from 74% to 100% of poverty.
  • 9.1% for households from 101% to 124% of poverty.
  • 7.4% for households from 125% to 150% of poverty.
  • 6.1% for households from 150% to 185% of poverty.

In May of 2005, Citizens Gas estimated that 54% of its customers had past due balances coming out of the winter. According to a 2004 study, Indiana ranks low in state/local assistance dollars regionally.

  • Indiana ranked next to last in state dollars supplemental to LIHEAP for assistance and energy efficiency measures for surrounding states.
  • Indiana provided $11.9 million.
  • Michigan was the next highest state to Indiana in terms of funding with $61 million.
  • Ohio provided the most assistance at over $207 million.
  • Kentucky ranked lowest with $2.1 million.

High natural gas prices means more dollars flowing out of the Hoosier economy.

  • Indiana imports 99.75% of its natural gas from other regions of the country.
  • The drain on the Hoosier economy was $1.8 billion in 2002 and was estimated, pre-hurricane season, to be $3.7 billion in 2006.

Energy efficiency programs can keep dollars in Indiana while aiding low-income households. A comprehensive energy efficiency program that includes both gas and electricity could save Hoosiers over $10 billion (discounting inflation) by 2020. While only 5.2 million of 31 million LIHEAP-eligible households have been weatherized (made more energy efficient), the accumulative estimated savings in 2005 is $1.55 billion.

Conclusions:

  • The number of low-income households is growing.
  • The number of households served by LIHEAP has been declining.
  • The percentage of heating bills covered by LIHEAP 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.
  • 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.

Recommendations for the Short Term

Through administrative or legislative action to keep people connected this coming heating season, the state should:

  • Adopt a deposit rule that limits deposits to the average of one months bill for LIHEAP-eligible customers and 2 months bill for other customers. The deposit rule is now before the Indiana Utility Regulatory Commission.
  • Divert incremental increases in natural gas, heating oil, propane and gasoline taxes (generated by higher costs for both commodities) to low-income heating assistance.
  • Establish a low-income heating assistance contingency fund to accept tax dollars from gasoline and natural gas.
  • Eliminate the tax on LIHEAP dollars.
  • Extend LIHEAP eligibility from 125% to 150% of poverty, as permitted in federal law. (Governor Mitch Daniels has announced that Indiana will serve those at 150% of poverty.)
  • Expand the moratorium on winter disconnections in terms of population and period of time.
  • Extend the moratorium on winter disconnections to May 31.
  • Include the entire population in the disconnect moratorium. Those above 150% would be required to pay a percentage of their bill, based on income level, during the heating season, pay the current bill in May and a percentage of any past due balance, and make up the balance by November 1 of the next heating season. LIHEAP-eligible households would pay a percentage of their bills, based on income level, throughout the year, be put on a budget plan, and enter into agreements with their local utility, on a case-by-case basis, to pay off any arrearages.
  • Seek federal FEMA relief. As the spike in this winter's natural gas costs above the 20% increase expected will be attributable, in large part, to hurricanes Katrina and Rita, Governor Daniels should urge the President to declare the Midwest a disaster area in order to initiate the release of FEMA dollars into the region for purposes of covering natural gas bills.
  • Order utilities through a mix of debt forgiveness and change of policy to extend the budget plan to all customers.

Read the full White Paper...

Introduction

"What we are seeing now is there is a new class of customer that is challenged to pay."4 This statement was made recently by Mike Roeder of Vectren 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.5

Across the country people are bracing for winter heating bills. Over 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 are indications that bills are becoming unaffordable to households at higher income levels. The Citizens Gas experience with past due payments may point to an even more pervasive problem that is gaining a foothold on middle-income families. Hurricanes Katrina and Rita, which 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, 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; about 28% in Indiana. Benefit levels rose, on average, a meager 1.1% from 2002 to 2005.

As heating costs skyrocketed, bills have become less affordable 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 all households is 6%. Assuming that an 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 from 5.6 % in 2003 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. Thirty-eight percent went without medical care or didn't fill prescriptions to pay the bill. Fifty-two percent 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 increased as heating costs soar.

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

Moreover, economic trends in Indiana do not bode well for 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 one of just seven states to experience an increase in poverty. And 14% of Hoosiers do not have health insurance.

A principal cause of the home heating crisis has been the failure of public policy makers to address the issue. If the Hurricane Katrina disaster demonstrated a lack of planning to help low-income people survive natural disasters, the home heating crisis demonstrates similar negligence. This is unfortunate because we know that keeping people connected to their heating source is ultimately a better alternative both fiscally and socially than ignoring the problem.

Citizens Gas and Vectren have initiated pilot projects, called Universal Service Programs, to provide lower utility rates for low-income ratepayers, making bills more affordable. Coupled with federal funding and energy efficiency measures, these programs have proven 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 help Hoosier ratepayers, the Daniels Administration should divert incremental increases in natural gas, propane, oil and gasoline sales taxes to a heating assistance fund, suspend the tax on LIHEAP benefits, push for regulations to reduce the burden of utility deposits on customers, and, by executive order, extend the moratorium on winter disconnections.

The home heating crisis in Indiana and across the country has been growing for some time and has become a serious problem for scores of Hoosiers. The state is faced with a crisis of monumental proportions. We face dire consequences if it is not addressed. CAC research has identified the following trends in 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.
  • 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.6
  • 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.

Background7

The Low-Income Home Energy Assistance Program was authorized by Title XXVI of the Omnibus Budget Reconciliation Act of 1982. It evolved from earlier programs initiated in the 1970s to address recurrent energy crises.

Federal dollars for LIHEAP are allocated by the U.S. Department of Health and Human Services to the states as a block grant and are disbursed in Indiana by the Family and Social Services Agency.

Households with annual incomes of up to 150% of poverty are eligible. Indiana has established 125% of poverty as the ceiling for Indiana residents. However, the Governor recently increased the eligibility level for the 2005/2006 program to 150%. Approximately 80% of LIHEAP dollars are used for direct assistance to defray a portion of household heating or cooling bills. Up to 25% of a state's block grant can be earmarked for low-income weatherization measures, i.e. energy efficiency8 measures that reduce natural gas or electric usage in the home. With respect to weatherization dollars, 15% can be set aside for weatherization activities without condition. Spending more than 15% on weatherization requires a waiver that, among other things, requires that a state demonstrate that the effort will not result in fewer families being served by LIHEAP.

National Trends in LIHEAP from 1982 to 20059

  • From 1982 to 2005, LIHEAP appropriations fluctuated from a low of just over one billion dollars in 1996 to a high of $2.1 billion in 1985. Estimated appropriations, including emergency funds, are $2.1 billion for 2005. However, in general, appropriations have remained flat. For instance in 1982 and 2004 appropriations amounted to just over $1.8 billion. Considering inflation during that time, the buying power of LIHEAP dollars has decreased substantially.
  • From 1982 to 2002, the number of LIHEAP eligible households increased by 66%, reaching approximately 32.6 million in 2002. The increase in eligible households and the recent increase in heating costs (see below) strained the funding base significantly, as the percentage of the total home heating bill covered for LIHEAP eligible households10 fell from 23% in 1981 to 12% in 2003. Likewise, the number of eligible households receiving benefits dropped from 36% in 1981 to 13% in 2002. This percentage has since risen to 14.6% nationally due to increases in funding in consecutive years from 2002 to 2005, from approximately $1.8 billion in 2002 to approximately $2.1 billion in 2005. The conclusion to be drawn, however, is that currently an estimated 5.1 million households are being served, out of approximately 35 million eligible households.

National Trends in LIHEAP from 2002 to 2005

  • From 2002 to 2005, heating costs skyrocketed along with the number of LIHEAP eligible households.

On average nationally, natural gas costs rose by 58.5% from 2002 to 2005. However, LIHEAP funding increased by only 20%, as the number of households receiving LIHEAP jumped from 4.2 million to 5.1 million. The average grant per household rose only 1.1%.

In addition, the percentage of natural gas home heating costs covered by LIHEAP for LIHEAP recipients declined from 52.3% to 33.4%.

For those over sixty and persons with disabilities (considered vulnerable populations under LIHEAP), the trends are equally disturbing. Despite the high increase in heating bills, cost of living increase for social security recipients and persons with disabilities receiving supplemental security income (SSI) increased only 2.1%, by $25 and $15 per month respectively.

As of 2003, approximately 40% of all recipient households had at least one person 60 years or older, 27% with at least one person with a disability. Seventy percent of recipient households had incomes less than $10,000.11

Also included in vulnerable populations are households with children under the age of 6. In 2003, approximately 19% of households receiving LIHEAP had at least one child in this category.

The Plight of the Low-Income Household

Energy burden refers to the percentage of gross income dedicated to paying home energy costs (heating and cooling). The average for all households is 6%. The average spent in 2003 on home energy was $1,527 per year.

LIHEAP recipients spent on average $15,515 on home energy in 2003. Their home energy burden was, on average, 18.9% of income, three times the average.

To further clarify the economic hardships low-income families experience, the consulting firm of Fisher, Sheehan and Colton (FSC) recently developed a model to "quantify the gap between 'affordable' home energy bills and 'actual' home energy bills," known as "affordability gap analysis." FSC set the "affordable burden" for households at 6% of gross household income for total energy usage and at 2% of gross household income for home heating. The firm's analysis demonstrates that "existing sources of energy assistance do not adequately address the affordability gap in the US."12

Using 2002 as the base year, FSC found that "actual low-income bills exceeded affordable energy bills by $20 billion at 2003/2004 winter heating fuel prices." However, "the gross allotment of federal energy assistance funds were only $1.7 billion for Fiscal Year 2004."

As a consequence, the firm found that the "Home Energy Affordability Gap increased 10.7% between 2002 and 2004."

The affordability gap analysis reflects the economic stress of low-income customers that answered a national survey conducted by the National Energy Assistance Directors' Association (NEADA). In that survey, LIHEAP recipients were asked how their rising home heating costs impacted their ability to make ends meet. Large numbers of those surveyed went without household necessities, paid less than their heating bill, went without medical care or medications, used other means to heat their homes, didn't pay the rent or mortgage, or did not eat. The survey suggests that the vast majority of eligible household not receiving LIHEAP help are faced with similar, dire circumstances. The results of the survey are below.

In 2003, one estimate suggested that reducing the energy burden of all LIHEAP-eligible households to 10% of gross income would take a federal appropriation of $8 billion.13

Trends in Indiana

The Economy: More Poverty & Lower Wages A recent article in the Indianapolis Star14 painted a grim picture for working families in Indiana. In one year (from 2003 to 2004), residents living in poverty increased by 80,000, a 13% increase. Moreover, Indiana was just 1 of 7 states that experienced an increase in poverty. In most states, poverty levels remained about the same.

Another statistic indicative of economic problems is the number of Hoosiers without health insurance. In 2003, 850,000 Hoosiers were uninsured, an increase of 31,000 in one year.

The median household income fell by $400 during the same period to just under $43,000 per year. The Star article attributed these declines to the reduction in manufacturing jobs and the low wage service jobs that have replaced them.

The Star article also interviewed a representative at the National Poverty Center at the University of Michigan who states that often people living in poverty have chronic-health problems and that the burden of those problems "falls to taxpayers."

As demonstrated, unaffordable home heating costs can lead to illness, homelessness, and malnutrition, which can translate into higher social costs.

Heating Costs As Hoosier families reel from the impact of skyrocketing gasoline prices, they are bracing for extreme heating costs this winter. Heating bills have been rising steadily for Hoosier ratepayers over the last 3 years. Substantial increases are expected for the 2005/2006 heating season.

Since 2002, heating costs rose, on average, just over 55% for Indiana's major gas utilities. For the coming winter, the Energy Information Administration projected the potential for a 60% increase in natural gas costs for the Midwest in the wake of Hurricane Katrina.15 However, the EIA recently adjusted those numbers down to 48%.16 Indiana's utilities predict increases anywhere from 27% to 43%, NIPSCO being the highest at 43%.17

A harsh winter could drive up consumer costs even more. Nonetheless, the predicted increases for Hoosiers are extreme, considering initial projections were that heating costs nationally for natural gas would rise by 21% this winter.18

LIHEAP Households In 2003, the LIHEAP Home Energy Notebook estimated that 732,774 Hoosier households up to 150% of poverty were eligible for energy assistance. Approximately 47% of those had at least one person 60 or over in the household, 16% with a child under age 6, 24% with at least one person with a disability. The percentage of elderly in Indiana, who reside in LIHEAP households, is much greater than the national average. Therefore, this segment of the Hoosier population seems to be at much higher risk than the national average.

Another study using 2000 Census data painted a slightly different, albeit still severe, picture of the problem in Indiana. This study estimated a total of 543,931 households in poverty, from poverty levels below 50% of poverty to 185% of poverty.19

Using the LIHEAP Notebook study, the percentage of the Hoosier population served by LIHEAP seems to be slightly higher than the national average described earlier at 16.8%.

The Colton data, however, suggests that 28% of LIHEAP-eligible households are served in Indiana. This data estimates 449,237 eligible households, of which 126, 510 are served.20

Either way, data indicates that the LIHEAP-eligible population in Indiana is grossly underserved.

The Affordability Gap in Indiana

LIHEAP expenditures for the 2006 heating season will depend upon the appropriation by Congress. At this time, advocates and some policy makers are requesting a $4 billion appropriation. The expectation is that the $5.1 billion authorized in the federal energy policy act will not be appropriated due to the Katrina disaster. An attempt failed to amend $3.1 billion onto the defense appropriations bill. Currently, the House version would bring Indiana about $51 million for the winter heating season. The Senate version would maintain last year's level with a $48 million block grant and the possibility of additional emergency funding. The President's proposal would amount to about $46 million for Indiana. One estimate is that Indiana would need $131.5 million to hold LIHEAP recipients harmless.21

  • From 2004 to 2005 the Indiana block grant rose about 10%, including emergency funds, from $48.7 million to $53.9 million. However, two studies indicate that this level of funding is woefully inadequate to meet the needs of low-income households.

In 2004, the National Association of Regulatory Utility Commissioners (NARUC) and the National Regulatory Research Institute (nrri) conducted a national survey to determine the number of arrearages, disconnections and dollar amounts of bills not paid for all natural gas customers. Sixteen states responded, Indiana included. The study's data was not perfect since all utilities did not respond and some states failed to complete every section of the survey. However, the data provides an indication of the scope of the problem.

Among states responding to the survey, Indiana ranked 5th in the percentage of accounts in arrears and 2nd in percentage of disconnections.

More recently, the Coalition to Keep Indiana Warm22 (CKIW) conducted a study that underscores the rising crisis. The study, conducted by Fisher, Sheehan & Colton in cooperation with Indiana's investor-owned gas and electric utilities, found the following:23

  • "Nearly 80 percent of low-income customers ended last winter behind on their heating bill payments.
  • For low-income Hoosiers, being behind on their heating bills is no longer a seasonal event. Most low-income Hoosiers are behind on their heating bills year-round.
  • Indiana utilities disconnected nearly 10,000 low-income accounts from April through June 2005.
  • Many of the low-income households that have utilities disconnected each spring, do not get reconnected prior to the next winter.
  • At the end of the 2005 heating seaon, Indiana utilities reported nearly $10 million in unpaid bills among low-income customers."

Secondly, Fisher, Sheehan & Colton performed an affordability gap analysis for Indiana in 2004 and 2005. For LIHEAP eligible households and other, the analysis depicts a growing problem with affordable home heating bills.

The affordability gap rose from $225 million in 2002 to almost $300 million dollars in 2004. However, the gross LIHEAP allocation rose by only slightly over $2 million from 2002 to 2004, representing a 30% increase in Indiana's affordability gap.

For households at 50% below the poverty level, the home energy burden reached 40.6% of gross income. Those with incomes of 150% to 185% of poverty experienced a home energy burden of 6.1% in 2004. This indicates that households beyond the reach of LIHEAP eligibility are beginning to experience unaffordable heating bills.

A national comparison conducted by the firm indicates that the situation for Indiana ratepayers below 185% of poverty is deteriorating. The average dollar amount by which actual home energy bills exceeded affordable home energy bills increased from $431 in 2002 to $538 in 2004.

Unaffordable Heating Bills Beyond LIHEAP Eligible Households

The Fisher, Sheehan & Colton analysis clearly demonstrates that the energy burden for those beyond LIHEAP eligibility is steadily increasing and, if not now, will soon reach levels that are unaffordable for income levels between 150% and 185% of poverty.

There are other indications as well. The Citizens Action Coalition recently conducted an unscientific survey of 185 of its members in Citizens Gas territory. There may have been overlap in answers, i.e. the same person answering affirmatively to each question. Moreover, there is no indication of the number of persons per household. However, these are people who, arguably, have disposable income.

Sixty-one percent of members surveyed indicated that they had perceived a significant increase in their heating bills. Twelve percent of members in census tracts with an average income of $48,195 indicated that they had difficulty paying their bills in full during the winter heating season. Thirteen percent in census tracts with an average income of $44,650 indicated that they had made a partial payment in the past. Fourteen percent in census tracts with an average income of $48,690 indicated that they had put off bills or done without a necessity to pay the gas bill.

Supporting the CAC survey data, Citizens Gas recently reported that over 50% of its customers had past due balances as of May of 2005.24 This high number was the result of bills, or portions of bills, not paid during the heating season.

Conclusions: Indiana Data

However one cuts the numbers for Indiana, the message is loud and clear: There is a severe shortfall in resources to address the home heating crisis in Indiana and that shortfall is growing for LIHEAP eligible households. Moreover, there is every indication that the home heating crisis is beginning to extend into income levels just above LIHEAP eligible households and, perhaps, is gaining a foothold on middle-income households as well.

State Assistance

Some 34 states have low-income heating assistance programs utilizing various sources of funding. However, California, Ohio, Pennsylvania, and Texas account for two-thirds ($874 million) of the $1.3 billion estimated available state funds.25

Indiana utilizes local, utility, ratepayer contributed and other sources to complement LIHEAP dollars. Indiana provided just under $12 million in supplemental funding in 2004. With the exception of Kentucky, nearby states provided much more assistance.

Citizens Gas and Vectren Universal Service Programs

In 2004, the Indiana Utility Regulatory Commission (IURC) approved a Universal Service Pilot Programs for Citizens Gas and Vectren (Indiana Gas and Southern Indiana Gas and Electric) for two years. The intent of these programs it to keep the heat on in low-income households. Keeping these households connected avoids utility costs and broader social costs associated with disconnection and homelessness.

Universal Service Fund programs are administered in several states across the country. They have been found to:

  • Increase the number of payments made;
  • Improve the completeness of each bill paid;
  • Improve the promptness of payments;
  • Decrease the number of disconnections;
  • Improve the extent to which payments reduce account balances to zero.26

In addition, the benefits of these programs accrue to all customers. These programs lead to:

  • Reduced utility debt that would be otherwise incurred by ratepayers;
  • Reduced utility administrative costs due to fewer past due balances (cost of service is reduced);
  • Avoiding the social costs associated with homelessness;
  • Keeping the heat on in homes reduces medical costs for low-income households who are often not insured and sometimes use high-cost emergency room facilities;
  • Improved medical health that keeps people going to work which, in turn, also benefits employers.27

Both Citizens and Vectren instituted a tiered low-income rate for LIHEAP recipients based on income level. Both utilities also created a small charge for other customers to pick up the cost of the tiered rate. However, Citizens will use existing funds from other sources prior to implementing the customer charge. Vectren expected to enroll 21,000 customers and Citizens Gas 16,000 customers.

Citizens Gas reported the following impacts from its program in June of 2005:

  • 29% decrease in zero payment customers;
  • 35% decrease in total amount past due.

Vectren will have more detailed information later in the year.

Public Policy and the Home Heating Crisis

Energy policy in the US and Indiana has essentially remained unchanged for decades. The home heating crisis is the result of that failed public policy, and the negative impacts extend far beyond low-income households.

We are sacrificing our economic well-being for supply-side solutions that tend to increase costs to households and businesses and fail to effectively address demand and price. It appears that policy makers are fixated on this approach to meeting demand for natural gas and electricity.

The current heating crisis began with the deregulation of the wholesale electric power market that resulted in the proliferation of natural-gas fired power plants that, in turn, increased demand and spiked prices. The initial wave of speculation left the energy industry $100 billion in debt and homeowners facing ever increasing heating bills. Now, the prevailing approach to the natural gas demand crunch is importing more LNG (liquid natural gas) from overseas,28 a strategy that will make the U.S. even more dependent on foreign sources of energy.

Similarly, the policy position of the Daniels Administration to meeting electric demand is adding more base load coal capacity. Legislatively, the recent emphasis on incentivizing coal-fired power plant construction appears to be a strategy to support the coal mining industry more than to meet electric energy demand in a least cost manner. Moreover, the preferred approach to financing new coal plant construction is taxpayer funded federal loan guarantees and ratepayer funded construction work in progress (CWIP),29 which shifts the financial risk of constructing coal gasification plants from utilities and private investors to the public. CWIP, if pursued, would quickly accelerate increases in electric utility rates.

High electric and gas bills can only exacerbate the current stress on the economy and hit low-income households particularly hard. There is a complete disconnect among supply-side advocates in Indiana between a policy that emphasizes adding supply, in the case of natural gas, or capacity, in the case of electric power demand, and the negative impacts on the Hoosier economy. In large part, energy policy alternatives to build and burn have been ignored, shunned, or considered unimportant. But the current heating crisis may help to change perceptions. As Governor Mitch Daniels recently stated, "This is a very serious situation for Hoosiers at all income levels, and the need to weatherize homes and businesses is greater than it has ever been."30

Most important for this discussion is that if we continue to pursue a predominantly one-dimensional approach to energy policy, there is little sign of relief in terms of the home heating crisis. And high electric bills will soon follow high heating bills. But how can we effectively address the home heating crisis in the near and long term?

Comprehensive Policy Approach: Energy Efficiency As the Best Defense Against High Heating Bills31

It is important that policy makers view the home heating crisis in broad terms because high heating costs negatively impact the entire economy. In order to effectively address these problems we must develop policies that relieve the burden of these costs both in the near and long term and address the expected spike in home heating costs this winter.

First, we will all benefit from elevating energy efficiency to the centerpiece of Indiana's energy policy.

The immediacy and scope of natural gas cost concerns are embodied by a quote from an industry that historically has not supported energy efficiency, the Chemical Manufacturer Coalition (the 11 largest U.S. chemical manufacturers). In response to rising costs in 2004, the Coalition said, "Specifically, we need a concerted national effort to promote energy efficiency..."32

Indiana can experience positive immediate economic impacts by embracing energy efficiency programs that target residential, commercial and industrial customers. If pursued on a regional level in the Midwest, the economic benefit is compounded.

National Impacts

ACEEE (the American Council for an Energy Efficient Economy) estimates that a 5 year total national investment of $30 billion in gas and electric savings technology could produce over $100 billion in savings for all customer classes (residential, commercial and industrial).

The rationale behind curbing both natural gas and electric demand with more efficient buildings, lighting, appliances, windows, motors, pumps, insulation, etc. is that much of our electric generating capacity consists of gas-fired power plants. For instance, from the late 1990s to the early 2000s the U.S. energy industry added 175,000 megawatts of gas-fired power plants. Therefore, if electric demand is reduced, natural gas usage decreases as well.

State/regional impacts

The reliance on natural gas in the Midwest represents a huge drain on the regional economy because 92% of the natural gas is imported from outside the region. It's estimated that by 2006 $29 billion in natural gas expenditures will be lost from the Midwest economy in a business-as-usual scenario.

The cost of natural gas to ratepayers is also rising. Midwest ratepayers paid about $26 billion on natural gas bills in 2002 and will pay an estimated $40 billion in 2006.

Indiana imports 99.75% of its natural gas. The dollar drain from the Indiana economy was $1.8 billion in 2002 and is estimated to be $3.7 billion in 2006. By 2006, Hoosiers will pay $4.7 billion in total bills directly related to their natural gas usage and $155 million for natural gas-powered electric generation.

The ratio between bills paid and economic drain demonstrates that most ratepayer expenditures for natural gas usage leave the state. In fact, about 70% of a residential heating bill is for the gas commodity, the remainder for the local gas company's overhead and profit margin.

A comprehensive energy efficiency initiative in Indiana would fuel substantial energy savings and dollar savings potential for Indiana and the region. As ACEEE writes, "Because of the very tight and volatile natural gas market, a reduction of about 1 percent in total gas demand could result in wholesale natural gas price reductions of 10 to 20%."33 Moreover, big savings can be achieved within a year of starting an energy efficiency program.

The significant savings across all customer sectors would also accrue to low-income households. In other words, the more comprehensive the program in terms of funding and scope, the greater the benefits to everyone, including to low-income households. However, weatherization (energy efficiency) programs targeted specifically at low-income households also yield impressive results.

The costs of achieving the savings projected above in Indiana would be approximately $148 million per year. This would amount to an investment of approximately $2.2 billion over 15 years. However, the total accumulative savings over that time period, not accounting for inflation, would be approximately $12.4 billion. In other words, the benefits far outweigh the costs.

Energy Efficiency for Low-Income Households34

Approximately 5.2 million of the 31 million LIHEAP-eligible homes in the US have been weatherized. The average savings for gas-heated homes is about $330 per year. Collectively, the 5.2 million households that participated in the LIHEAP-funded weatherization will avoid $1.55 billion in energy costs in 2005. Advocates point out that $330 may not seem like a large amount but for homes on the margin it could mean the difference between heat or eat.35

The savings could be much greater if funding for energy efficiency were increased, as only 17% of all LIHEAP-eligible homes have been weatherized. According to the Indiana Community Action Association, approximately 20% of LIHEAP-eligible homes in Indiana have been weatherized.

Immediate Action Items to Protect Low-Income Households

The state can take immediate action to ameliorate this winter's heating crisis and to set the stage for a more comprehensive, sustained effort to alleviate high natural gas costs across customer classes.

Comprehensive Policies

  • The Indiana Utility Regulatory Commission should immediately initiate its investigation of utility-administered energy efficiency programs. (This was announced in 2004 but never acted on.) Part of the investigation should be a market potential study in each utility territory that measures energy efficiency potential.
  • In the same order, the Commission announced it would investigate the effectiveness and design of third party administrators that administer state energy efficiency programs instead of utility companies. For example, the Wisconsin Energy Conservation Corporation administers all energy efficiency programs in that state, not individual utility companies.
  • The investigation should also entail a study of the population of low-income households that have been weatherized, the number that have not been weatherized, and the cost and savings of expanding low-income weatherization.
  • The Keep Indiana Warm Coalition (consisting of utility companies and advocates) has published a study that will provide aggregate utility data regarding disconnections, number of households in arrears, amount of past due balances, etc. Such data collection should be mandated in a rule making by the Commission or by legislation by the General Assembly. In addition, individual utility data should be made public. This kind of data is critical to understanding the extent of need and designing effective state programs to meet the heating assistance needs of low-income households.36
  • The IURC should investigate extending of the Universal Service Program concept (currently being administered by Citizens Gas and Vectren) to all utility territories and investigate the implications of expanding those programs in Citizens Gas and Vectren territory.

Action Items for the 2005/2006 Heating Season

Administrative or Legislative action to keep people connected this coming heating season:

  • Adopt a deposit rule that limits deposits to the average of one month's bill for LIHEAP-eligible customers and 2 month's bill for everyone else. The deposit rule is now before the IURC. However, it is currently designed to protect utility companies, not customers.
  • Divert incremental increases in natural gas and gasoline taxes to low-income heating assistance.
  • Establish a low-income heating assistance contingency fund to accept tax dollars from gasoline and natural gas revenue increase.
  • Eliminate the tax on LIHEAP dollars.
  • Expand the moratorium on winter disconnections in terms of population and period of time.
  • Extend the moratorium on winter disconnections to May 31.
  • Include the entire population in the disconnect moratorium. Those above 150% of the poverty level would be required to pay a percentage of their bill based on income level during the heating season, pay the current bill in May and a percentage of any past due balance, and make up the balance by November 1 of the next heating season.
  • LIHEAP-eligible households would pay a percentage of their bills, based on income level, throughout the year, be put on a budget plan, and enter into agreements with their local utility, on a case-by-case basis, to pay off any arrearages.
  • Seek federal FEMA relief. As the spike in this winter's natural gas costs above the 20% increase expected will be attributable, in large part, to hurricanes Katrina and Rita, Governor Daniels should urge the President to declare the Midwest a disaster area in order to initiate the release of FEMA dollars into the region for purposes of covering natural gas bills.
  • Order utilities through a mix of debt forgiveness and change of policy to extend the budget plan to all customers.

1"Bankruptcy's Next Chapter," Indianapolis Star. Sunday, September 25, 2005.

2Ibid.

3LIHEAP (Low-Income Home Energy Assistance Program)

4"Heating costs may jump 60% or more this winter," AP, as reported in the Indianapolis Star, September 12, 2005.

5LaPorte News Dispatch, Sept. 14, 2005.

6LIHEAP (Low-Income Home Energy Assistance Program)

7The bulk of the information under "Background" was taken from the Campaign for Home Energy website. For more detailed information go www.liheap.org.

8Energy efficiency measures can include air sealing; insulation of attics, walls, ducts, and flews, more efficient furnaces; or, heating system improvements that reduce energy usage but maintain comfort.

9Most information in the "National Trends" section was taken from "LIHEAP Home Energy Notebook for FY 2003" and "The Low Income Home Energy Assistance Program: Providing Heating and Cooling Assistance to Five Million Low Income Families", Issue Brief, April 2005. Prepared by the National Energy Assistance Directors' Association.

10 All eligible households at 150% or below of poverty whether they received benefits or not.

11As of 2005 for a household of 3, 150% of poverty is $23,505, 100% of poverty is $15,670, 75% of poverty $11,752.

12On the Brink: The Home Energy Affordability Gap, June 2005

13Meg Power, telephone conversation on September 20, 2005. Meg Power is with the National Community Action Foundation and Economic Opportunity Studies.

14Tim Evans & Jason Thomas, "1 in 10 Hoosiers lives in poverty: Rate of increase from 2003 to 2004 was 3rd-highest in U.S., Indianapolis Star, Wednesday, August 31, 2005.

15"Heating costs may jump 60% or more this winter," Associated Press as published in the Indianapolis Star, Monday, September 12, 2005.

16Keith Benman, "Get a few hundred dollars ready for NIPSCO." Northwest Indiana Times, Thursday, October 13, 2005.

17Ibid.

18Eileen Alt Powell (AP Business Writer), "Soaring home heating costs this winter could dent consumers' budgets", as published in the Northwest Indiana Times, September 3, 2005.

19Fisher, Sheehan & Colton, On the Brink: The Home Energy Affordability Gas, June 2005.

20Ibid.

21Presentation by Wally Nixon before the Coalition to Keep Indiana Warm conference. October 11, 2005. Hold harmless means maintaining the current affordability gap for LIHEAP eligible households.

22The Coalition to Keep Indiana Warm consists of Indiana's investor-owned gas utility companies and low-income and consumer advocacy organizations.

23"Home Heating Affordability Gap Growing: Large Increase in Home Energy Assistance Funding Needed. Coalition to Keep Indiana Warm, October 10, 2005.

24Universal Service Program Summary Report: January 2005-May 2005. Citizens Gas, June 30, 2005.

25Meg Power, "Energy Bills of Low-Income Consumers FY 2005." Economic Opportunity Studies, November 23, 2004.

26Direct Testimony of Roger D. Colton before the Indiana Utility Regulatory Commission, pertaining to Cause No. 42590, Joint Petition of Indiana Gas, Inc.; Southern Indiana Gas and Electric, and the Board of Directors of Utilities for the Department of Public Utilities of the City of Indianapolis; for approval of the establishment of a Universal Service Program. May 28, 2004.

27Colton

28"Annual Energy Outlook 2005: Market Trends - Natural Gas Demand and Supply," Energy Information Administration, January 2005.

29The federal energy bill includes loan guarantees for coal gasification. The Indiana General Assembly passed SB 29 in 2003 to allow for CWIP. This same strategy is promoted by Harvard researchers in "A National Gasification Strategy: Federal loan guarantees and other incentives can clear the hurdles to near-term deployment of gasification technologies." Public Utilities Fortnightly, June 2005.

30"Governor urges Hoosiers to prepare for winter: Weatherization and budget billing can help." Press Release. Office of the Governor, October 13, 2005.

31The information in this section was taken from: Martin Kushler, Dan York, and Patti Witte, "Examining the Potential for Energy Efficiency to Help Address the Natural Gas Crisis in the Midwest," American Council for an Energy Efficient Economy, January 2005.

32Ibid.

33Ibid.

34Information for this section was gleaned primarily from: Meg Power, "Energy Bills of Low-Income Consumers FY 2005." Economic Opportunity Studies, November 23, 2004.

35"The Cold Hard Facts: The First Annual Report on the Effect of Home Energy Costs on Low-Income Americans." National Fuel Funds Network, National Low-Income Energy Consortium, National Energy Assistance Directors' Association, 2002.

36NARUC/nrri survey, June 2005.

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