Richard Meyer Low-Income Households Most Vulnerable to DOE Furnace Standard

In March, the U.S. Department of Energy (DOE) proposed a rule that would mandate the manufacture of natural gas furnaces that meet a 92 percent or higher specification for energy efficiency. At first glance, the rule appears to be a positive step forward for energy efficiency. In reality, DOE’s proposal would create a number of counterproductive and unintended consequences that could increase energy use.

As I noted in a previous blog post, the rule would put prohibitive installation costs on many consumers, potentially undermine energy efficiency programs and incentives, and lead to higher energy use and emissions from customers induced to switch to less efficient electric equipment.

In this post, I want to focus on the economic burden placed on consumers and in particular low-income households, which are disproportionately vulnerable to higher costs.*

On April 13, DOE held a public meeting on the proposed rule. In its response to concerns about how the rule will affect low-income households, DOE stated that “most low income households are tenants.”

DOE’s argument is that property owners, not renters, are responsible for the higher upfront costs of a furnace installation. Tenants do not have to cover the costs of a higher efficiency furnace, but would enjoy the lower fuel savings. Consequently, low-income households, most of which DOE says are renters, are insulated from the higher costs imposed by DOE’s rule.

Except this is not true. An analysis of US Census data** shows that 53 percent of low-income natural gas households are owner-occupied. Less than half are renters. In fact, 1 out of 7 U.S. households is low-income with a natural gas furnace.

This means up to 9 million low-income home owners with a natural gas furnace would be faced with higher upfront costs imposed under DOE’s rule.

US Households with Nat Gas Space HeatingBecause low-income households have fewer resources to pay for the installation of a higher-efficiency gas furnace, they are more likely to switch to less-expensive electric equipment that costs more to operate. This, in turn, means low-income households are more likely than other homes to see higher utility bills under DOE’s rule.

Even renters could pay more. If a property owner cannot or chooses not to cover the upfront costs of a furnace installation, they may make a switch to less efficient equipment, in which case fuel costs will go up. Many renters pay separate utility bills (myself included). Landlords of these properties don’t see operating costs, so they don’t directly benefit from an upgraded furnace.

Ironically, even the study that DOE cited notes that rental units are less likely to have efficient equipment. In fact, it’s this principal-agent problem that stymies a lot of energy efficiency potential. Are we to just assume, as DOE does, that no landlords will switch to lower-cost electric equipment?

The disproportionate effect of higher costs is one reason why 71 percent of gas utility efficiency programs target low-income customers.

The rule may have a pernicious secondary effect on low-income assistance. Each year, through the Low Income Home Energy Assistance Program (LIHEAP), the Federal government assists the most vulnerable households to meet heating and cooling needs. But the program is stretched already.

Current LIHEAP funding leaves 4 out of 5 eligible households without assistance. The furnace rule could exacerbate this condition. If this rule induces customers to switch to higher cost heating fuels, the requirements of a low-income program like LIHEAP will increase, putting further strain on the program.

Industry concerns about this rule are not about taking a position against energy efficiency. Natural gas utilities have a demonstrated track record of supporting efficiency and reducing household gas consumption. Rather, it’s about re-examining a top-down prescriptive approach and instead applying a comprehensive vision for furnace efficiency, one that recognizes proven approaches that are cost-effective and protects all customers.

*Here’s a rundown on the costs. A 92 percent efficient furnace costs roughly $300 more than unit rated at 80 percent, which is the mandated minimum today. However, the installation cost of these higher-efficiency furnaces be in excess of $1000 to $4000 more, a result of new venting requirements that may be difficult or impossible in some homes.

**AGA analysis of the U.S. American Community Survey, 5-Year 2009-2013 multi-year combination microdata files, accessed via DataFerrett. The summary table shows the breakdown of occupied households with natural gas space heating by tenure and income level (using $45,622 as the low-income threshold)

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Richard Meyer Natural Gas Market Indicators: April 15, 2015

A new study from Washington State University shows that methane emissions from U.S. natural gas distribution systems are 70 percent below current Environmental Protection Agency (EPA) estimates of those emissions. Based on data collected from pipeline leaks, meter and regulator stations, and city gates within 13 utility systems across the country, the study’s authors found that emissions from local distribution companies (LDCs) have decreased over the past 20 years due to upgrades, changes in pipeline materials, and better leak detection and survey methods.

As we often report here in the “Market Indicators” blog articles, industry experience and performance exists on a spectrum – one that is often improving in terms of practices and technologies, as well as the regulatory precepts that oversee these activities. This study demonstrates improvements to gas utility system safety and environmental performance, but it is also part of a larger industry trend of better overall performance.

Visit this link to download the full Natural Gas Market Indicators report. Topics covered in this week’s report include: Reported Prices, Weather, Working Gas in Underground Storage, Natural Gas Production, Shale Gas, Rig Counts, Pipeline Imports and Exports, and LNG Markets.

Please direct questions and comments to Chris McGill at cmcgill@aga.org or Richard Meyer at rmeyer@aga.org.

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Christina Nyquist New Report Shows Growing Natural Gas Resources: Four Things You Need to Know

On Wednesday, April 8, AGA announced the findings of a new report detailing the nation’s supply of domestic natural gas. Compiled by the Potential Gas Committee, the year-end 2014 report Potential Supply of Natural Gas in the United States, shows that future U.S. gas supplies are at their highest level ever and continue to grow. This means the nation’s domestic abundance of natural gas can continue to support customer savings, economic growth, energy security and increased efficiency and environmental solutions.

AGA_3110-Potential-Gas-Committee-Map-V-3-WEB

Here are four things you need to know about the latest natural gas numbers.

Record Supply

  •  According to the Potential Gas Committee, U.S. technically recoverable natural gas resources are estimated to be 2,515 trillion cubic feet (Tcf) as of year-end 2014 – a five percent increase since the year-end 2012 report.
  • The U.S. Energy Information Administration (EIA) estimates that domestic dry proved natural gas reserves have doubled since 1993, and are now estimated at 338 Tcf. Proved reserves are volumes of natural gas known to exist that have been proven by exploration and development operations.
  • When combined with EIA proved reserves estimates, the U.S. future supply of natural gas now exceeds 2,850 Tcfthe highest combined future supply of natural gas ever.

Savings for Consumers

  •  Households that use natural gas for heating, water heating, cooking and clothes drying save an average of $693 per year compared to homes using electricity for those applications.
  • Strong supply fundamentals and robust delivery infrastructure suggest that natural gas prices will remain competitive and stable at a level well below the peak market prices of the preceding decade.
  • Low domestic natural gas prices have led to savings of almost $30 billion for residential natural gas customers over the past five years.
  • In 2013, the average commercial customer saved more than $2,000 on their annual bill due to low natural gas prices compared to 2008.

Direct Use of Natural Gas is the Efficient Choice

  •  Natural gas is 92 percent efficient when used directly in homes and businesses.
  • Customers can unlock greater savings by working with their local utility to make efficient energy choices.
  • In 2013, local utility efficiency programs helped customers reduce their annual natural gas usage by an average 18 percent and save $137 in annual energy costs, while offsetting 7.9 million metric tons of carbon dioxide emissions.

Expanding Access, Enhancing Safety

  •  To ensure that more Americans can safely enjoy the benefits of domestic natural gas, local utilities are working with governors, legislators and state regulators around the country to upgrade, enhance and expand the nation’s more than 2.4 million miles of natural gas infrastructure.
  • By investing in our energy future and advancing smart policy to enhance safety and expand infrastructure, customers can look forward to continued market stability, reliable service and affordable prices.

For more information, visit www.aga.org/PGCReport.

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Lisa O'Leary Advocates Urge Congress to Increase LIHEAP Funding

Nearly 200 advocates from across the United States converged on Capitol Hill last week to support responsible funding for the Low Income Home Energy Assistance Program (LIHEAP). The National Energy and Utility Affordability Coalition (NEUAC) sponsored LIHEAP Action Day 2015 along with member companies of the American Gas Association (AGA) and the Edison Electric Institute. The annual day-long event is aimed at building awareness for LIHEAP, a federal block grant program providing financial assistance to low and fixed-income individuals for fuel and utility bills, as well as low-cost weatherization and energy-related home repairs.

Representatives from Entergy and Atmos Energy met with Sen. Roger Wicker’s (R-MS) staff to discuss LIHEAP funding. Photo Credit: Entergy

Representatives from Entergy and Atmos Energy met with Sen. Roger Wicker’s (R-MS) staff to discuss LIHEAP funding. Photo Credit: Entergy

According to NEAUC, nearly 300 meetings took place between LIHEAP advocates and members of Congress and their staff, to discuss the need for at least $4.7 billion in LIHEAP funding for FY2016. Advocates in D.C. and throughout the country also took to social media to share important messages about LIHEAP by using #LIHEAPAction.

After many years of underfunding LIHEAP, Congress funded the program at $5.1 billion in FY2009 and FY2010. Since then, funding has declined by almost $1.7 billion and recipients have seen their assistance grants reduced by nearly $95, impacting the program’s effectiveness.  The average grant was estimated to cover less than half of the average home heating costs for a household this winter, meaning that many low-income families and seniors had fewer resources available to meet other basic needs.

This winter was especially hard-hitting in the northeast and southeast with record-breaking snowfall and cold temperatures, serving as a stark reminder of why the LIHEAP program is so critical. Here are just a few other reasons:

  • More than 35 million U.S. households meet LIHEAP’s federal eligibility criteria, yet only 6.8 million households were helped in 2014.
  • States and their charitable partners can serve households earning up to 150 percent of Federal poverty guidelines or 60 percent of median income. For a three-person family in the U.S., that’s less than $29,685, yet most LIHEAP households earn less than that amount.
  • Even with LIHEAP funding at $5.1 billion, the amount was only enough to assist 1 in 5 eligible Americans.
Rep. Peter Welch was presented with this year’s NEUAC Extra Mile award. Photo Credit: http://welch.house.gov/

Rep. Peter Welch was presented with this year’s NEUAC Extra Mile award. Photo Credit: http://welch.house.gov/

LIHEAP Action Day concluded with a Congressional reception and the presentation of the NEUAC Extra Mile award given to Rep. Peter Welch (D-VT), recognizing him for his longtime support of the program. In a letter to the House Appropriations Committee penned by Rep. Welch and Rep. Peter King (R-NY), more than 145 lawmakers stressed the critical importance of full funding of LIHEAP.

AGA had to opportunity to interview several advocates in attendance of the LIEAHP Action Day Breakfast. Stay tuned for links to those video interviews next week.

Posted in energy, Natural Gas, people, utility, winter heating | Leave a comment