Get ready for the singe. Home heating costs are expected to soar 18% this winter to an average of $1,208 as higher oil and gas prices, the war in Ukraine and big storms pummel global energy markets.
The increase could be even higher for the Midwest, according to estimates by the Energy Information Administration (EIA).
The biggest price surge in more than a decade is yet another blow to consumers already dealing with 40-year-high inflation rates for food, rent, insurance and gasoline.
“Home heating costs are becoming increasingly unaffordable for millions of lower-income families,” said Mark Wolfe, executive director of the National Energy Assistance Directors Association (NEADA). “This is the second year in a row of these increases so that is really bad. For low-income families? This is very serious.”
Minnesota’s Low Income Home Energy Assistance Program (LIHEAP) officially began taking applications Oct. 1, but emails and phone calls started flooding in in September, state officials said.
This month’s first snowfall and sudden plunge into 30-degree temperatures didn’t help matters.
Bob Marcum, a retiree in Aitkin, Minnesota, heats his home with propane and signed a “price protection” futures contract for 2023, locking in his price at $2.19 a gallon, about 40% more than in 2020.
In past years, Marcum, 70, and his husband turned to energy assistance programs to get by.
But this year they make slightly above the income limit to qualify, so will spend the whole year paying off the propane bill.
The cost – $4,300 for 2,000 gallons – is 10% of the couple’s combined annual income. But Marcum said he knows other seniors and low-income parents with mortgages are worse off.
“There are proud seniors who will turn their heat down to 45 and spend the whole winter shivering,” Marcum said. “They are too proud to reach out for help or they really don’t know how.”
As of August, 331,888 regulated-utility customers in Minnesota were already behind on their energy bills – to the tune of $125.6 million, the state Public Utilities Commission reported. Experts warn that will likely rise.
Even those who thought they were prepared are scratching their heads. Five years ago, St. Paul attorney Mikael Merissa and his wife took advantage of government rebates and installed solar panels on their 118-year-old home. They also insulated the basement, where foundation gaps let in cold winter air.
Energy bills initially plummeted. But fuel prices rose so much during the last few years that the annual energy bill is right back to what it was before the home improvements.
“It’s insane,” Merissa said.
Across the river in south Minneapolis, chef Erin Bailey owns Kitchen Space, a commercial shared-kitchen business run out of a small bungalow.
This summer, one of her catering tenants accidently left the air conditioning running on high for days and days. Bailey’s energy bill doubled to $900 for the month.
Fearing similar surprises this winter, Bailey reached out and learned she was eligible for an energy audit plus a $1,500 CenterPoint Energy rebate toward a new heating and cooling system.
One day earlier this month, as Bailey’s tenants sautéed onions and whisked soups, Taylor Smith, a heating and cooling consultant with Center for Energy and Environment installed a smart thermostat and locked the heat setting at Bailey’s preferred 67 degrees.
The smart thermostat could cut Bailey’s energy usage 30% just by preventing waste, Smith said.
But with heating rates rising, Bailey is still worried and frustrated.
“For a moment, I actually thought about selling this business because I can’t pass along all the cost increases to my tenants,” she said.
“The margin in the food industry is not one that can handle rising energy costs.”
Antonia Coleman,who manages the Special Initiatives Program for the Wilder Foundation, said callers keep asking her why their energy bills are so high.
The answer is complicated.
The Henry Hub natural gas spot price – a benchmark for U.S. gas costs – pretty much stayed at $3 to $4 per million British Thermal Units (MMBtu) from 2011 to mid 2021.
But prices began a sustained rise in August 2021 and eventually hit $8 per MMBtu. That meant CenterPoint, Minnesota’s largest natural gas utility, saw its costs jump 200% between June 2021 and June 2022.
U.S. natural gas production hit record levels again this year after swooning during the pandemic. Now, demand has outpaced supply.
For a short while, the MMBtu price did dip to less than $6 last month. But the EIA forecasts the average price from October through March will be $7.26 nationwide.
At that price, home heating bills in the Midwest could increase 27% – and could rise 33% if it’s a colder-than-average season, according to the EIA.
Exactly how much a homeowner’s bill increases depends partly on their provider. While CenterPoint expects bills to increase, the utility declined to make a specific forecast.
Xcel Energy, Minnesota’s second-largest gas supplier, said its average residential natural gas customer in Minnesota will see his or her monthly bills increase about 10% compared with last winter.
Along with the increase in natural gas costs, state regulators granted CenterPoint a 3.9% rate increase earlier this year. The PUC is still deciding Xcel’s rate case.
In addition to paying higher rates, customers of Minnesota’s three largest gas utilities are paying off a $600 million bill from a huge gas price run-up during a February 2021 storm in Texas.
The storm froze natural gas equipment in the region where Minnesota gets most of its gas, strangling supply and igniting wholesale prices.
Besides the storms, the biggest market shift in the past few years has been the sharp increase in U.S. natural gas exports in the form of LNG, or liquified natural gas.
The exports put pressure on domestic gas availability.
Once negligible, U.S. LNG exports in 2019 were four times greater than in 2010.
Between 2019 and 2021, they increased another 43%. And this year, the U.S. became the world’s largest LNG exporter. The export market is particularly hot since the war in Ukraine cut off Europe from its primary gas supplier, Russia.
The complicated market dynamics do nothing to help customers digest their rising energy bills.
Last week, the Center for Energy and Environment received 160 calls for its home energy audits and tips on battening down houses this winter.
“Those numbers will keep going up,” resulting in possibly more than the 5,000 home visits CEE conducted last year, said Danielle Hauck, the group’s customer engagement manager.
While energy bills consume about 2% of the average workers’ paycheck, it can eat up to 30% for some low-income households.
State and federal officials worry that rising heating prices will further stress families already coping with skyrocketing inflation.
To fill a car with gas costs 67% more than two years ago (and 18% more than last fall).
Milk can cost $4 a jug while a dozen eggs now fetches nearly $3.
But there is help for low-income residents. Families of four with $58,000 in annual household income should qualify for energy assistance, even if they received help before.
Minnesota expects to help 127,000 low-income households this winter with heating bills just like last year.
But the amount of assistance won’t be as generous because last year the state received an extra $167 million – on top of the yearly $119 million – from the American Rescue Plan Act, said Michael Schmitz, director of the Minnesota Energy Assistance Program.
“If you are making minimum wage, you are not making enough to pay for housing and food and transportation. And so an energy price increase is certainly going to hurt,” Schmitz said. “That is why we have programs.”
People are already reaching out, including some who have never tried to access community resources, said Coleman of the Wilder Foundation, which connects low-income callers with Community Action Partnership programs that help low-income people apply for heating grants.
Tips to keep heating costs down
• Have furnace serviced each year and get filters changed to ensure maximum efficiency.
• Install a “smart” programmable thermostat.
• Lower temperature on water heater to 120 degrees.
• Replace all lightbulbs with energy-efficient LEDs.
• Weather strip or caulk leaky doors and windows.
• Install clear plastic window kits found at hardware stores to cut drafts.
• Request a home energy audit from utilities, the Center for Energy and Environment, the Minnesota Chamber of Commerce or your city. There’s a sliding scale cost.
• Insulate your attic.
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