Skyrocketing Natural Gas Prices to Increase Home Heating Bills: Energy Efficiency "Insurance" Provides Immediate and Long-Term Relief

January 15, 2003

Media Contact(s):

Wendy Koch, 202-507-4753, Senior Director, Marketing & Communications

WASHINGTON, D.C. — This winter's huge price increases for natural gas are hitting American consumers with higher heating bills, and may set back the nation's economic recovery. The American Council for an Energy-Efficient Economy (ACEEE) offers consumers and Congress practical energy efficiency options that can help consumers reduce their bills and put the nation on a more secure energy footing.

"Energy efficiency is our best insurance policy against soaring energy prices," said ACEEE Deputy Director Bill Prindle. " Since energy price deregulation has removed the old ways of keeping energy prices manageable, energy efficiency has become our fastest and cheapest form of energy insurance."

For Consumers: Efficiency Is the Easiest and Best Way to Cut High Heating Bills

Consumers can reduce high heating bills immediately and save up to $300, or about 30% of winter heating bills, by purchasing high-efficiency furnaces and taking other efficiency steps. (Estimates of savings by state are shown in the attached table. These numbers are typical; individual savings vary based on factors such as local prices and climate, and size, condition, and age of the home.)

Immediate low-cost options include:

  • Sealing air leaks around doors and windows
  • Sealing leaks in furnace air ducts
  • Getting a heating system tune-up
  • Installing a programmable thermostat

Greater savings can be obtained by replacing an older, inefficient furnace with a high-efficiency model. ACEEE provides a list of the top-rated furnaces and boilers on our website at www.aceee.org/consumerguide. This list is accompanied by a checklist of energy efficiency steps, drawn from our popular Consumer Guide to Home Energy Savings, also available through the website. "Consumers can save 30% or more on their heating bills by following these simple and often inexpensive steps, many of which pay for themselves in a year or less," said Jennifer Thorne, an ACEEE Research Associate and co-author of the Guide.

Congress Can Help Americans Cut Energy Costs by Emphasizing Energy Efficiency in U.S. Energy Policy

Congress should take action to helping Americans control their heating bills. First, it should increase rather than cut funding (as proposed by the Administration) for the Low Income Home Energy Assistance Program, which supports home weatherization and helps pay high heating bills.

Next, Congress should take decisive steps to save energy in legislation this year. ACEEE recommends the following policy options to help keep the nation's energy bills under control:

  • Tax incentives for: high-efficiency furnaces, boilers, and water heaters; high-efficiency new homes; and combined heat and power systems(which by generating power more efficiently free up gas for home use)
  • Energy efficiency standards for heating equipment
  • Streamlined interconnection standards for smaller power generators that use high-efficiency combined heat and power systems or renewable energy sources
  • Voluntary agreements with industry to cut energy use and greenhouse gas emissions

More information on ACEEE's policy recommendations can be found at http://aceee.org/energy/index.htm.

Why Are Natural Gas Prices Rising?

Natural gas prices are reaching record highs, and are also showing unprecedented volatility. This is happening because:

  • The collapse of energy trading markets has made it harder to manage price risk through long-term contracts, forcing more buyers into volatile (and expensive) spot markets.
  • Natural gas in storage is dwindling rapidly. This is forcing local utilities to bid up prices in order to obtain enough gas to serve their customers.
  • Natural gas powers almost all new electricity generation, increasing demand that further competes for limited gas supply and pipeline capacity.
  • Overall demand for natural gas has grown faster than has new pipeline capacity needed to transport the gas to consumers.

These factors are driving a dramatic increase in wholesale prices, which are beginning to be passed along in retail natural gas prices. Residential gas prices are likely to rise to all-time high levels in the coming months (see figure), exceeding those seen the winter of 2000-2001. In contrast to that period, when market manipulation by companies such as Enron artificially drove prices up, the current market appears to be driven by limitations in gas supply and pipeline capacity, and thus prices could remain high for some time.

Natural gas prices have gone up at the same time as world oil prices have spiked due to threats of war and the strike in Venezuela that has cut off about 15% of the United States' supply of crude oil. With both gas and oil prices at historically high levels, industrial consumers have no motive to switch fuels as they have in the past, so the increased energy costs are likely to be passed along to consumers in the form of increased prices for goods. This effect could slow the already sluggish economic recovery.