Assessing Energy Costs and
Economic Burden

As part of the national evaluation of its Weatherization Assistance Program, the U.S. Department of Energy wanted to take a closer look at low-income households to identify differences in their energy-use from the rest of the population and determine who would benefit most from residential energy-efficiency improvements. The results are included in a study published by Oak Ridge National Laboratory and conducted by the Economic Opportunity Research Institute of Washington, D.C., in conjunction with the Response Analysis Corp. of Princeton, New Jersey. It is titled "The Scope of the Weatherization Assistance Program: Profile of The Population in Need."

"From the study, I believe we now have a potential population to target for assistance: this target group is represented in all parts of the country--it is not all located in one region," says Joel F. Eisenberg, program director at the Economic Opportunity Research Institute and one of the authors of the study. He adds that the study sample is small, and while accurate for the U.S. as a whole, it indicates that there's a need to work with energy vendors, specialists, and utilities to pinpoint where the needs are on a state and local level.

The study used the Energy Information Administration's Residential Energy Consumption Survey (RECS) of 1990 to find low-income population weatherization characteristics. RECS' national survey of 5,095 households is considered the most reliable source of information regarding home energy use and household characteristics, because the information is from fuel vendors on actual energy bills, fuel consumption, and income (see "More Waterbed Data," p.3).

The study indicated that about 30% of U.S. households--27.9 million--were federally qualified for assistance in 1990. It then broke down the general low-income population targeted for weatherization services into three subsets, based on energy expenditures and energy burden:

• "High-expenditure" households, which are those with high heating costs per unit of living space relative to others in their climate region.
• "High-burden" households, which are those with high energy costs in proportion to income relative to others in their climate region
• "High-burden/high-expenditure" households, which are those households that qualify in both of the other categories.

Energy-burden is defined as residential energy expenditures divided by income, which yields the percentage of expenditures to income. This calculation shows the impact energy expenditures have on low-income households.

From the three profiles, 7 million households were classified as high-burden; 5 million were high-expenditure; and 2 million were identified as high-burden/high-expenditure. Targeting this latter group offers the opportunity to reduce utility bills of the neediest households and achieve sizable energy savings. These 2 million households have both high energy expenditures (averaging $1,339 per year) and high energy burdens (averaging 30.5% of their income).

In contrast, the study showed that the average, low-income household spent $994 a year for residential energy. For the U.S. at large, the average residential energy expenditure was $1,172.

In a breakdown of low-income households by region, those in the Northeast spent $1,201 on average, while those in the Midwest spent $1,094, in the South $958, and in the West $756. Among the reasons for higher costs in the Northeast and Midwest were the increased number of heating-degree days (due to colder weather in those regions) and the cost of the fuel used.

Residents of large multifamily units spent the least on average, for energy--$634, or about 35% below the low-income average. This reflects the small amount of space they occupy even though they live in colder regions of the U.S. Single-family households had an average energy expenditure of $1,115, while households residing in mobile homes and small multifamily dwellings averaged near the $994 average figure for the low-income population at large.

To put this in perspective, the average annual income of households eligible for either the Low Income Home Energy Assistance Program (LIHEAP) and the Weatherization Assistance Program in 1990, based on RECS information, was $10,048. The average income of all U.S. households in that year was $33,486. Among low-income households, homeowners' incomes averaged $10,989, while renters' averaged $9,095.

With this information, the study sought to determine the financial burden that energy expenditures had on low-income households. According to the study, all low-income households spent an average 14.5% of their income on energy. In contrast, non-poor U.S. households spend on average 3.5% of their income on energy.

But even among the low-income households there were dramatic discrepancies. For instance, the mean energy expenditure for high-expenditure households was $1,233, and the larger-than-average expenditures come with lower-than-average income--$9,254. This means that in this subset, the energy burden was higher than for the group at large, or 19.2%. This indicates that these households would benefit greatly from energy-efficiency services, especially households that are fuel oil users.

In the high-burden households, the mean residential energy expense was $1,175. However, this group had lower-than-average income ($5,419) compared to all low-income households ($10,048). The energy burden on this group is a startling 30.1%. This indicates a tremendous need for energy-efficiency services.

The intersection subset of the low-income households, the high-burden/high-expenditure group, represents nearly 43% of all high-expenditure households, and about 30% of high-burden households. Figures here are dramatic as well. This subset in 1990 had average energy expenses of $1,339, well above the overall low-income household expense of $994. This subset also had an average income of $6,114, compared to the average low-income house income of $10,048. This represents an energy burden of 30.5%.

The report concludes that the group that would benefit the most from the Weatherization Assistance Program and offer the best energy-efficiency opportunity is the high-burden/high-expenditure subset.