Energy Cost Impacts on Utah Families, 2009
March 2010
www.americaspower.org
Energy prices, high unemployment, and stagnant incomes are straining the budgets of Utah’s middle class, and impoverishing lower-income families. In 2009, Utah households with annual incomes below $50,000, representing 42%
of Utah’s population, spent an average of 14% of their after-tax income on energy. The poorest households earning less than $10,000, below the federal poverty line, spent more than 50%.
0%
25%
50%
75%
54%
17%
12%
7%
Annual Household Income
<$10K $10-30K $30-$50K >$50K
Utah Family Energy Costs
as Percentage of After-Tax Income
Energy Cost Impacts on Utah Families, 2009
This paper assesses the impact of energy costs on Utah households in 2009, using energy consumption survey data and current energy price forecasts from the U.S.
Department of Energy’s Energy Information Administration (DOE/EIA).1 Energy costs are summarized by household income group using Utah data from the U.S. Bureau of the Census.2 Energy expenditures as a percentage of after-tax income are estimated for the effects of federal and state income taxes and federal social insurance payments.
Key findings include:
• Measured in constant 1990 prices, residential electric rates in Utah are 28%
lower than in 1990, while the price of residential natural gas is 5% above its 1990 level after several years of rapid increases. The relatively low cost of electric power is due in large part to Utah’s historic reliance on domestic coal for the majority of its electric generation. In 2009, coal supplied more than 80% of the state’s electricity generation.
• Energy costs are consuming the after-tax household incomes of Utah’s low- and middle-income families at levels usually spent on food, housing, or health care.
In 2009, Utah families spent an average of 8% of their after-tax incomes on energy. The 363,000 Utah households earning less than $50,000, representing 42% of households, allocated an average 14% of their after-tax income to energy.
• The 148,000 Utah households with annual incomes of $10,000 to $30,000, representing 17% of the state’s population, spent 17% of their after-tax family budgets on energy.
• The 39,000 poorest families in Utah, below the federal poverty line and earning less than $10,000 per year, are being squeezed hardest by recent energy cost increases. Many of these families received state energy assistance to help reduce the burden of higher energy costs. Yet for most lower-income families and for more than 182,000 Utah households receiving Social Security, the critical choice today is between fuel and basic necessities such as food and rent.
Utah Household Incomes
U.S. Census Bureau data on Utah household incomes in 2008 provide the basis for estimating the effects of energy prices on consumer budgets in 2009.3 The table below shows estimated 2008 after-tax incomes for Utah families in different income brackets. The Congressional Budget Office has calculated effective total federal tax rates, including individual income taxes and payments for social security and other social welfare programs.4 State income taxes are estimated from current Utah income tax rates.5
Utah households by pre-tax and after-tax income, 2008
Pre-tax annual income: <$10K $10-$30K $30-$50K >$50K Total/Avg.
Households (Mil.) 0.039 0.148 0.176 0.492 0.854
Pct. of total households 4.5% 17.3% 20.6% 57.5% 100.0%
Avg. pre-tax income $4,991 $20,383 $40,132 $103,070 $71,271
Effec. fed tax rate % 2.0% 9.1% 14.1% 23.2% 17.9%
Est. state tax rate % 1.0% 3.5% 4.3% 4.5% 4.1%
Est. after-tax income $4,841 $17,815 $32,768 $74,519 $55,563 Some 42% of Utah families had estimated pre-tax incomes below $50,000 in 2008. After federal and state taxes, these families had average incomes of $24,265. In 2008, the median household income of Utah families was $56,633, compared with the U.S. median household income of $52,029. Utah’s average household income of
$71,271 was closely comparable to the national average of $71,498.6
Compared with the rest of the nation, Utah has a lower proportion of families living in poverty.7 In 2008, 5.6% of Utah households received food stamp benefits within the past 12 months, compared with 8.6% nationally. Approximately 10% of Utah’s population had incomes below the federal poverty line in 2008, compared with 13.2% nationally.
Residential and Transportation Energy Expenses
The principal residential energy expenses are for electricity and natural gas for home heating, cooling, and household appliances. Some Utah homes also use propane fuel and other heating sources such as wood.
As shown in Chart 1, the price of residential electricity in Utah is 28% lower in real, inflation-adjusted terms than in 1990, while the price of residential natural gas is 5% above its 1990 price level after several years of rapid increases. The overall trend of electricity and gas prices underscores the volatility of natural gas prices compared with electric rates.
Chart 1
3.00 4.00 5.00 6.00 7.00 8.00
Gas $/tcf and Electric cents/kWh
1990 1995 2000 2005
Nat'l Gas Electricity
Utah Residential Natural Gas and Electricity Prices, 1990-2009YTD (Constant 1990 $)
Source: U.S. DOE/EIA (2009 data through June).
The inflation-adjusted 28% price decrease for residential electricity since 1990 reflects, in part, Utah’s historic reliance on low-cost coal for a majority of its energy supplies. In 2009, coal supplied about 80% of the state’s electric generation.8
Estimated 2009 household energy expenses for Utah are based upon DOE/EIA residential electric and natural gas sales data.9 Total household energy costs are distributed by income category using DOE/EIA residential energy survey data.
Gasoline prices have declined from their 2008 peaks, but remain well above
$2.50 per gallon. Gasoline accounts for the largest single increase in consumer energy costs since 2001. EIA reports 2009 average retail gasoline costs at $2.40 per gallon, compared with $1.47 per gallon in 2001.
The increase in gas prices follows a decade-long trend of increased use of motor vehicles, measured in millions of vehicle miles driven annually, increased market shares of pickup trucks and SUVs, and an increase in the average number of vehicles owned per household.10 Many families are burdened with low-efficiency vehicles with low trade-in values.
DOE/EIA’s 2001 Survey of Household Vehicles Energy Use (2005) provides information for estimating regional transportation energy costs by household income
category. These regional gasoline usage data are updated using EIA’s 2009 national average retail gasoline price of $2.40 per gallon. To be conservative, household gasoline consumption in 2009 is assumed to remain at 2001 levels, reflecting the impact of the recession.
The table below summarizes estimated Utah household energy expenses by income group, with the percentage of after-tax income consumed by energy costs:
Estimated Utah household energy costs by income category, 2009 Pre-tax annual income: <$10K $10-$30K $30-$50K >$50K Average
Residential energy $ $1,098 $1,201 $1,372 $1,724 $1,532
Electric $ $511 $595 $715 $886 $759
Natural Gas $ $497 $513 $556 $709 $619
Other* $ $90 $93 $101 $129 $112
Transport energy $ $1,522 $1,795 $2,496 $3,484 $2,899
Total energy $ $2,620 $2,997 $3,868 $5,208 $4,432
Energy % of after-tax income
54% 17% 12% 7% 8%
*Other includes propane gas and wood.
The share of household income spent for energy falls disproportionately on lower-income and working families earning less than $50,000 per year. The 17% of Utah households earning between $10,000 and $30,000 annually spent on average 17% of their after-tax incomes on energy. While many low-income consumers qualify for energy assistance, these government programs are hard pressed to keep pace with the rapid escalation of energy prices. It is primarily the poor, fixed income, and other low-income families who are bearing the greatest burden of higher energy prices.
In 2009, the average Utah family with an after-tax income of $55,563 spent
$4,432 on energy, or 8% of the family budget. The 363,000 Utah households earning less than $50,000 - representing 42% of households - allocated an average of 14% of their after-tax income to energy.
For a majority of Utah’s low- and middle-income families, energy costs today are consuming a fraction of after-tax household income comparable to that traditionally spent on major categories such as food or health care.11 A 2001 survey of middle- income families with two parents and two children living in eight diverse U.S. cities reported the following average expenditures, based on an average after-tax family income of $43,962:
• Child care - $12,420 (28%)
• Housing - $10,836 (25%)
• Health care - $4,582 (10%)
The diversion of increased shares of family incomes to energy reduces available funds for other necessities of life such as housing and health care, diminishing both quality of life and the ability to save and invest for future needs.
Disproportionate Impacts on Senior Citizens
The greatest burdens of increased energy costs are falling on Utah’s 182,000 households of elderly Social Security recipients - 21% of all households - who depend mainly on fixed incomes, with limited opportunity to increase earnings from
employment. In 2008, these households had an average Social Security income of
$15,911.12 Approximately 132,000 of these 182,000 households had additional retirement income averaging $22,077.
Elderly individuals with low average annual incomes are more vulnerable to increasing energy costs even if their energy consumption levels are below those for households with similar annual incomes. Unlike young working families with the
potential to increase incomes by taking on part-time work or increasing overtime, fixed income seniors are largely limited to cost-of-living increases that often do not keep pace with rising energy prices. Maintaining relative stability in electric and gas rates, and increasing low-income energy assistance, are critical to the wellbeing of hundreds of thousands of Utah’s low-income citizens.
Conclusion
The prices of petroleum-based fuels have increased significantly in the past decade, while the residential cost of electricity has not kept pace with inflation. The escalation of Utah consumer energy prices - together with sluggish income growth among middle-income households and rising unemployment - underscore the need to find ways to reduce energy cost impacts on Utah families. Expanding the use of our domestic coal resources, a primary source of low-cost electric energy generation in Utah, is an immediate, common-sense policy response available to Utah officials and to the U.S. Government.
_____________________________________________________________________
Acknowledgment: This paper was prepared for ACCCE by Eugene M. Trisko, an energy economist and attorney in private practice. Mr. Trisko has served as an attorney in the Bureau of Consumer Protection at the Federal Trade Commission and as an expert economic witness before state public utility commissions. He represents labor and industry clients in environmental and energy matters. Mr. Trisko can be contacted at emtrisko@earthlink.net.
End Notes
1 Data on residential energy consumption patterns by income category are from U.S. Department of Energy, Energy Information Administration, 2005 Survey of Residential Energy Consumption (2009), available at http://www.eia.doe.gov/emeu/recs/contents.html. Utah electricity, natural gas and other residential energy costs are based on 2008 and 2009 state data from U.S. DOE/EIA Electric Power Monthly (September 2009), Natural Gas Monthly (September 2009) and other sources noted below.
2 Household incomes in Utah by income category are derived from the distribution of household income in U.S. Census Bureau, American Fact Finder, Utah Selected Economic Characteristics:
2008 (2009).
3 Ibid.
4 Congressional Budget Office, “Effective Federal Tax Rates Under Current Law, 2001 to 2014,”
(August 2004). Effective federal tax rates for the income categories employed in this paper were interpolated from CBO’s tax rates by income quintile.
5 State tax data are estimated from marginal tax rates compiled by the Tax Foundation (2009).
6 U.S. Bureau of the Census, Utah Selected Economic Characteristics: 2008 (2009).
7 Ibid.
8 U.S. DOE/EIA, Electric Power Monthly (September 2009), Tables 1.6.B, 1.7B (2009 electricity estimate annualized based on June 2009 YTD generation.)
9 U.S. DOE/EIA, Electric Power Monthly (September 2009, annualized based on June 2009 YTD electric sales) and Natural Gas Monthly (Utah actual 2008 residential natural gas sales are used, reduced by 11% based on EIA’s estimate of national residential gas price changes for 2009 compared with 2008.)
10 U.S. DOT, 2001 National Household Travel Survey, “Summary of Travel Trends,” (December 2004).
11 Economic Policy Institute, “Basic Family Budgets,” Briefing Paper (2001), available at http://www.epinet.org/briefingpapers/165/bp165.pdf.
12 U.S. Bureau of the Census, Utah Selected Economic Characteristics: 2008 (2009).
