Hefty spike in heating costs expected to hit Minnesotans

Along with chillier weather, Minnesota homeowners should brace for a sharp increase in heating costs expected to hit pocketbooks this winter.

Last month, the federal Energy Information Administration predicted that U.S. households will spend 30 to 50 percent more money to heat their homes this winter, depending on the type of fuel and the severity of the winter weather.

"We are starting to see unusually high prices for heat,” said Annie Levenson-Falk, executive director of the Citizens Utility Board of Minnesota, which advocates for utility consumers. "Whether you're using natural gas or propane or fuel oil, prices are up across the board, and roughly as high as they've been at any point over the last seven years.”

The higher bills are coming as many families are already struggling due to COVID-19, and the rising cost of food, housing and other expenses. And many natural gas customers are also paying a monthly surcharge stemming from a price spike after last February's cold snap in the southern U.S.

Roughly 1 in 8 families were already behind on their utility bills before the latest surge, Levenson-Falk said.

"The fact that so many people are still struggling in this economy is going to make a real strain on many families,” she said. 

Supply, demand issues push prices

There are multiple factors driving up global fuel prices, including rising demand, limited supply, a global pandemic and climate change, said Alfred Marcus, a professor of strategic management at the University of Minnesota’s Carlson School of Management.

Demand has been high for natural gas, the heating source for about two-thirds of Minnesotans. It's also used to generate a lot of electricity. 

During last summer’s hot, dry weather around the world, people used more electricity to run their air conditioning, Marcus said. 

Also, natural gas supplies are lower than usual, after extreme storms knocked out infrastructure, and the pandemic has caused worker shortages and supply chain problems. 

After energy prices dropped during the pandemic due to lower demand, the economy has rebounded faster than anticipated, Marcus said, so people and businesses are using more energy.

"Suddenly, the demand goes way up with when the companies had anticipated the demand would be really, really low,” he said. “And they've cut back on infrastructure and exploration and refining."

Natural gas prices are skyrocketing around the globe, especially in Europe and Asia. It's more profitable right now for producers to sell their natural gas to other countries, Marcus said. 

Oil prices are also higher, which is driving up the cost of propane and fuel oil. 

That means it’s very likely most people will pay more to heat their homes this winter. How much will depend on how cold the winter is, Marcus said.

“The weather is even harder to predict than the economy,” he said.

During a typical frigid Duluth winter, Steve Wick and his wife, Margie Nelson, pay around $60 to $80 a month to heat their century-old, two-story house with natural gas.

While working from home during the pandemic, the couple kept the thermostat at a comfortable 68 degrees, instead of dropping it down to 60 like they used to during the day — a pattern quickly reflected in their heating expenses.

"It definitely increased our bills by $20 or $30 a month, right off the bat,” Wick said.

With natural gas prices on the rise, Wick is expecting those bills to jump higher, depending on how cold the winter gets.

“I'm concerned we'll see another $20 or $30 increase per monthly bill,’” he said.

Help available

The average Minnesota household pays about 2 percent of their annual income in energy costs. But for some households, it's as high as 30 percent.

There is help for people struggling to pay their heating bills. Minnesota receives federal funding to help income-eligible renters and homeowners pay their utility bills. There's also assistance for people to weatherize their homes, or repair a broken furnace.

Tri-County Action Program, which serves Stearns, Benton and Sherburne counties in central Minnesota, has already received about 500 more applications for energy assistance than this time last year, said executive director Lori Schultz.

"We've all been through so many challenges that I think there's a large population that really need help more than ever,” Schultz said. She encourages people who qualify to apply soon so they can start receiving assistance.

Minnesota received additional funding for energy assistance from the federal COVID-19 relief package, said Grace Arnold, state commerce commissioner.

People should apply for assistance and reach out to their utility if they're struggling to pay their bill, Arnold said.

Last session, the Legislature extended the cold weather rule that protects Minnesotans from having their utilities shut off, from Oct. 1 to April 30. But those customers must be on a payment plan, Arnold said.

Saving energy

There are also practical things people can do to save energy, she said, such as sealing up a drafty window or door with foam insulation or weather stripping.

“That can make a big difference,” she said.

Wick said they replaced some old windows to make their Duluth home more efficient. He said they'll probably rely more on their wood-burning fireplace this winter to keep the living room cozy, and throw on another sweater or grab a blanket instead of turning up the thermostat.

“It's a bundle-up kind of winter,” Wick said.