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Mass. Projected Household Heating Costs

Forecast of Energy Prices for Heating During Winter of 2017/18

The Energy Markets Division (MassDOER) tracks energy prices and consumption, including those associated with the cost of heating homes, during the winter. DOER analyzed weather forecasts and the projected prices and consumption for this winter for the major heating fuel sources (natural gas, heating oil, propane, electric heating) to provide the following heating season cost projections for 2017-2018.

For ways to save on your heating costs, please see the Opportunities to Save on your Heating Bills section below.

2017/18 Projected Household Heating Costs

Colder Winter Predicted and Higher Fuel Costs will likely Increase Average Household Heating Expenditures  

Based on predictions for a colder winter (October-March) than the last year (see National Oceanic and Atmospheric Administration’s (NOAA) Winter Outlook) and higher fuel costs for crude oil and natural gas, DOER is projecting an increase in fuel bills for all residential heating fuels this winter.

DOER estimates heating expenses for this winter for a residential customer using the average amount of fuel for each particular fuel type will be: $846 for natural gas; $2,278 for oil; $2,248 for propane, and $738 for electric heating (resistance heating). Projected expenditures are based on the average price of fuel; consumers’ expected average fuel usage; and anticipated weather conditions. Historically, space heating (see definition at end of page) is the largest component, fifty-nine percent (59%), of a Massachusetts household’s energy expenditures.   

These costs are calculated based on the average household usage by fuel type and is a useful comparison year to year for any one fuel type. These heating costs should not be used to compare one fuel type to another because it is not normalized for factors that affect fuel usage such as size of household or square footage. For example, it may appear that electric heat is a lower cost alternative to other fuels, however; electric heat is generally used in smaller spaces such as apartments and condos and is actually more expensive both on a square foot basis and based on a comparison of energy delivered (see below for a normalized comparison).

DOER’s comparison of this year’s consumer heating expenditures versus the previous years’ shows an increase in all consumer heating expenditures this winter: See Table 1 below:

Table 1: 2017-18 Estimated Average Residential Winter Heating Bills

Heating Fuel Estimated Expenditures Change From Last Year
Natural Gas $846 13%
Heating Oil $2,278 17%
Propane $2,248 10%
Electric $738 17%

Figure 1 provides a summary by fuel type of this winter’s projected average residential heating bills and the past five heating seasons. See Table 4 for the corresponding numbers.

Figure 1: Estimated Average Residential Winter Heating Bills by Fuel

Data source: U.S. DOE/EIA; Mass. Utility Filings, DOER State Heating Oil and Program Pricing (SHOPP) surveys.

As noted above, Figure 1 is calculated based on costs associated with the average household usage by fuel type and is a useful comparison year to year for any one fuel type. This chart should not be used to compare one fuel type to another because it is not normalized for factors that affect fuel usage such as size of household or square footage.

Table 2 shows a comparison (normalized) among fuels for the same household that uses the same equivalent amount of fuel, without differences due to square footage or variations in fuel usage. In this example, the costs of fuels relative to each other are evident.   

Table 2: Cost of Heating Fuels Assuming an Household Using an Equivalent Amount of Fuel

  Heating Season  
  2016-2017 2017-2018
Heating Fuel    
Natural Gas $1,280 $1,569
Heating Oil $1,949 $2,278
Propane $3,331 $3,744
Electric $6,102 $7,188

Comparison of Heating Fuel Costs on a Unit Basis

Fuel costs can also be compared on a unit basis are shown in Table 3 and Figure 2. The unit of measure across fuels uses energy intensity expressed as millions of British thermal units (MMBtu), (One Btu is the heat required to raise the temperature of one pound of water by one degree Fahrenheit.)-U.S. EIA). Based on this measure of energy intensity, Table 3 and Figure 2 depict electricity as the highest cost fuel on a unit basis as well.

Table 3: 2017-18 Average Prices of Heating Fuels per Millions of British Thermal Units (MMBTU)

Heating Fuel

$/MMBTU

Change From Last Year

Natural Gas

$13.98

7.2%

Heating Oil

$20.48

10.2%

Propane

$33.37

6.0%

Electric

$64.07

11.1%

Figure 2: Measuring Energy Intensity of Heating Fuels by Prices per Millions of British Thermal Units (MMBTU)

Data source: U.S. DOE/EIA; utility filings; and DOER customer migration data

Figure 2 depicts traditional heating fuels such as oil and propane.  However, there are new technologies such as renewable thermal technologies that are providing reduced heating costs (see below).

Factors Affecting Projected Heating Costs

Anticipated Higher Crude Prices and Colder Weather Driving up Demand Lead to Higher Residential Bills

Natural Gas: Based on the utilities’ natural gas filings at the Department of Public Utilities (DPU). DOER estimates that the projected natural gas price this winter will increase to an average $14.00/MMBtu ($1.40/therm) compared with $13.00/MMBtu ($1.30/therm) last winter. Consumption of natural gas is expected to increase due to forecasted colder winter temperatures than last year and the continued increase in demand for natural gas for electric generation across the U.S.  In 2016, the Northeast added pipeline capacity for the first time since 2010 when the Algonquin Incremental Market (AIM) Project came online to deliver gas from the Marcellus region in Pennsylvania to New England.  In addition, the Salem Lateral (in Salem, MA) was also completed.  These projects will help move natural gas to demand centers into New England, however; additional capacity is needed and consumers could still experience localized price volatility during periods of very cold temperatures.

Heating Oil: Higher heating oil prices reflect higher crude oil prices. The U.S. EIA estimates that the cost of Brent crude oil spot prices will average $54/ barrel this winter, an increase of about $2/barrel (6 cents/gallon) from last winter. The increase in crude prices is attributed to the gradual tightening of global oil supplies. Another reason for higher heating oil prices is that stocks of distillate fuel, while still within the five-year average, are lower than last year by about 16.8 million at 35.5 million barrels.  The lower stocks are a result of high demand for U.S. distillate exports coupled with refinery outages caused by Hurricane Harvey.  Refineries in the Gulf are expected to make up these shortfalls as the season goes along. 

Propane: Propane is impacted by higher crude oil and natural gas prices, as these are the fuels used to make propane. As a result of higher crude oil prices, propane prices are expected to rise about 6% this winter. While supply issues that have occurred in past years such as the prolonged cold weather throughout the U.S. during the winter, or late season crop drying in the Midwest resulting in high usage of propane stocks are not expected to reoccur, rising exports to international markets could impact available supply and drive up prices.

Electricity: Based on filings by the Electric Distribution Companies with the DPU, basic service, also known as energy supply prices, for Massachusetts utilities will increase for this winter. This is largely due to higher natural gas prices since natural gas is the primary fuel used for electric generation in the region. DOER estimates the total retail residential rates (supply plus distribution rates) will increase about 11% from 19.67 cents/kWh last winter to 21.86 cents/kWh this winter. This increase coupled with higher consumption due to colder temperatures will increase total expenditures for electric heat by 17%. Municipal electric heat customers should check with their individual utility for prices.

Renewable thermal technologies, including cold climate heat pumps, solar water heating, biofuels, and biomass pellet heating, are attractive new technologies now entering the market that can offer homeowners significant energy costs savings. DOER is supporting these emerging technologies, as outlined on DOER’s website under Renewable Energy.

For consumers interested in following energy markets and prices throughout the heating season, the U.S. DOE’s Energy Information Administration (EIA) tracks energy prices and the issues influencing them. This information is published in, “This Week in Petroleum” (TWIP) on DOE’s website, www.eia.doe.gov. To assist in tracking factors impacting all heating fuels, EIA also publishes the “Annual Winter Fuels Outlook” as part of its monthly Short-Term Energy Outlook.

2017-18 Winter Weather Expected to be Colder than Last Winter

While fuel costs are the primary factor in establishing winter heating prices, winter weather is the other driver having a significant impact on heating bills, as energy expenditures are a function of fuel usage. Colder weather leads to higher usage and warmer weather leads to lower usage. DOER expects that heating fuel usage, calculated based on projected Heating Degree Days (HDD-see definition below) will be higher than last winter, increasing consumers’ heating expenditures. Nationally, The National Weather Service (NWS) forecasters expect winter temperatures to be 13% colder overall this winter than last winter but 2% warmer than a “normal” winter, as measured by the 10-year average of Heating Degree Days. For Massachusetts, this winter is expected to be 2% warmer than normal but 6% colder than last winter. Colder weather will lead to higher consumption for consumers for this winter.

Based on these predictions and higher fuel costs for natural gas and crude oil, DOER is projecting an increase in fuel bills for all residential heating fuels this winter heating season. 

Opportunities to Save on your Heating Bills

Massachusetts offers a wide variety of financial incentives for all consumers to save on their energy bills, including no-cost programs and enhanced incentives for income eligible customersThe statewide Mass Save® program offers no-cost home energy assessments, rebates on efficient heating equipment as well as 0% financing for major energy efficiency measures.  Residents can reach the Mass Save program at 1-866-527-SAVE (7283)

Additionally, the Massachusetts Clean Energy Center offers rebates for air source heat pumps, ground source heat pumps, modern wood heating, and solar hot water through its Clean Heating and Cooling Rebate Programs.

DOER has also recently promulgated changes to its Alternative Portfolio Standard (APS) that allow consumers to receive compensation for heat that is generated by renewable heating and cooling technologies such as heat pumps, solar thermal, woody biomass, liquid biofuels, and biogas. Eligible facilities receive certificates for the heat they produce, which can then be sold to retail electricity suppliers that must purchase a certain amount of certificates each year.

Customers of municipal light plant companies (MLPs) can also often access similar benefits through the HELPS or other energy efficiency programs.

For a complete list of available incentives visit The Commonwealth Energy Tool for Savings (energyCENTS) that provides a single entry point to all of the energy saving opportunities, including MassSave and Low-Income Energy Assistance (LIHEAP) program. Consumers of the electric distribution companies can also shop for their generation service via the Commonwealth’s EnergySwitch site.

Further Background Data on Heating Prices

Comprehensive Household Heating Data for Average Residential Customers

Table 4 provides the comprehensive average residential pricing and consumption data for the past five years and estimates for this heating season.

Table 4: Household Heating Fuel Consumption and Expenditures

Definitions

Heating Degree Days: Heating degree day (HDD) is a measurement designed to reflect the demand for energy needed to heat a building. It is derived from measurements of outside air temperature of 65 degrees. The heating requirements for a given structure at a specific location are considered to be directly proportional to the number of HDD at that location. The difference between the average daily temperature and the base temperature of 65 degrees is the heating degrees for that day.

Space Heating: The use of energy to generate heat for warmth in housing units using space-heating equipment. The equipment could be the main space-heating equipment or secondary space-heating equipment. It does not include the use of energy to operate appliances (such as lights, televisions, and refrigerators) that give off heat as a byproduct (U.S.EIA)

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