Mellody Hobson: Don't Get Burned on Home Heating Costs
Oct. 12, 2005 — -- Natural gas prices could rise up to 77 percent in the Midwest this winter, and home heating oil prices could increase as much as 33 percent, according to the U.S. Energy Information Administration. And those estimates were made prior to Hurricane Katrina.
"Good Morning America" financial contributor Mellody Hobson discussed what these potential increases mean for the average consumer.
Mellody's Math
A household that used 800 gallons of heating oil a year at $1.92 per gallon would pay $1,536. At $3 per gallon, the cost would climb to $2,400. For the approximately 8.1 million households that use home heating oil – mostly located in the Northeast – this will be a huge hit to the wallet. In fact, in New England, heating oil costs an average of $1.94 a gallon, up from $1.33 a gallon at the same time last year.
Am I still able to lock-in rates for my heating costs this winter?
Unfortunately, if you heat your home with heating oil, it may be too late to lock in a rate, as pre-pay programs typically require a commitment by the end of August. However, in some regions of the country, there are residential choice programs that may enable you to get a more competitive rate for your heating costs. You should contact your local utility to see if they offer such a program, which would allow you to use different providers.
For example, People's Energy in Chicago has a program called Choices for You, which is similar to what most major utility companies across the country offer. Participating suppliers may be able to provide pricing and service options that large utilities cannot. You may be able to find a provider offering a fixed price for the natural gasoline, which would "insulate" you from fluctuations in the market price of gasoline.
What can I do to save on home heating costs this winter?
Weatherize. There are several ways to reduce your heating bills, but first and foremost, it is critically important to weatherize. Weatherization of your home lowers energy use between 10 percent and 50 percent, helping you to save money in the long run. One easy way to weatherize is to keep your fireplace damper closed unless you have a fire going. Otherwise, 8 percent of your heat can escape through the chimney.
Audit yourself. A home energy audit is one of the best things you can do to cut down on energy costs and it can result in hundreds of dollars in savings. Commonwealth Edison in Chicago, for example, offers a free online audit service that enables you to enter information about your home, to determine what your energy cost should be. Other energy companies or outside organizations offer in-home audits by an energy auditor, for a fee (typically $100 to $500).
Lower the dial. Turn down your thermostat – most people can be comfortable at a setting of 68 to 70 degrees. Each degree higher than that can increase your heating costs by 1 percent to 2 percent. Energy-efficient winter settings are 68 degrees in the daytime and 55 degrees at night.
Government assistance programs. The federally funded Low Income Home Energy Assistance Program provides free weatherization services to low-income families, as well as financial assistance to help offset the costs of heating and cooling. As each state has its own income limits and other requirements for energy assistance, you need to contact your state LIHEAP office to find out if you are eligible.
For example, if your household consists of a family of four in Illinois, your income must be $29,025 or less to be eligible for assistance. In Illinois, the average amount of assistance received in fiscal year 2004 for heating was $400, with a minimum of $100 and a maximum of $1,045.
Nonprofit organizations. There are many nonprofit organizations that provide assistance to those who need help with their heating bills. Two examples would be the Washington Area Fuel Fund, serving Washington, D.C., and the Citizens Energy Oil Heat Program in Massachusetts.
Give the gift of heat. Some energy companies, such as People's Energy in Illinois, offer the ability to give gift cards in various amounts which can help your friends and family pay their heating bills.
Mellody Hobson, president of Ariel Capital Management (arielmutualfunds.com) in Chicago, is ABC News' personal finance expert. Matthew Yale and Aimee Z. Daley contributed to this report.