Energy Policy

Propane Price Increases During the Winter of 1996-97 Gao ID: RCED-98-52R December 16, 1997

Pursuant to a congressional request, GAO reviewed the: (1) factors that caused the propane price increases during the 1996-1997 heating season; and (2) options available to the government to cushion the potential effects of propane price increases on low-income residential consumers.

GAO noted that: (1) several factors have been cited as causing or contributing to the sharply increased residential prices for propane in Arkansas, South Dakota, and elsewhere in the United States during the 1996-1997 heating season; (2) these factors include cold weather, the need to dry wet crop in the Midwest, and the low inventory of propane going into the heating season; (3) other factors include pipeline problems and the fact that U.S. propane production did not rise much despite higher demand; (4) without imports, prices would likely be higher; (5) the federal government has two programs that offer several options to help cushion the effects of propane price spikes on low-income consumers: (a) the Low-Income Home Energy Assistance Program (LIHEAP), which is administered by the Department of Health and Human Services (HHS); and (b) the Weatherization Assistance Program, which is administered by the Department of Energy; (6) in 1997, LIHEAP's appropriations were $1.2 billion, down from $2.1 billion in 1985; (7) expenditures for weatherization have also declined from $191 million in 1985 to $121 million in 1997; (8) according to officials from the propane industry and from state and federal governments, there are several options for using LIHEAP funds, which are disbursed by HHS to states, that could help cushion the effects of propane price increases; (9) LIHEAP's funds could be used to purchase more propane during the summer when propane prices are lower; (10) these funds could also be used to negotiate fixed-price contracts during the summer as a hedge against potential price increases; (11) however, the current federal appropriations cycle does not make funds available to LIHEAP until October 1, too late to take advantage of the lower prices in the summer; (12) according to South Dakota and Arkansas LIHEAP officials, their funds are generally depleted between October and April; (13) in addition, the funds can be used to implement the LIHEAP leveraging incentive program; (14) states receive extra LIHEAP funds from HHS for the savings achieved through these programs; (15) the Weatherization Assistance Program provides its recipients with such services as installing insulation and ventilation fans, performing heating and cooling tune-ups and modifications, and replacing units to improve energy efficiency and safety; and (16) these activities can increase home heating efficiency by up to 30 percent for the recipients, thus lowering the heating bill that they would otherwise pay.

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