The natural gas cost crisis is real, is projected to worsen, and presents a particularly crucial concern for states in the Midwest. For a variety of reasons, natural gas is an especially important commodity for the Midwest region. Two factors are particularly noteworthy. First, compared to other areas of the nation, the Midwest has a large concentration of heavy industries that are very reliant on natural gas, for both fuel and feedstock purposes. Thus natural gas price increases have a disproportionate impact on the economy of this region.

Second, the Midwest has a very high saturation of natural gas fueled space heating. Due to the high heating load, average residential natural gas bills in the Midwest are nearly four times as much as the national average. Moreover, in the Midwest climate zone, space heating can literally be a life or death issue. Thus natural gas price increases are not only a painful economic blow in the Midwest, they can be a significant health and safety issue as well.

As a result of these factors, the Midwest bears a very heavy cost burden for natural gas. In 2002, before the dramatic increases in natural gas prices, customers in the Midwest were spending over $26 billion on natural gas utility bills. Since then, wholesale natural gas prices have doubled, and are projected to reach levels triple those of the previous decade in the next couple of years. By the time these wholesale price increases flow through into customer rates, natural gas utility bills for the region are projected to reach nearly $40 billion by 2006.

This kind of dramatic cost increase would be bad enough, but it presents a particularly serious financial blow to the Midwest because the region is almost totally dependent on natural gas supplies imported from other states and countries (92 percent of total natural gas consumed in the Midwest is imported from outside the region). This results in a huge dollar drain on the regional economy. (Table 6 on page 13 of the main body of this report shows the extent of the dollar drain for each individual state and for the region as a whole.)

In recognition of these circumstances, and building upon a highly successful national study (Elliott et al. 2003), ACEEE launched the current study to examine the potential for energy efficiency to help address the natural gas crisis in the Midwest.

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108 pp., 2005, $50.00, U051