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Home Energy Prices Are Expected to Soar

Jad Mouawad |The New York Times
Wednesday, 6 Aug 2008 | 4:08 AM ET

In a season of roller-coaster energy costs, the drop in oil and natural gas prices in recent days was greeted as good news. But they remain so high that experts are predicting that heating bills this winter will far exceed those of last year.

Worker hauls his hose back to the truck after delivering home heating oil.
Worker hauls his hose back to the truck after delivering home heating oil.

Even after a precipitous decline from its peak in early July, the price of natural gas is still 11 percent above where it was last winter.

Heating oil is 36 percent higher, with the government projecting that the costs of both fuels will stay high. Electricity prices are also up moderately.

Higher heating costs will hit particularly hard in the Northeast, where many people use heating oil.

Given how unpredictable energy markets have become, most fuel dealers are not offering their customers price protection plans, or locked rates, as they typically do at this time of the year, said Dan Gilligan, president of the Petroleum Marketers Association of America, the biggest trade group for fuel retailers.

Locking in such protection makes sense in the summer when heating oil normally sells at a discount and consumers can expect prices to rise in the winter. This year, however, few households are willing to take a bet on where energy prices may be headed. Retail heating oil is selling today at around $4.50 a gallon, compared with $3.30 last winter and less than $2 a gallon only three years ago.

“The market has been completely turned on its head this summer,” said Andrew Heaney, who runs a New York heating oil cooperative, Heat USA. “I’ve been in this business for 15 years, and this is the most volatile we’ve ever seen.”

A recent editorial in a small-town Vermont newspaper warned of calamity. Record heating oil prices “could be New England’s own Katrina disaster,” wrote The Stowe Reporter.

“The cost of energy is getting out of reach,” said Mark Wolfe, the executive director of the National Energy Assistance Directors’ Association, which represents state programs offering help to poor households.

“It’s not just going to affect poor people, but also moderate to middle-class households. People are going to become more impoverished to pay for heating this winter.”

Heating oil retailers face another problem. Given the nation’s credit crisis, many say they are finding it hard this year to get new credit lines from banks to help them cope with the rise in prices. As a result, they are not building inventory as much as they would in a normal year, Mr. Gilligan said.

“The cost of hedging has become very pricey,” he said. “People are going to have a tough time,” said David Moody, the dispatcher and a driver at Flynn’s Oil Company, a small distributor in Exeter, N.H. “We are trying to avoid having angry customers. Having angry customers before the start of winter, well, that’s not good business.”

The average heating oil bill in states like Massachusetts, Maine and New Hampshire, in a region where eight million households use heating oil to fire their furnaces, is set to jump by as much as $1,500 this winter compared with last year, according to estimates derived from the government’s latest forecasts for energy prices.

Amid a slowing economy, high energy costs are weighing heavily on pocketbooks, and have become a major political issue. Airlines and automakers have posted billions of dollars in losses, consumers have cut some of their spending to compensate for costlier gasoline, and soaring energy prices have contributed to inflation across the economy.

But Democrats and Republicans are deeply split about how to respond. The deadlock in Washington was apparent last month when the Senate failed to pass a bill to double energy assistance to low-income households because Republicans insisted on including measures to allow for more offshore drilling.

“This could be the winter of our discontent,” said Daniel J. Weiss, a senior fellow at the Center for American Progress. “This is going to have a huge impact. It will start to pinch people in September and October and could influence this fall’s elections. Remember, it is much easier for people to drive less than it is to heat less.”

Consumers are not entirely powerless, of course, and have already started to react to higher energy bills. Gasoline consumption is down by 2.4 percent in the last month, compared with the same period last year, according to the latest figures from the Department of Energy.

Oil futures, which reached a record of $145.29 last month, closed at $119.17 on the New York Mercantile Exchange on Tuesday. Gasoline prices have also declined after reaching a nationwide peak of $4.11 a gallon. Gasoline is now selling for $3.87 a gallon on average, according to AAA, the automobile group.

Heating oil futures settled Tuesday at $3.28 a gallon, down 2 percent. Retail prices can add $1 a gallon or more to futures prices after marketing and distribution costs. “The deteriorating demand picture reinforces our belief that oil prices are approaching a tipping point,” energy analysts at Lehman Brothers said in a report last week. They forecast crude oil prices to average $90 a barrel by the beginning of next year.

With prices still high, policy makers are under pressure to act. While Democrats want to rein in what they see as excessive speculation in commodity markets and have proposed to release some oil from the nation’s strategic reserves, Republicans are pressing to open more areas to offshore drilling. This deadlock has prevented the passage of any energy legislation lately, although many experts say there is little Congress can do to reduce prices in the short term.

“It is one thing if you can’t drive your car, but it is quite another thing if you can’t stay warm on a cold winter night,” said former Representative Joseph P. Kennedy II, the president of Citizens Energy, a nonprofit organization that provides low-cost energy assistance to poor people.

Mr. Kennedy and others have urged Congress to provide more money for the federal energy assistance program, which helps poor households pay their energy bills. But a proposal to double the program’s financing to $5.1 billion failed in the Senate two weeks ago by 50 to 35, as Republicans opposed the bill because it did not include any provision to increase domestic energy supplies, and the White House threatened to veto it.

At last year’s financing level of $2.5 billion, only 16 percent of households eligible for energy aid received money from the program, called the Low Income Home Energy Assistance Program, and known as Liheap.

Senator Bernie Sanders, Independent of Vermont, said before the vote, “The economy is tough, and the reality is that we will have people freezing to death this winter if there is no substantial increase in Liheap funding.”

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