Consumers hit hard by rising utility bills
Crude oil prices climb to a 10-month high, affecting the cost of heating and rippling through the economy.
Thanks to Mother Nature, almost everyone will be paying more for energy this winter.
Finger-numbing cold, whipping winds, and earlier-than-usual blizzards are all helping to drive up the prices of home heating oil, natural gas, and even gasoline, which normally declines in price this time of year. This week, crude oil topped $35 a barrel, a 10-month high.
Combine the weather with tight oil supplies, and experts see little prospect for relief soon. "If oil supplies are tight now, there is very little room for a decline in prices in our review," says Dave Costello of the Energy Information Administration, part of the Department of Energy. "There is probably very little relief for 2004."
Higher energy prices are not good for the economy. They act like a tax on consumers, causing them to shell out disposable income. For the poor, it may mean the difference between keeping warm and eating. For corporate America - everyone from struggling airlines to long-haul truckers - it's another expense to absorb.
Last winter's temperatures were moderately cold, which helped to drive prices higher. So far this winter, prices are even higher. Home heating oil costs 6 cents a gallon more; natural gas is up 12 cents per therm; a gallon of gasoline is almost 11 cents higher. Still, energy prices are not yet as high as four years ago, when the United States had a brutal winter.
Although consumers are starting to see higher prices, it will be even more noticeable soon. Some utilities are just getting approval to raise rates for higher natural-gas prices six months ago. "There could be a whole lot of sticker shock at the beginning of the month," says John Felmy of the American Petroleum Institute in Washington.
More problems could arise if temperatures are below normal for an extended period. Crude-oil inventories are at their lowest level since 1975. "This low level of stocks is a sign of growing demand, and there is not a whole lot of new supply out there," says Mr. Costello.
The low inventories are actually part of a recent trend: Oil companies are carrying such levels as part of their "just in time" delivery system. "Carrying inventory is an insurance policy against disruption, and the oil companies must feel it's not worth having the insurance," says David Wyss, chief economist at Standard & Poor's.
Despite low inventories, there are no shortages yet, says John Huber, president of the National Oil Heat Research Alliance.
The price hikes hit low-income people the hardest. Preliminary data indicate a 10 percent increase in people applying for assistance with energy bills, says Mark Wolfe of the National Energy Assistance Directors' Association. "There will be a record number of people applying," he predicts.
At the same time, overall funding under the Low Income Home Energy Assistance Program (LIHEAP) will decrease this year from $2 billion to $1.9 billion. The main change is in emergency funds, which were cut from $300 million to $100 million. "If prices stay high and the number of people asking for assistance keeps increasing, the president will have less money to address those needs," says Mr. Wolfe.
In some areas of the country, those needs will soon become very pressing. For example, in Boston, the ABCD Fuel Assistance Program says the higher prices and cold winter mean that almost all 15,000 low-income people receiving assistance are almost out of their benefits. "There's just not enough income to pay the bills they get," says John Wells of ABCD. "The math just doesn't add up."
Those living on fixed incomes are particularly vulnerable when prices rise. Take Margaret Nock, a senior living in Boston's Dorchester section. She has a monthly income of $1,210, but her fixed expenses, not including utilities and food, come to $1,400. Now she's opting to spend money to stay warm. "My taxes are unpaid and should have been in," she says, "but I don't have the money to pay them right now."
• Adam Parker contributed to this report.