Home Heating Costs Expected to Spike as Winter Gets Back to 'Normal'

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Cold weather heating costsNew England's dependence on fuel oil for heating is putting the region in the energy crosshairs this winter, with the average heating oil price projected to hit a record $3.81 per gallon.

The National Oceanic and Atmospheric Administration (NOAA) says it currently looks like the US winter will be slightly warmer than normal, but not nearly as warm as last winter in much of the nation.

Last season was "the winter that didn't come in a lot of cases," Michael Halpert, NOAA Deputy Director, Climate Prediction Center, told the National Association of State Energy Officials/Department of Energy Winter Fuels Outlook conference.

This year looks like a return closer to normal -- which means much colder winter temperatures in the central and eastern regions that last year stayed well above forecast temperatures, Halpert said.

Energy Information Administration (EIA) chief Adam Sieminski says that forecast means more days heat will be needed, with consequent higher total household heating bills -- up to 19% higher for fuel oil, even though the price of fuel oil is expected to rise on average only 2% from last year. Other fuel bills will also rise: 15% for natural gas, 13% for propane, and 5% for electric heat, though prices for those fuels will rise little or drop.

Pipeline Bottlenecks, Fuel Switching and LNG

But hidden in the averages are regional differences that make New England, especially, an area of concern, said Bruce Henning, Vice President, Energy Regulatory and Market Analysis, ICF International.

Natural gas, the dominant home heating fuel in much of the country, is in ample supply at low prices. In New England, many householders have been switching from oil to natural gas heat. But New England electric generators are also switching, putting a strain on the limited pipelines delivering into the region from Pennsylvania, the Southeast and Canada.

The region has three liquefied natural gas (LNG) terminals, but LNG is significantly more expensive than pipeline gas.

Henning said power generators usually have non-firm supply, and a peak in winter heating demand could mean no natural gas for some electricity generation.

Moreover, parts of New England have no access at all to natural gas, and about one in four of the area's homes still depend on fuel oil, a far higher percentage than any other part of the nation, according to EIA.

Last season was "the winter that didn't come in a lot of cases," -- Halpert, NOAA

There are positive signs for fuel oil supply. Sieminski said inventories of heating oil are now low because the price has been higher in Europe. That situation has just recently reversed, and more supply is coming to, or staying in, the US.

Another good sign, Sieminski said: A major refinery near Philadelphia, with 16% of East Coast refining capacity, has come back on line after nearly being shut for good. Several pipeline expansions bringing refined products from the southeast have also been completed, he noted.

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But if there's an early cold snap in the Northeast, supplies could be strained and prices could spike, Sieminski warned.

Edward Morse, Managing Director, Global Head of Commodity Research, Citi Group Global Markets, said this year could be a test for the Northeast Home Heating Oil Reserve.

That reserve, established in 2000 after severe winter conditions left some areas short of fuel, was trimmed back last year from 2 million to 1 million barrels, since significant private storage had been built.

Morse said a sustained winter price spike in New England could trigger the first-ever release of reserve supplies.

Sieminski said that, under the law, a decision on any release would be up to the president.

The above post originally ran on AOL Energy.

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Home Heating Costs Expected to Spike as Winter Gets Back to 'Normal'

Article by Michael B. Sauter, Charles B. Stockdale, Ashley C. Allen of 24/7 Wall St.

2011 budget shortfall as a % of general fund: 27.2%
2011 budget shortfall: $365 million
2012 projected budget shortfall: 18.4% (8th largest)
GDP change (2006 – 2010): +7.5% (11th smallest increase)
Median home value change (2006 – 2010): -4% (12th largest decline)

New Hampshire is often considered to have weathered the recession better than most states. It has one of the strongest economies in the country in many respects. Its poverty rate is a modest 8.1% — the lowest among the 50 states. However, the state did not make it through the recession completely unscathed. Home values dropped 4% from 2006 to 2010, the 12th largest amount, and GDP increased only a small amount compared to other states. New Hampshire’s budget shortfall was the 10th largest in percentage terms. To fight the deficit, the state has enacted a hiring freeze and cut a number of services. It reduced the number of state hospital beds by 15, a change that will result in 500 fewer patients treated per year. It has also cut funds to 10 mental health centers for children’s support services. Despite all these measures, New Hampshire’s projected 2012 budget shortfall is the eighth largest.

2011 budget shortfall as a % of general fund: 28.8%
2011 budget shortfall: $5.1 billion
2012 projected budget shortfall: 14.7% (14th largest)
GDP change (2006 – 2010): +12.8% (17th largest increase)
Median home value change (2006 – 2010): -3.4% (13th largest decline)


In the past two years, Connecticut has had a combined budget shortfall of just under $10 billion. In 2010, the state spent 27.0% more than its available funds, and in 2011 it spent 28.8% more. Connecticut was not hit as badly as some states by the recession, but home values still dropped 3.4% between 2006 and 2010. During that same period, poverty increased the third-most in the country, from 8.3% of households to 9.7% of households. In order to account for the substantial budget gaps, Connecticut cut government employee salaries, as well as funds for K-12 and higher education. The governor also made substantial budget cuts to programs aimed at preventing child abuse and providing foster care for neglected children.

2011 budget shortfall as a % of general fund: 29.6%
2011 budget shortfall: $4.6 billion
2012 projected budget shortfall: 15.3% (13th largest)
GDP change (2006 – 2010): +13.4% (12th largest increase)
Median home value change (2006 – 2010): +1.6% (2nd smallest increase)


Washington’s home values actually increased between 2006 and 2010, but only by 1.6% — an exceptionally small amount compared to other states. On the other hand, the state’s economy recorded a double-digit growth rate. Still, this was not enough to save the state from its budgetary shortcomings. Because of its $4.6 billion budget gap, the state cut public safety funding, assistance for the mentally and physically disabled, and education funding, among others. The state also increased premiums for a health plan that serves low-income residents.

2011 budget shortfall as a % of general fund: 30.6%
2011 budget shortfall: $5.8 billion
2012 projected budget shortfall: 12.1% (21st largest)
GDP change (2006-2010): +12.1% (21st largest increase)
Median home value change (2006-2010): +12.4% (15th largest increase)


Compared to most states, North Carolina actually fared relatively well during the worst years of the recession. GDP and home values increased substantially, while median income and poverty rates did not worsen by much. Despite this, the state has had high budget gaps for each of the past three years. In 2011, the state had a budget shortfall of $5.8 billion, or 30.6% of available resources. In order to balance the budget, the state was forced to make across-the-board cuts to public health, the elderly and disabled, K-12 education, higher education and the state workforce. The state slashed 21% of funding to a program that pays for nurses and social workers in low-income schools. Because of the cut, 20 schools were left without a nurse or social worker.

2011 budget shortfall as a % of general fund: 31.3%
2011 budget shortfall: $338 million
2012 projected budget shortfall: 14.3% (15th largest)
GDP change (2006 – 2010): +8.3% (tied for 14th smallest increase)
Median home value change (2006 – 2010): +12.4% (18th largest increase)


Vermont was hit extremely hard by the recession. The percentage of people living below the poverty line increased by 13.6% between 2006 and 2010 — one of the largest increases in the country. And while the state’s GDP increased over that period, it only grew a small amount compared to other states. One way Vermont has attempted to bridge its budget gap is by closing the state court system for half a day each week. Other measures include a hiring freeze and cuts to higher education operating funding and financial aid.

2011 budget shortfall as a % of general fund: 34.7%
2011 budget shortfall: $940 million
2012 projected budget shortfall: 13.8% (16th largest)
GDP change (2006 – 2010): +8.3% (tied for 14th smallest increase)
Median home value change (2006 – 2010): +5% (26th largest increase)


Maine is another state that conflicts with the assumption that states with severe budget shortfalls were the only ones hit hard by the recession. Median home value actually increased 5% in the state, and the poverty rate dropped the third-most in the country. Nevertheless, Maine faced a $940 million budget shortfall in 2011, worth 34.7% of available funds for that year. In 2011, the state made cuts in every major funding category and to CHIP and Medicaid. It has also instituted hiring freezes for state employees. For the 2012 fiscal year, Maine is again projected to have a budget shortfall, this time of $422 million. In light of this, the state cut temporary cash assistance and food stamps to legal immigrants who have been in the country less than five years.

2011 budget shortfall as a % of general fund: 38.2%
2011 budget shortfall: $10.7 billion
2012 projected budget shortfall: 36.0% (2nd largest)
GDP change (2006 – 2010): +7.1% (10th smallest increase)
Median home value change (2006 – 2010): -7.5% (9th largest decline)


Homevalues in New Jersey dropped 7.5% between 2006 and 2010, the ninth largest decline. For the third year in a row, the state has initiated deep cuts to close its budget gap. The state made the eligibility requirements for its public health insurance program more strict. As a result, approximately 50,700 low-income adults will lose access to health care coverage, according to CBPP. The state cut funding to after-school programs, which will affect 11,000 students and cause 1,100 staff workers to lose their jobs. That is on top of already cutting 2,000 state positions. Despite all of these changes, the state’s projected budget shortfall for 2012 is only 2.2 percentage points lower than this year’s and the second-largest among the states.

2011 budget shortfall as a % of general fund: 39.0%
2011 budget shortfall: $3.3 billion
2012 projected budget shortfall: 17.0% (10th largest)
GDP change (2006 – 2010): +2.7% (4th smallest increase)
Median home value change (2006 – 2010): -28.6% (4th largest decline)


Like its neighbor Nevada, Arizona was hit particularly hard by the subprimemortgage crisis. Between 2006 and 2010, median home values plunged 28.6% in the state, the fourth worst price drop in the country. GDP, poverty and income levels have either stagnated or become significantly worse during this period. Since 2009, the state has had among the worst budget gaps in the country, a combined total of $12.1 billion for the three years. To balance its budget, Arizona has made dramatic budget cuts, including revoking Medicaid eligibility of more than 1 million low-income residents and cutting preschool for more than 4,000 children.

2011 budget shortfall as a % of general fund: 40.2%
2011 budget shortfall: $13.5 billion
2012 projected budget shortfall: 16.0% (11th largest)
GDP change (2006 – 2010): +8.2% (13th smallest increase)
Median home value change (2006 – 2010): -4.2% (11th largest decline)


Illinois has consistently had among the largest budget shortfalls in the country since 2009. It also was hit extremely hard by the recession. Between 2006 and 2010, home values decreased by 4.2%. GDP grew a relatively small 8.2%. Median household income increased less than 2%. The state made cuts in its budget for community mental health services for both children and adults, and it cut its school education funding by 4%, or $311 million. Governor Pat Quinn has announced also that he will lay off thousands of state employees.

2011 budget shortfall as a % of general fund: 54.5%
2011 budget shortfall: $1.8 billion
2012 projected budget shortfall: 37.4% (the largest)
GDP change (2006 – 2010): +1.2% (smallest increase)
Median home value change (2006 – 2010): -44.5% (the largest decline)


No state has suffered during the recession more than the state of Nevada. Between 2006 and 2010, home values plummeted a staggering 44.5%, the poverty rate increased 26%, median income dropped 3.8% and GDP increased only 1.2%. Each was the worst in the country for that category. Last year, Nevada’s budget gap was $1.8 billion, the equivalent of 54.5% of available funds. This was the third year in a row the state has had one of the worst shortfalls in the country, and that trend appears ready to continue through at least 2013. In order to balance its budget last year, Nevada was forced to raise taxes significantly, cut dental and vision services from Medicaid coverage for adults and reduce financial aid funding and state employee salaries.

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