Penny Osborn never before needed help with the cost of heating, but the 57-year-old physician's assistant had been out of work most of last year recovering from cancer surgery. And as cold weather set in, she faced an $855 bill to fill up the oil tank of her Colfax, Iowa, home—a delivery that would last only half the winter and already cost more than she paid for heat all last season. Osborn was able to fuel up only with federal and state energy assistance, which defrayed about 60 percent of the cost of her first provision of oil.
Unfortunately, two days after that delivery—while Osborn and her 78-year-old mother, who shares her home, were visiting relatives on Thanksgiving Day—a thief siphoned her oil tank dry. "It rated right up there with getting the diagnosis of cancer," Osborn says of the discovery. With temperatures below freezing throughout December, she borrowed money from friends to buy enough oil until her doctors cleared her to work again. "My prayer is that I'll find work very shortly," Osborn says.
Although Osborn's run of misfortune was unusual, the same kind of sticker shock is rattling households in all cold-weather states. The average cost of U.S. home heating this winter is expected to be up 11.2 percent over that in 2006-07, with the price tag of $989 expected to surpass even that following Hurricane Katrina, when the fuel supply was squeezed. And the situation is far worse for the 7.9 million American households that use heating oil, because its price is directly tied to the volatile global crude market. For them, the average heating bill is estimated to be $2,019, up 37.6 percent over last year.
"Going into 2008, we had expected oil prices to start easing," says Tancred Lidderdale, analyst for the U.S. Energy Information Administration. But the close match between global oil supply and demand—the tight market—means geopolitical tensions and market worries can have a large impact on price, he says. "And all the tightness in the market is showing up in heating oil" when it is in peak demand, Lidderdale says.
Sharply higher heating costs have become a reality for all Americans, no matter what fuel they use. For the majority of households, about 58 percent, that heat with natural gas, the cost of making it through the winter is up 90 percent over that during the winter of 2001-02. And consumers are having a harder time paying. The National Regulatory Research Institute found that past-due gas utility accounts rose from 16.5 percent in 2001 to 21 percent in 2006.
Last winter, the problem became especially severe in Minnesota, where an unprecedented 26 percent of CenterPoint Energy's customers had fallen behind in paying their gas bills, leaving the utility looking at $106 million in accounts receivable by spring—more than double the amount a year earlier. "Higher energy prices on top of the overall economic situation, the credit and mortgage crunch, and the fact that the federal [energy assistance] support hasn't kept up—it was the layering effect of all these things," says Scott Prochazka, CenterPoint's vice president for customer service. CenterPoint worked aggressively to help customers wipe out their delinquencies, successfully cutting its receivables by more than half.
The process was not without pain. Minnesota, like most states, limits utilities from cutting off service to households during cold weather. But when warm weather returned, CenterPoint disconnected 30,000 Minnesota customers from gas service until they agreed to payment arrangements—six times the number of disconnections in 2006. (Close to 90 percent of the disconnected residences were back in service by winter.)
At the same time CenterPoint was noticing another trend—a 61 percent increase in customers paying by credit card. Indeed, a survey by CreditCards.com found that nearly 9 percent of Americans—an estimated 20 million consumers— say they will use credit cards to pay heating bills this winter. Strikingly, the lowest-income households were the likeliest to pay utility bills on credit.