Winter-Heating Crisis Looms in the Northeast

By John J. Fialka
From The Wall Street Journal Online

WASHINGTON -- As fuel prices surge to new records, lawmakers are trying to limit a potential crisis that could leave many of the Northeast's poor without adequate heating this winter.

Last winter, 1.5 million low-income families in the region received assistance to help pay their heating bills. That number is expected to surge this year, as international crude-oil prices, approaching $100 a barrel, have sent heating-oil prices to record levels. Some smaller oil dealers who have sold heating oil under fixed-price contracts could face bankruptcy.

Dealers generally try to carry their customers through the winter even when bills go unpaid, but companies that can't procure enough oil could be compelled to cut off supply.

With states facing shortfalls, House and Senate lawmakers are expected to announce today they have agreed in conference committee to raise emergency fuel funds for states to $431 million from $181 million for this fiscal year, which started Oct. 1. The measure must still be approved by both houses.

The funds are part of a $2.1 billion federal program that gives states grants to help supplement the fuel needs of low-income families.

Much of the additional funding is likely to go to New England, where fuel shortfalls could have the most chilling effect. "In the last three weeks, this has elevated from an extreme burden to an extreme crisis," said Republican Sen. Olympia Snowe of Maine.

She predicted that if 48,000 families apply for aid in her state, as they did last year, "there will still be a huge gap in funding" because of the prospect of much-higher heating bills.

Massachusetts officials last week announced emergency legislation to provide an additional $15 million in state funds for fuel needs. "There are too many families due to have their heat turned off, and rising energy costs aren't helping the situation," said Sen. Therese Murray, president of the state Senate.

Jo-Ann Choate, who manages energy supplies for Maine's Housing Authority, said a warm spell in New England is compounding the problem. "A lot of people locked into fixed-price plans last winter, but then prices dropped, so they're not signing up," she said. The state expects a record level of applications for state and federal assistance by mid-December, she said.

Northeastern states use 76% of the nation's heating oil, according to the Department of Energy. The price for heating oil has risen 2.5 times faster than for gasoline in recent weeks because heating oil and related products, such as diesel oil, are in record demand here and in Europe and Asia, said Larry Goldstein, a director of Energy Policy Research Inc., a Washington nonprofit research firm. Oil dealers also could be hit by surging prices because they will need more credit from banks to meet 45-day payment gaps between delivery and payment.

Sean Cota, president of the New England Fuel Institute, a trade association for dealers, said "hundreds" of smaller dealers selling at the retail level could fail because they sold fixed-price fuel contracts earlier without buying lower-priced supplies or hedging in futures markets to protect themselves against a sharp price rise. Regional oil suppliers, or wholesalers, could stop giving them deliveries, he said, unless they find new credit sources or new owners to bankroll them.

Heating-oil prices in Vermont and New Hampshire, where Mr. Cota's company, Cota & Cota, Inc., does business, have jumped to $3.07 a gallon from $2.65 in less than a month. Noting there is a lag in passing along any increases in crude oil prices, he expects heating-oil prices could rise by another 30 cents a gallon. "The shock hasn't hit home yet," he said.

Between 2000 and 2005, the average cost in New England for a winter's supply of heating oil was about $900 a household. Last year, it hit a record $1,433 and this year it could reach $2,200, said Mark Wolfe, executive director of the National Energy Assistance Directors Association. The association represents state agencies that receive money from the federal aid program, which is called the Low Income Home Energy Assistance Program.

Because the average annual amount of fuel assistance from the program runs about $500 per family, it would only cover about a month's worth of heating bills this winter at current price levels, Mr. Wolfe said. "Imagine if you're heating with heating oil and you also have to buy gasoline to drive to work. You have no money left to buy anything else."

Matteo Guglielmetti, who manages the fuel-assistance program for Rhode Island's Office of Energy Resources, said his program will try to stretch its limited resources by delaying the release of benefits until sometime in December. "We want to make sure we give it out when the weather really starts to get cold."

In Massachusetts, Tina Brooks, the state's undersecretary for housing and community development, said her agency will refer applicants who need more oil than the state can provide to a Boston nonprofit, Citizens Energy Corp. The group can provide vouchers for as much as 100 additional gallons of heating oil a family.

Joseph Kennedy, president of the company and a former Democratic congressman, said heating oil will be "severely discounted" and the price break will come through Venezuela's state-owned oil subsidiary Citgo Petroleum Corp. Venezuelan President Hugo Ch?vez set up the program in 2005 after Hurricane Katrina sent oil prices sharply upward. "We are all Americanos," he said at the time.