Cool economy to cut heat bills

Natural gas, propane and heating oil prices are falling

A tottering global economy will bring relief to one big household budget item: heating costs.

The cost of oil, natural gas and propane has plummeted about 50 percent since peaking in the summer amid a surge in demand and fears of long-term shortages. The price dips are reflected at the gasoline pump, where the cost of filling up has fallen from $4 a gallon to just under $3.

Similar reductions will soon be passed to customers who use fossil fuels to heat their homes, and economists say the effect is akin to a temporary tax break.

"It's going to stretch your dollar a whole lot more," said Randy Parker, a professor of economics at East Carolina University.

The extent and duration of the relief is hard to predict in a volatile energy sector. Nor do falling prices signal a return to boom times: The financial relief is paid with the price of a recession.

A cooling economy requires less energy and sets off a chain reaction: Consumers spend less, forcing industries and factories to scale back production, which reduces the need for oil-intensive rail and truck transport, ultimately resulting in job losses. The slowdown reduces demand for raw materials, increasing commodity supply and slashing costs.

"It's cold comfort to pay $1 less for a gallon of gas when you just got laid off," Parker said. "If you're not laid off, this is one of the few bright spots we can point to."

Even those who aren't hurting understand that the plummeting energy prices may create only the illusion of well-being. "It feels good, but at the end of the day, things are worse than the feeling itself," said Phyllis McCray, a project manager for a real-estate company that buys foreclosed properties. "It's like a Band-Aid on a wound that needs stitches."

Indeed, the same forces that drive down commodity prices also drive up unemployment. The state's jobless rate is at a six-year high -- with 318,309 people unemployed last month -- and expected to rise.

"We do not want to have recessions to drive down commodity prices," said Harry Davis, an Appalachian State economics professor. "We're going to un-employ well over a million people nationwide."

As for the price breaks, PSNC Energy, the natural gas utility for most of the Triangle, requested a rate cut effective Nov. 1. If it is approved as expected, the cost of natural gas for homeowners will have dropped 20 percent since summer. The cost to PSNC customers would be slightly higher than it was last year. But PSNC's prices lag daily market trading prices. If the company requests another reduction to reflect lower costs, customers would pay less this winter than last winter.

The cost of heating oil and propane also are falling, but these unregulated fuels are sold by hundreds of vendors who set their own prices. Heating oil costs 42 percent more than a year ago in the state, but retail prices have fallen 4.5 percent since the N.C. State Energy Office began its seasonal survey this month. The average retail cost of propane in North Carolina, $2.79 a gallon, is 23 percent higher than a year ago, but vendors' prices have fallen slightly in recent weeks.

James Pendergraft, a retired metalworker, gets monthly propane refills at his home in Wake Forest. He paid $2.80 a gallon last month. Because he lives on fixed income, the effect of lower prices is immediate and real to him. "It's a great sign," he said. "I'll be real happy because Social Security doesn't pay you but so much."

No break on electricity

Customers who heat with electricity, about half the Triangle's households, may not see any breaks until 2010 because electric utilities adjust their rates for fuel costs only once a year. Coal, which accounts for about 60 percent of the state's electricity, has fallen 40 percent since this summer. However, after a dramatic runup in coal prices earlier this year, Progress Energy is requesting an 11.5 percent rate increase from the N.C. Utilities Commission, effective Dec. 1.

McCray used to heat with natural gas but recently moved to a home with an electric heat pump in Garner. So she's not getting a break on heating costs.

But working with foreclosures offers a broader perspective. "It's kind-of bad for me," she said. "But other people are going bankrupt."