Why utility bills are expected to cool off this winter

In tough economic times, rising utility bills can wreak havoc on families' finances. Last winter's heating bills had many Americans dipping deep into their food budgets.

But this year, the cost of energy is edging lower each month.

According to the Energy Information Administration (EIA), winter utility bills will drop 34 percent compared to last year for homes heated by natural gas, 17 percent for oil-heated homes, and about 4 percent for homes heated by electricity.

Gasoline prices, which shot above $2 a gallon in midsummer, fell an average of 11 cents in September and are expected to plunge to $1.35 per gallon over the next few months.

Experts credit the across-the-board slide in energy rates to a confluence of market forces and reverberations from the terrorist acts of Sept. 11.

Last winter, natural-gas prices reached record levels, largely due to low inventories. As prices soared, the industry began extracting gas at a rapid pace.

Their tanks are now full. Increased supply has met consumers' heightened demands, and prices have sunk 29 percent compared to those of last winter.

Weather could become a factor. Last year, heating demand increased by 7 percent because of an inordinate number of frigid days. Temperatures are expected to moderate this season, based on historical records.

Immediate energy-price drops are more a consequence of global events. Responding to sinking consumer-confidence indicators, most manufacturers have slowed production and shaved their energy budgets.

The terrorist attacks on the World Trade Center and the Pentagon have sent jet-fuel prices plunging as airlines reduce their flight schedules. The fallout: Worldwide fuel demand in the US has faded about 20 percent since the attack, according to the EIA.

Still, the overall effect of terrorism on energy prices is not clear. The US Coast Guard, for example, has limited the access of tanker ships carrying liquified natural gas to Boston Harbor out of concern that bombs might be hidden within the ships.

The decision could affect national markets. "The Northeast will demand natural gas from the rest of the country, sending prices in the rest of the country up," says Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas.

Members of the Organization of Petroleum Exporting Countries (OPEC) have agreed to keep global production high.

Yet some analysts worry that an effort by the US to extend its war against terrorism into the Persian Gulf, home to half of all OPEC members, might put oil imports at risk.

Even if the US avoids ruffling OPEC member nations, some experts predict that the price pendulum will soon swing upward.

Steve Hinker, executive director of the Wisconsin Citizens Utility Board, says there is little chance that customers' bills won't rise by next fall. That's a consequence of national policy promoted by the federal government in the late 1970s, says Mr. Hinker, when officials persuaded many consumers to switch from oil to natural gas for heating. Now, more than half of all homeowners use natural gas.

"The resulting demand has outstripped the ability of the physical infrastructure to develop the stuff," says Hinker.

The problem is particularly acute in states like Florida and Wisconsin, he says, where corporate monopolies tightly control the flow of gas to consumers.