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Energy prices put squeeze on Md. households
By Paul Adams, Sun reporter, May 27, 2007
The economy and the consumers who fuel it have been astonishingly
resilient in the face of higher energy costs. Yet, for all the
increases in gasoline and oil prices, they haven't gone up 50
percent at once - as electricity rates will in the Baltimore area on
Friday because of the Baltimore Gas and Electric Co. rate increase
approved last week. Together, the rate increase and near-record
gasoline prices will force even some relatively affluent Maryland
families to cut back in subtle ways that could add up to trouble for
an economy propelled for years by seemingly unstoppable consumer
spending. Though solidly middle class, Kathy Martin, a nursing
instructor working on her doctorate, and her police detective
husband are a case in point. When their BGE bill comes next month,
the Eldersburg couple will be able to absorb the cost, just as they
have the rising cost of everything from gasoline and city water to
food and college tuition for their two sons. But they will do it at
a price. Martin, who teaches at Frederick Community College, says
entertainment and other luxuries will be the first to go. They will
eat out less, see fewer movies and plant fewer annuals in the
garden. She skipped shopping for new summer clothes and may go back
to clipping coupons - something she stopped doing after returning to
work full time. "It's this pervasiveness about the cost of living
and how it's affecting people in the middle," said Martin, whose
husband, Steven, is a Howard County police sergeant. "So we've cut
back, we've cut back." Others will have to do more than just cut
back.
The rate increase comes at an especially difficult time for
low-income residents, many of whom see their state energy assistance
drop off between the winter heating and summer cooling seasons. The
Victorine Q. Adams Fuel Fund, a nonprofit charity named for the
former Baltimore City councilwoman who championed it in the late
1970s, has seen applications for assistance double and triple in
recent months. The increase is partly a result of a decision to open
two new intake centers. The aid organization has served about 1,500
households in the past year. "Our clientele is swelling out of
hallways as it is, all asking for help as we speak, and we have not
even gotten the additional rate increase yet," said Charles W.
Griffin, president of the fund's board of directors. Economists and
consumer advocates worry that the cumulative effect of rising costs
will put more households at risk than at any time in recent history.
"In some sense, we may look back on this in two to three years and
say this confluence of gas prices, electricity and [other costs] ...
was the straw that broke the camel's back for many Maryland
households," said Anirban Basu, chief executive of the Baltimore
economic consulting firm Sage Policy Group Inc.
State
utility regulators approved the BGE rate increase Wednesday, right
around the time that the latest upward spiral in gasoline prices was
making headlines nationwide. There have also been spectacular
increases in the prices of coal, oil, natural gas - even uranium
used in nuclear power plants. On paper, Maryland consumers should be
equipped to handle the strain. The state ranks second only to New
Jersey in median household income. Homes in some metropolitan
Baltimore neighborhoods have doubled in value in the span of five
years, helping to fuel consumer spending and economic growth. The
unemployment rate of 3.6 percent is the lowest since 2001. But
Maryland's affluence comes with a darker side, Basu said. Mortgage
lenders, automobile dealers, retail stores and credit card companies
are eager to lend money to the state's wealthy residents. Many
people took on huge mortgages during the real estate boom, thinking
that home values would keep rising. Rich, poor or middle class - all
tend to carry lots of debt and live paycheck to paycheck, Basu said.
"Take that in combination with the fact that many are already
house-poor ... and you hit them with a shock like 50 percent higher
electric rates, and I think many households will buckle under the
pressure," he said.
How
widespread the strain will be is difficult to say. Economists point
out that a smaller portion of the nation's collective income is
going toward fuel than in 1981, when gas prices set records adjusted
for inflation. At that time, energy equated to 14 percent to 15
percent of the nation's gross domestic product. Today, that figure
is 6 percent to 7 percent, said Lester B. Lave, an energy expert and
economist with Carnegie Mellon University. The proportion of
household income that is spent on energy has declined as America has
grown wealthier. "Our incomes are higher, and although energy prices
are higher, the amount of energy we use is lower, and total
expenditures on energy have gone way down," he said. Jerry Taylor, a
senior fellow at the libertarian Cato Institute, goes a step
further, saying that fuel costs aren't worth the worry in a nation
with so much disposable income. In 1949, gas cost 27 cents per
gallon, which in today's dollars equates to about $1.90. But when
adjusted for the rise in disposable income, gasoline would have to
hit $6.68 per gallon before taking the same bite out of the average
consumer's wallet as it did in 1949, he said. The 31 cents per
gallon price in 1962 - which Taylor says is often remembered as the
golden era of muscle cars and cheap gas - would have to reach $4.48
per gallon in order to have the same impact on disposable income
today. Similarly, he said, higher electricity costs are unlikely to
match the burden they posed in decades past, when most Americans got
by without air conditioners and home offices loaded with electronic
gadgetry. "My guess is that we're so much wealthier today than we
were in the 1960s that any service or commodity is going to present
less of a hardship," he said. That will likely come as little
comfort to consumers, whose energy expenditures are largely fixed by
the increasing size of their suburban homes and lengthy commutes.
Motivation to change has come slowly, in part because consumers have
been conditioned to believe that spikes in gasoline and other energy
prices are temporary. Many past increases, such as after hurricanes
Katrina and Rita in 2005, were followed by sharp declines. But
economists agree that the era of cheap energy - something Americans
took for granted throughout the 1990s - is over. "It's not that
[higher energy prices] are going to go away anytime soon," said
Lave, the Carnegie Mellon economist. Oil, which briefly sold for as
little as $11 per barrel in 1998, is now more than $65. Competition
for supplies from India and China point to continued high prices for
years to come. Higher prices have done little to slow demand for
gasoline and other fuels, which will continue to put pressure on
prices. America's gasoline consumption is up about 2 percent over
last year despite higher prices. The AAA auto club estimated
Thursday that more than half a million Washington/Baltimore-area
residents - roughly 2 percent more than last year - will travel 50
miles or more this holiday weekend, with most traveling by car.
The
same is true for electricity, which also fuels demand for natural
gas, coal and oil. Regional grid operator PJM Interconnection
projects that electricity consumption in Maryland will climb 1.5
percent annually for the next 10 years, requiring utilities to
purchase more of their power from other states. Barring the
construction of several new power plants, the state faces higher
bills for years to come. Several projects are under consideration,
but all are years off. Environmental and consumer activists say the
problem points to the need for more state and national leadership on
energy conservation. Reducing demand may be the best and fastest way
to bring down prices and ease the pressure on families. "In terms of
how this is going to affect consumers, I just think all the rising
energy costs just screams that we need to invest in energy
efficiency on a massive scale," said Johanna Neumann, a policy
advocate for Maryland Public Interest Research Group, which
advocates for consumers. "All of this fuel can go further than we're
currently having it go." Martin plans to do her part by turning down
the air conditioning this summer - something she concedes will
probably drive her husband crazy. They also may give more thought to
replacing their 20-year-old electric heat pumps with a newer, more
efficient model. "The overriding thing is that you have no control
over it [rising energy prices], and you're just forced to adjust,"
she said.
Original
Article from Baltimore Sun found
here
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