Sunday, October 22, 2000

Heating oil pinch: $77 more per month

By TUX TURKEL, Portland Press Herald Writer

Copyright ) 2000 Blethen Maine Newspapers Inc.

Mainers who warm their homes with oil will spend a total of $155 million more this heating season than last year, based on a comparison of current prices with those from October 1999.

That would average out to an extra $464 per home, according to an analysis conducted by the Maine Sunday Telegram.

Viewed another way, each of the 335,000 households in Maine that heat with oil would have to come up with an additional $77 a month over the six-month heating season.

By itself, $155 million flowing out of Maine this winter won't place a large drag on the economy of a state in which taxable sales totaled $13.5 billion last year, according to Galen Rose, an economist with the State Planning Office. But coupled with higher gasoline prices, the increased spending on heating oil could influence the discretionary spending habits of Maine households, half of which have incomes of less than $30,000 a year. It could lead some residents to cut back on restaurant meals, for instance, or to buy fewer movie tickets.

"The average household is going to feel it right off," Rose said.

Tourism could also be hurt, according to Michael Donihue, associate professor of economics at Colby College in Waterville. Because many residents of southern New England face a similar situation, the combination of higher heating and gasoline prices could translate into less money to spend this winter on recreation.

"If that money would have financed a trip to Maine," Donihue said, "maybe they'll stay home or go to a closer area."

Maine officials say there are some fuel-saving steps residents can take to help blunt the impact, although they acknowledge these steps are unlikely to save $77 a month.

The Telegram analysis doesn't attempt to quantify the number of heating oil customers who locked in fixed prices last summer and will pay something less than market rates this winter. On the other end, it doesn't account for the possibility that average prices could climb higher this winter. For every penny increase in the price of oil, an average Maine home will pay an additional $8.

The analysis compared last week's average statewide price for heating oil  $1.52 a gallon  with the cost at the same time last October  94 cents. That means oil costs 58 cents a gallon more on average now than it did at this time last year. Mainers burned roughly 268 million gallons for home heating last year. The average home burns roughly 800 gallons of oil, according to the Maine Oil Dealers Association.

Similar comparisons can be made with other imported, petroleum-based fuels that are more costly now than last fall, including kerosene, propane and natural gas.

Gasoline prices, too, have increased since this time last year.

Statewide regular is selling for an average of $1.64 a gallon, according to Maine AAA. That compares with $1.42 last year  a 22-cent difference. Roughly 650 million gallons of gasoline are sold in the state and the 22-cent-a-gallon hike adds up to $143 million in additional costs. But there's no way to break out the gallons sold to the 1.7 million cars and trucks registered in Maine. That's because some of the fuel is burned in vehicles driven by tourists or by boats and snowmobiles.

Dollars spent on rising petroleum prices are a pure drain on Maine's economy, Rose said, because the money immediately exits the state and leaves behind no benefits. When the price of a haircut goes up, Rose said, the barber may spend some of the money at a local grocery store. But most wholesale oil price hikes are passed directly from local oil dealers to producers, typically other nations or large energy companies.

Over the past three decades  in 1975, 1981 and 1990  rising oil prices helped trigger recessions in the United States. That doesn't seem likely in 2000, Rose said, because the domestic economy is more productive and efficient, reducing the impact of oil prices.

Instead, a sustained period of high oil prices is likely to result in a more subtle slowdown, if it causes cutbacks in discretionary spending. Entertainment and recreation stand out as the most vulnerable sectors.

"That's a place people have some control over," Donihue said.

With tickets at first-run theaters priced at $6 and $7, a family of four might not spend $28 for a movie. That family also might balk at a meal in a fancy restaurant, the cost of which could equal the $77 monthly fuel price increase. And with personal income growth slowing in Maine, high oil prices over time could even prompt people to delay purchases that require monthly payments, Donihue said.

"If this persists into the future, people are going to have to adjust," he said.

To offset the impact of higher oil prices, state officials are encouraging residents to reduce heat loss in their homes. The state has created a Web site with energy-saving tips and resources to help. The address is www.bundlemeup.org

The site includes 10 low-cost or no-cost tips. Setting back the thermostat one degree, for instance, will save an average of $30 over the heating season. That comes out to $5 a month  only a fraction of the estimated $77 a month in additional spending.

"It's going to be difficult to make up the difference unless people were terribly wasteful to begin with," said Tony Gill, who directs the low-income weatherization program at the Maine State Housing Authority.

Gill's agency insulates and weatherstrips 1,000 homes a year. A family of four earning less than $25,000 a year can qualify for help.

One indication that rising oil costs may reduce discretionary spending among low-income residents this winter is the number of people applying for government help to pay fuel bills. The state is anticipating 50,000 applications this year, up from 45,000 last winter.

Congress is still debating the level of funding for heating assistance, but the average benefit this year is expected to be $350  down from $488 last year. At $1.52 a gallon, the average home burning 800 gallons of oil will spend roughly $1,200 this season.

Joanne Choate, who manages the heating assistance program at the housing authority, said local agencies taking applications are booked into December.

"In Maine," Choate said, "people don't apply unless they need it."

At the planning office, Rose said that while losing $155 million in Maine's economy won't loom large in the statistics, a loss of $77 in a household will be noticed on a personal level.

"People know their own budget and know what it (more costly oil) means to them," he said.

Staff Writer Tux Turkel can be contacted at 791-6462 or at: tturkel@pressherald.com

http://www.portland.com/news/state/001022oil.shtml

-- Martin Thompson (mthom1927@aol.com), October 22, 2000

Answers

Martin,,

Thanks for the article! My aunt and grandparents, who live in Chicago, were recently informed by their utility companies to expect a 60% increase in natural gas costs this winter.

A sure-fire "budget-killer" if I've ever heard one...

-- Deb Mc (vmcclell@columbus.rr.com), October 22, 2000.