Friday, May 18, 2001

Experts' take on rising energy cost: Better get used to it

By James Pilcher and Mike Boyer
The Cincinnati Enquirer

        High gasoline prices in the summer, high heating costs in the winter — it's a vicious cycle, but experts say we better get used to it.

        “We're stuck, and it is going to continue ... like this for at least 3-4 more years,” said Robert Burns, senior research specialist at Ohio State University's National Regulatory Research Institute, which studies energy policy and the energy industry.

        That's despite the new energy policy introduced Thursday by President Bush, because most of that policy's elements would take several years to implement even if ultimately adopted, Mr. Burns said.

Roundup of Tristate gas prices
        “People are going to have to adapt to this,” Mr. Burns said. “There's been a lot of talk about conservation, but the greatest thing that will cause conservation is continued high prices.”

        According to price indexes compiled by the U.S. Department of Labor, the average price of gasoline has gone up 52.3 percent between January 1999 and last month. But most of those increases occurred during the summers, including an 8.2 percent increase between May and September 2000.

        Thursday, the national average for a gallon of unleaded gas was $1.71 according to AAA's Daily Fuel Gauge report, while the price in the Ohio section of Greater Cincinnati was $1.83. Northern Kentucky prices were not available.

        Meanwhile, prices for natural gas — which heats most of the homes in Greater Cincinnati — have gone up 55.1 percent between January 1999 and this April, with prices really shooting up in winter.

        Experts say the price boosts for both energy sources are caused by shortages. In gasoline's case, it's increased demand caused by vacationing drivers during the summer and a shortage of refining capacity that has been blamed. For natural gas, experts have said higher demand during summer caused by new natural gas-powered electricity plants has lessened the ability to stockpile for winter heating.

        “It's definitely a cycle that sees no end, at least in the short term,” Mr. Burns said.

        The energy crunch has been blamed in part for the economy's continued sluggishness, although experts say the economy now is better equipped to deal with high oil and energy prices.

        Still, the impact of higher energy costs can already be seen at businesses throughout Greater Cincinnati.

        Owners of Lipps Pool and Spa in Florence have raised prices 2 to 3 percent this spring to help offset the higher cost of fueling their fleet of six maintenance vans, as well as the higher cost of petroleum-based chemicals and products.

        “If it keeps up, people will probably stop buying, like they have during previous price hikes,” said Damon Lipps, manager of the family-owned business. “We'll survive on maintenance, but people won't be as willing to buy a new pool if they're shelling out for gas.”

        Kevin Kliesen, an economist for the Federal Reserve Bank in St. Louis who follows energy costs, said one reason corporate profits have been shrinking lately is that many businesses have been absorbing higher energy costs.

        He also said there's evidence that changes in the economy over the last several decades have lessened the impact of a severe oil price shock on the economy.

        The economy, in general, is more energy-efficient, he said.

        “We certainly have a better infrastructure to deal with oil price shocks than 20 or 25 years ago,” he said.

        Still, the seemingly never-ending energy price crunch is having an impact, said Mr. Burns.

        “Every energy swing takes money out of people's pocketbook they would spend on something else,” Mr. Burns said.

        Gasoline costs have gone up 10 to 15 percent at Cincinnati Senior Services, which runs Meals on Wheels and several senior centers. And the agency paid 50 to 75 percent more to heat its centers during December and January, said David Gunn, director of home and community services.

        “We really got smacked, and it's not like we can turn the thermostat down to 65 with the people we're serving,” Mr. Gunn said. “It hasn't caused us to cut any services yet, but every year that this goes on, that becomes more likely.”

        Other companies are forced to absorb the higher costs, even after announcing plans to pass them on to customers.

        Middletown's AK Steel, for example, saw its natural gas costs increase $60 million last year from the year before. It announced in February that it would add an $8-a-ton energy surcharge to its carbon steel products.

        But spokesman Alan McCoy said the company hasn't been able to implement the surcharge.

        A glut of steel has sent prices tumbling, making it difficult increase prices.

        Likewise, Wayne Bodington, general manager of the Westin Hotel in downtown Cincinnati, said his hotel's energy costs have increased about 15 percent from last year mainly because of higher natural gas costs.

        Some national hotel chains, including the Starwood Hotel group, which owns the Westin, Sheraton and St. Regis chains, recently added a $2.50-a-night surcharge for higher fuel costs at hotels in 10 states, but the Cincinnati Westin isn't among them.

        “We don't anticipate introducing an energy surcharge,” Mr. Bodington said. He said the surcharges were mainly at hotels in California, which are facing sharply higher energy costs.

        “It's a cost of doing business,” said Mr. Bodington.

        John Byczkowski of the Enquirer contributed to this report.

       What people are saying

        "President Bush said we need to stop shouting at each other and we need to start listening to each other. That's encouraging, but we're waiting for the listening to begin. The Republicans and the Bush administration have already proven themselves to be environmentally unfriendly, and this plan could be a move in the right direction, a step backward or more steps sideways to continue the status quo. We'll have to wait and see.'

        — Ned Ford, Hyde Park, energy chair of the Ohio branch of the Sierra Club

       "We're pleased President Bush has made energy policy a top priority. There hasn't been national debate on energy policy for two decades, but the problems in California, and the increase in natural gas and petroleum prices underscore the need to address both energy supplies and demand. Clearly, there needs to be attention to both increasing supplies and increasing conservation.'
       —Stan Lampe, spokesman for Ashland Inc. in CovingtonŲ
       "The president's plan addresses several key items and it's a balanced plan covering both increasing supply and conservation. It also addresses environmental issues, calling for comprehensive legislation to reduce sulfur dioxide, nitrogen oxide and mercury from power plants. We're also pleased the plan addresses the need for additional electric transmission capacity.'
       — Steve Brash, spokesman for Cinergy Corp.

       "I think it's a good start.'
       — Alan Schriber, chairman of the Public Utility Commission of Ohio


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