Energy prices put squeeze on Md. households

May 27, 2007|By Paul Adams | Paul Adams,sun reporter

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.

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