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Posted on Wed, May. 07, 2008

Rising cost of energy hits south hardest

By MITCHELL SCHNURMAN

Star-Telegram Staff Writer

You don't have to drive a truck to feel the pain of higher energy prices.

And don't blame gasoline alone. Electricity and natural gas prices are higher, too. Bigger houses, flat-screen TVs and suburban sprawl also play roles in the squeeze.

Add it up, and households in the South are spending 10.6 percent of family budgets on energy, which is the biggest bite in at least 25 years.

By comparison, energy accounted for 7.2 percent of family spending in 2002, according to a recent study by the Bureau of Labor Statistics.

Since that time, we crossed the threshold into real economic pain -- the kind of pain that changes behavior. The question is whether the changes will stick and how far consumers may go to cut their energy bills.

Large SUV sales plunged 28 percent nationwide in the first quarter, and four-cylinder cars became the rage again. That contributed to a decline in gasoline consumption nationwide, with demand falling for three straight months. The government predicts that annual gas usage will decline for the first time since 1991.

This indicates that people are responding to higher energy prices. There are anecdotes about more people turning to mass transit, car-pooling, turning up the thermostat and putting in extra insulation. Home builders also report that buyers are asking for money-saving appliances and other green features.

Even two presidential candidates are touting a gas-tax holiday for the summer.

"After three years, people are starting to feel the impact of rising energy prices," says Cheryl Abbot, the BLS regional economist in Dallas, who recently finished a study on energy spending in the South. "In the past, we used to gripe about it a lot, but we could afford it."

Her report, published in the April issue of the Monthly Labor Review, helps explain why many consumers didn't bother with energy efficiency in the past. From 1984 to 2004, energy expenses steadily took a smaller share of household spending, even though gas prices occasionally spiked.

Prices generally fell back, she says, reinforcing the notion that increases were temporary. Perhaps that gave people the confidence to buy gas-guzzling SUVs and big homes, and to outfit them with the latest electronics.

For the past 20 years, the Census Bureau's Southern region -- 16 states that include Texas, Florida and Virginia -- has been the nation's biggest energy hog. That comes with the territory, when a place has high growth, hot summers and long commutes.

But if the sprawling lifestyle of the South demands more energy, it also makes the region more susceptible to price swings. In 1984, household spending on energy in the South was 0.4 percentage points higher than the United States as a whole; in March 2008, Abbot says, spending in the South was 1.1 percentage points higher.

Abbot's data are taken from two BLS surveys that don't break out numbers for Texas, but she says the trends fit. Separate data from the Energy Information Administration shows that Texas spends more on energy than any state, topping California and doubling the total spent in New York.

"We use more gasoline, we drive more miles, and we have a totally different view of long distances," she says, contrasting Texas with the clustered cites in the Northeast.

That means the South takes a bigger hit from big increases in crude oil, now trading above $120 a barrel and setting new records. On Tuesday, one analyst predicted that crude could spike to $200 within two years.

While crude prices directly affect gasoline at the pump, natural gas also tends to move in a parallel direction. That's another issue for the South, because natural gas is widely used to produce electricity in the region.

In Texas, residents started feeling the sting of rising electricity rates several years ago. But Abbot's study found a contrast between gasoline and electricity, with electricity demand influenced more by lifestyle than price.

In the past two decades, the average size of a home in the South grew by 43 percent, more than the national average. And there was a surge in the number of computers, TVs, refrigerators and other appliances in the home.

From 1984 to 2006, the price of electricity rose 56 percent in the South, but spending on electricity grew by almost double that amount. So even if new appliances were more energy efficient, those gains were swamped by the sheer increase in units.

"I know all about it," Abbot says. "I live alone, and I have four TVs."

How are people paying for higher energy bills? In the past three years, consumers have cut back on spending for entertainment, cars, clothing and even reading, Abbot says. (They're using the Internet to read newspapers and magazines while saving on subscriptions.)

Will they make more dramatic changes? They could build smaller homes, move closer to their workplace, support the expansion of mass transit -- and even ride it more often.

That seems like a reach today in North Texas, but energy spending is starting to rival the cost of food in many households. At that price, other options look better all the time.