'Crisis': Now, 20 years ago . . . that
was a crisis
(from Maine Townsman, November2000)
by Michael L. Starn, Editor
Early this month, the average price of a gallon of heating oil in Maine was $1.46, according to 2000 Energy Data Corporation. Twenty years ago, heating oil prices in Maine were right around $1 per gallon. Even though Mainers are actually paying less for heating oil today than they were 20 years ago (when adjusted for inflation), the high cost of energy is taking its toll on municipal budgets.
Presque Isle City Manager Tom Stevens calculates a $118,900 increase in next year’s municipal budget attributable to higher fuel costs — oil, gas, diesel and propane. City Manager Richard Mattila of neighboring Caribou says he expects heating fuel costs to be 120% more than last year.
Volatility in the crude oil market has left all energy consumers wondering where oil and gas prices are headed. Just two years ago, oil prices hit a 20-year low in this country. In the winter of 1998-99, crude oil was selling as low as $11 a barrel and the average price paid for heating oil was 80 cents per gallon. By the end of last winter (spring of 2000), the price of oil had doubled before moderating in the $1.50 per gallon range, and crude oil prices had jumped to over $30 a barrel, where they remain.
Even though energy costs have risen substantially in the past two years, energy conservation has not moved to the front burner in many municipalities. Belfast City Manager Terry St. Peter says that municipal officials in his community have too many other things to deal with and energy costs, at this point in time, have been nothing more than casual conversation. “I expect the issue will be discussed in the next year,” St. Peter says.
St. Peter was city manager of Caribou during the 1970’s and 1980’s. “In the early 1980’s, municipal managers were spending a lot of time and energy on the energy issue,” says St. Peter, “but that is not the case today.”
Bruce Benway, Biddeford city manager, agrees with St. Peter that energy is not a priority issue at this time. Benway, who was town manager of Freeport in the early 1980’s, says that the period of time leading up the energy crisis of 20 years ago was significantly different from the time period that preceeded the current energy situation.
“Energy costs rose significantly during the 1970’s,” said Benway. Conversely, during the 1990’s energy prices remained fairly stable and actually went lower toward the end of the decade. Resources for municipalities were much tighter in the 1970’s, according to Benway. As a final point, Benway says, “The winters have been less severe” over the last decade.
On and Off Municipal Radar Screen
During the early and into the mid-1980’s, the MAINE TOWNSMAN was also discussing energy issues with more frequency and urgency. The October, 1980 issue had “Energy” as its theme. Articles in that issue were about oil and other fuel price expectations for the winter ahead, innovative energy generation ideas in Maine communities, energy performance standards for buildings, and tips for reducing heating costs.
In reviewing the TOWNSMAN index of articles in the early 1980’s, it is interesting to see the significant number of energy-related articles that were published. Energy audits, federal and state aid for energy conservation, alternative fuels, low income energy assistance funds… these were all topics of TOWNSMAN articles in the early 1980’s. During the rest of the 1980’s there was a smattering of energy articles, but in the 1990’s the TOWNSMAN stopped reporting on energy issues and the subject seemed to fall off the municipal radar screen.
Not Just Municipal Complacency
Have municipal official become complacent with the energy issue? If they have, they are not alone. Just look at the change in consumer habits since the 1980’s. Gas mileage no longer seems to matter in car buying. Wood, coal and other alternatives to oil are much less in vogue than they were 20 years ago.
It hasn’t been just municipalities that gave the energy issue short-shrift. During the recession of the early 1990’s the state dismantled its Office of Energy Resources, setting up a small energy division in the Department of Economic & Community Development (DECD). Energy bond issues in 1979 and 1980 — totaling $10.5 million — were passed by Maine voters providing grants to municipalities and schools for making energy conservation improvements. There has not been an energy bond since.
Even Maine Municipal Association was once heavily involved in the energy conservation arena. In the 1980’s through a contract with the State Office of Energy Resources, MMA employed five energy auditors who traveled the state evaluating municipal buildings and recommending energy conservation improvements that would qualify for state reimbursement under the bond issue.
The Current Energy ‘Crisis’
Does the latest spike in oil prices signal another energy crisis? While 20 years ago practically everyone agreed that an energy crisis existed, now opinions differ.
In the early 1980’s, Americans were still reeling from the Arab oil embargo of the 1970’s and long lines at the gas pumps. There had been an energy shortage and some so-called experts were predicting that the world’s supply of fossil fuels would run out before the beginning of the 21st Century. Dramatic increases in oil prices occurred during the late 1970’s. At the beginning of that decade a gallon of oil was selling for about 18 cents.
In 1978, oil was selling for 51 cents a gallon, and by 1980 that price had doubled. Oil prices continued to rise in 1981 and 1982 leveling off at about $1.20 a gallon. In the late 1980’s prices began to drop staying well below the one dollar figure. Then after staying fairly steady in the early and mid-1990’s, oil prices hit a 20 year low in 1999 with some dealers selling it between 50 and 60 cents a gallon.
As oil prices were moderating in the late 1980’s and 1990’s, a new group of energy experts came forward to postulate that the world’s untapped oil reserves were sufficient to last for another hundred years.
The last 30 years has left the public confused about the world’s energy supply and uncertain about the future price of petroleum-based products.
Even with the recent spike in energy prices, some people contend that energy products purchased in this country, particularly gasoline, are still cheap compared to prices paid in other countries. They have a point. According to the management consulting firm Runzheimer International, even at $1.50 per gallon for gasoline, Americans are paying considerably less than what citizens in many Asian and European countries pay. For example, a gallon of gas in Hong Kong costs $5.24 and in Paris it costs $4.25.
Locking In Prices
Many homeowners, shaken by the skyrocketing oil prices last winter, locked into fixed prices for the coming winter. Those who locked in early this summer got the better pricing.
The City of Biddeford bid its heating oil needs out in June and was able to lock in at 89 cents for the coming year. While not getting a fixed price, a group purchase of heating oil by Presque Isle, Caribou, Fort Fairfield and the school units in their area secured a price of 6 cents over the wholesale cost in Bangor. Maine Potato Growers, a heating oil supplier in the region, won the bid.
State Energy Help
The state’s four-person energy staff, now housed in DECD, offers very little in the way of assistance to municipal government. Where once the state energy staff (OER) handed out energy grants to municipalities and schools and conducted energy audits of public buildings, severely downsized staff now does “walkthrough” energy performance assessments of small businesses and provides consumer printed and electronic information on energy conservation (see www.bundlemeup.org).
The Maine State Housing Authority receives funding for the Low Income Home Energy Assistance Program (LIHEAP) and weatherization activities. These federal monies are channeled to CAP agencies and administered through them.
While the state energy programs do not benefit municipalities directly, they do have some indirect benefits. LIHEAP is a $14 million program in Maine that provides direct heating assistance to low income individuals. Clearly this takes some pressure off municipal general assistance programs that might otherwise be called upon to help this group of citizens with their oil bills. Last year, LIHEAP received a one-time boost in its funding — totaling $33 million — because of the dramatic increase in oil prices. MSHA officials expect that funding for the program will come in at $18 million this year. LIHEAP serves approximately 45,000 households in Maine.
The weatherization program also targets low income people. This is a $4 million program in Maine through which qualifying people can make energy improvements to their home. Grants of up to $2200 are given out. Approximately 1600 households receive weatherization funds each year.
Lessons From The Past
If energy prices continue their upward climb, the energy issue will move up on the municipal agenda. Whether or not energy becomes a front burner issue will depend on how high prices go.
Two lessons have been learned from the energy crisis of 20 years ago. One lesson is “what goes up must come down”; the other lesson is “energy (fuel) conversion can be risky”.
A keynote speaker at an MMA convention in the early 1980’s was reflecting on the inflation rate at the time and the high interest rates associated with borrowing. He said that he didn’t foresee a time when long-term mortgage rates would go below double digits.
Back in early 1980’s, many people did not foresee heating fuel ever dropping below $1 a gallon again.
Obviously, these prognostications have been proven wrong.
The future price of oil will depend on a number of factors. Clearly, limited supply or increased demand will move prices higher. The Organization of Petroleum Exporting Countries (OPEC), which controls 40% of the world’s oil supplies, has been and will continue to impact oil prices from the supply side. Energy conservation and alternative energy sources can be used to lower demand (for oil).
An interesting insight regarding energy conversion came to light during interviews for this article. Terry St. Peter noted that during the early '80s, the City of Caribou converted furnaces in the city hall, public works garage and fire station from oil to coal. At the time, energy auditors told city officials that there would be an 18-month to two-year payback on the conversion. The fact that the state chipped in 50 percent of the conversion costs through its energy bond issue made for a short-time cost recovery, which considering the downward direction oil prices in the mid-1980’s was fortunate. “At the time, it seemed like a good idea,” said St. Peter.
However, coal was not to be a long-term solution to heating Caribou’s municipal buildings. According to current manager Richard Mattila, in the late 1980’s coal became more expensive than oil, and it was more difficult to handle and store than oil. Eventually, the city replaced all of the coal-fired furnaces with oil-fired ones.
Municipalities were not the only ones making energy miscalculations. Look at the agreements that Maine’s electric utility companies made with waste-to-energy facilities and biomass plants during the 1980’s. As oil dropped in price and Maine’s cost of electricity ran ahead of other parts of the country, the utilities bought out contracts with the PERC and Maine Energy incinerators and with all but two of the 11 biomass plants.
Caution will be the word when it comes to the current energy situation. Some municipal officials are looking closely at energy prices and holding their breath that they won’t go much higher. Weatherization always makes sense, but many of the municipal buildings in Maine (MMA’s energy auditors conducted audits on over 700 buildings in the 1980s) have been retrofitted. With the state not sharing in the cost of municipal energy improvements today, it will be difficult for municipalities to do anything other than projects with the most immediate payback. Only those projects that have a short-term cost recovery or come about because it’s time to replace outdated or broken equipment/vehicles are likely to get funded.
As Caribou’s Matilla notes, energy will always be a high priority in Aroostook County (because it consumes such a large part of municipal budgets) but “unfortunately there is not much you can do that will have a significant impact. Buildings can only get so tight.”
SIDEBAR: State's Energy Swat Team
Acting in response to escalating motor and heating fuel prices and reports of tight energy supplies, Governor King has assembled a “SWAT Team” for the purpose of preparing the state to deal with whatever contingencies a severe winter may throw Maine’s way.
Chaired by State Economist Laurie Lachance, the energy team includes representatives from the Departments of Transportation, Environmental Protection, Human Services, Economic and Community Development, and Administrative and Financial Services. The team also includes representatives from the State Planning Office, the Governor’s Office, the Public Utilities Commission, the Public Advocate’s Office, and Maine State Housing Authority.
The first product produced by the energy SWAT Team is a brochure and a website promoting fuel conservation. Called “Bundle ME Up,” the brochure describes an assortment of simple, low-cost or no-cost steps a homeowner can make to reduce the consumption of home heating fuels. The brochure is being delivered to fuel oil customers around the state, and copies are being provided to CAP agencies and General Assistance offices for further distribution. The website’s address for Bundle ME Up is www.bundlemeup.org.
Other projects the SWAT Team is working on include:
• Monitoring heating and fuel oil reserves.
• Reviewing regulations that might impede the delivery of emergency fuel supplies to low-income households.
• Establishing a program to inform state employees of energy conservation strategies and encourage conservation strategies in state agency buildings.
• Developing contingency plans through the state and regional emergency management agencies should a combination of factors lead to short or long-term interruptions in heating fuel supplies.