To what extent have energy consumers individuals or households been penalized unevenly by the rising cost of heating oil, gasoline, natural gas, and electricity, and thus given rise to regional jealousies? It is conventional wisdom, for example, that Northeasterners, and especially New Englanders, have been especially hard hit, a judgment that frequently results in a demand for remedial legislation aimed particularly at those parts of the country. There is truth to it, but it is complicated, and requires a look at the past as well as the present. What seem to be the facts?
I shall limit myself to two sources of data. One is the special energy consumer survey that was undertaken by the U.S. Department of Energy (DOE) in the twelve-month period from April 1978 to March 1979, that is, just prior to the big price push that followed the 1979 OPEC oil price boost. The other is material put together from DOE's State Energy Data Report by the Northeast-Midwest Institute. The former data are useful because they differentiate among energy sources, but they do not permit comparison with other years, nor are they available for any but residential consumers. The second set offers data for 1970, 1978, and, by extrapolation, 1980, and distinguishes between prices 'or different classes of users, but not fuel sources.
Regional differences
To begin with the first, table 1 shows clearly that during the survey period, households in the Northeast and North Central census regions faced considerably higher prices that did those in the South and West. This is most pronounced for electricity, for which the Northeast pays 85-percent higher rates than does the West (where cheap hydropower holds down the average). For natural gas, the Northeast pays nearly 50 percent more. Regional price differences are small for fuel oil and kerosine, as is true for most petroleum products; the exception is bottled gas, which costs 50 to 90 percent more in the Northeast than in the other regions.
Although costs for electricity are highest in the Northeast, the North Central states do not fare much better. On the positive side, North Central residents enjoy relatively low-priced natural gas, with only the West paying less for it. All in all, price differentials at the user's level are substantial and generally favor the South and West which, by and large, are the energy-surplus states.
In interpreting these figures one must take into account that the magnitude of the burden is a function not only of price, but also of the quantities of the particular energy source consumed. For example, the fact that high transportation costs make natural gas expensive in New England loses significance when one realizes that New England's energy mix is lean on gas; and it is lean precisely because it is expensive, relative both to other regions and to other energy sources. For example, in the Northeast natural gas costs only 14 percent less than fuel oil, whereas it costs between 30 and 40 percent less elsewhere. Thus, a major disadvantage in the Northeast is the minor importance of nationally inexpensive natural gas, and the relatively high price of it when northeastern consumers do use it, the high price being largely a function of distance from the source.
Table 1. Average Prices of Residential Energy Sources Delivered to User, Nationwide and by Census Region, from April 1978 Through March 1979
Table 2. Average Energy Prices, by Region, for 1970 and 1980
Differences among individual states, rather than regions, are even more striking. Thus, residential natural gas consumers in 1978 paid $5.40 per million Btus in Maine, while Oklahomans paid $1.88 and Arkansans $1.67. Rates for industrial consumers were lower across the board, but differentials were found to be nearly as large. The lowest state average price in 1978 (leaving aside Alaska) was $1.27 in Wyoming, and the highest (leaving aside Hawaii) was $3.33 in Maine; the more industry-intensive New York-New Jersey area average, ranging from $2.50 to $2.80, was at the high end of the spread.
Changes over time
A look at the dynamics of these differentials rounds out the picture. It is one thing to find they exist at a given time and quite another to find they have been changing. Here comparisons are of the total energy package, that is, the average cost of a package of energy, however composed, compared in 1970 and 1980. The relevant data are shown in table 2. Again, the situation for residential consumers is worst in the Northeast. For them, the average price paid per million Btu (from all sources) jumped 263 percent, compared with a jump of "only" 193 percent in the South and an average national increase of 219 percent.
Essentially the same differential pattern held for commercial users, whereas for industrial and transportation energy users the Northeast was in step with the national average. Indeed, for industrial users it was the South that experienced a relative increase in energy prices far above the national average. This raises an important issue, often ignored. In 1970 the statistics show that industrial energy prices in the South were 26 percent below the national average; in 1980 that differential had shrunk to 12 percent. Clearly, those areas that had enjoyed especially low prices were catching up to the national average. This development illustrates how misleading it can be to look merely at differentials at a point in time: it may be much more punishing for the prosperity of an area with low energy prices to suffer drastic boosts, while still remaining below the national average, than for a high-cost area to undergo moderate boosts and still stay above the national average. It is the first situation that appears to prevail for energy price changes for industrial users in the South, but it will not show if one uses a snapshot approach.
Household differences
Prices per unit of energy are not the whole story. Energy expenditures per household (or commercial or industrial customer, for that matter) complete the analysis. As one might expect, the Northeast and Midwest are at the high end, and the South and West at the low end of the expenditure range, both in terms of comparisons at one time and in terms of increases in the 1970s. In both respects the differences are substantial (table 3).
Table 3. Residential Energy Expenditures per Household for 1970 and 1980
Broad regional aggregates mask even bigger state-by-state differences. To cite two extremes, the average household in the state of Washington paid $242 for energy in 1970 and an estimated $501 ten years later. A Maine resident paid $382 in 1970, and $1,449 in 1980. In other words: the Maine homeowner paid 60 percent more than the Washingtonian in 1970 nearly 200 percent more in 1980.
A look back at the energy consumption pattern in 1972, as displayed in abundant detail in Irving Hoch's study on regional energy statistics, explains the greater impact on the Northeast and some parts of the Midwest and Mid-Atlantic states since the 1972 data were compiled. Limiting our field of vision to New England, we find that household energy consumption accounted for 43 percent of the total energy consumption in 1972, as against 16 percent, for example, in the West South Central region and 28 percent nationally. Moreover, in New England 80 percent of all energy use in 1972 consisted of petroleum products, compared with 40 percent nationwide (and 27 percent in the West South Central region); for household consumption alone the differences are even more dramatic.
What it comes down to—again using Hoch's data—is that in New England per capita heating fuel use was three times the national average and nine times the per capita use in the West. Add to this information the fact that the price (per gallon) of residential heating oil jumped from 19.7 cents in 1972 to 97.8 cents in 1980—or by nearly 400 percent—compared with a rise in the Consumer Price Index only about half as steep, and the elements and dimensions of the regional equity issue begin to emerge clearly.
To summarize, the point is not that Northeasterners were especially hard hit just because the price of heating oil rose steeply; it did so everywhere. Rather, they were hard hit because they use more energy for space conditioning and are so much more dependent on fuel oil than on natural gas that was both cheaper to start with and, being a regulated commodity, rose much less rapidly in price. Thus, Northeasterners were triply penalized: they used more energy; they had to rely on the more expensive energy source, fuel oil; and that source's price rose faster than that of its closest competitor, natural gas. To make matters worse, houses in that part of the country generally are older and harder to heat. This mattered less before the 1970s, but it matters greatly now. The charm of a century-old frame house is greatly diminished by a monthly $200 or $300 bill from the local fuel oil dealer!
Today's winners, tomorrow's losers?
I have singled out fuel oil and the Northeast because that is where the problem is most graphic. For gasoline, the Northeast may well have a relative advantage, because it is more heavily urban and relatively more compact. Also, much of it was built in the preautomobile age and therefore has more mass transportation facilities. As for electricity, while its costs are highest in the Northeast, reliance on it is far less than in parts of the country where it is cheap and where it has made large gains in space-heating. Some states, predominantly those whose energy has a large hydroelectricity component (for example, Washington and Idaho), have been able to hold the line on price with some success; but it is almost certain that rates in such states will begin rising more sharply as new non-hydro capacity is brought online. When the state of Washington, for instance, succeeds finally in bringing some new nuclear power plants online, the costs per kilowatt hour are bound to take a giant leap, given the enormous cost overruns in construction so far; and anyone following events in the Tennessee Valley Authority area must be impressed by the traumatic nature of each increase—and there have been more than one—in electricity rates.
I cite these instances merely as examples of the fluidity of the situation: this year's winners in the price lottery may well be tomorrow's losers. Nonetheless, the present handicap of the Northeastern fuel-oil-dependent states is undeniable and explains the special sense of injury that emanates from their political representatives. This mind-set, of course, is not unknown in parts of the Midwest and Mid-Atlantic. As an example, the Northeast—Midwest Congressional Coalition published a booklet that bears the title "The United American Emirates," a phrase that can take its place alongside its older cousin, the "blue-eyed Arabs," variously applied to Canadians, Montanans, and other energy-rich North Americans.
Coming increases in the price of natural gas and electricity will begin to squeeze portions of the country that so far have felt the price pinch less. I am inclined, therefore, to believe that regional friction, including name-calling, not only will not increase but indeed may diminish later in the decade. Misery will not seek company, but it is nonetheless likely to get it. As regional price and expenditure differentials shrink, complaints from the South and West will match and offset those now heard from the Northeast and Midwest.
Author Hans H. Landsberg is a senior fellow in RFF's Center for Energy Policy Research. Readers particularly interested in the subject of his article may wish to consult its more detailed treatment in Hans H. Landsberg and Joseph M. Dukert, High Energy Costs: Uneven, Unfair, Unavoidable? (Baltimore, Md., The Johns Hopkins University Press for Resources for the Future, 1981).
A version of this article appeared in print in the July 1982 issue of Resources magazine.
