Tuesday, June 27, 2000

Gas prices start to show ripple effect

Trend raises fear of inflation, rise in taxes

By James Pilcher
The Cincinnati Enquirer

        Gas prices dipped by between a nickel and a dime around the Tristate this weekend, but analysts say that's just a temporary fluctuation in an apparent trend of steady increases brought on by low crude oil supplies.

        And that could mean higher taxes and higher prices elsewhere for consumers already paying more at the pump — especially with Tristate businesses and governmental agencies as diverse as the Butler County sheriff, Procter & Gamble, Frisch's Restaurants and Cincinnati Area Senior Services being hit as hard as individual drivers.

Tristate gas prices
        High gas prices are “just eating us alive,” said Col. Richard K. Jones, chief Butler County deputy sheriff. The steeper prices have “been going on long enough that we would start to see an effect” across the economy, said Ed Porter, research manager for the American Petroleum Institute, a Washington-based trade group, who said last week's production increases by OPEC won't be enough to satisfy demand. “This could go on awhile, what with the supply of crude so low.”

        Mr. Porter said that although the U.S. economy is affected less by energy costs than 15 years ago, escalating gas prices could still push everything else higher.

        “With the economy in the state it's in, with a tight labor market and interest rates going up, inflation is definitely a concern,” he said.

        Inflation isn't the concern for the Butler County sheriff; avoiding measures such as hiring freezes is.

        Last year, the office spent about $99,000 on gas for patrol cars. But the office probably will have spent that much by the end of the month, an increase that Col. Jones said was entirely due to higher gas prices.

        “We're not driving any more than last year, it's just costing us twice as much,” said Col. Jones, whose department's 25 cruisers log about 1 million miles a year.

        The office is temporarily holding off on making any cuts in nonessential services while Sheriff Harold Don Gabbard asks the Butler County Commission for more money to finish out the year. If no additional funding can be found, the sheriff's office could be looking at a hiring freeze, or worse.

        “If it doesn't change, we're going to have to do something,” said Sheriff Gabbard, who added that no areas have yet been identified for possible cuts.

        Cincinnati Area Senior Services (CASS), which provides transportation and delivers hot meals to house-bound senior citizens, is faced with the same situation.

        CASS fleet manager John Sontag estimates the agency will exceed its fuel budget by as much as $45,000 — and that's if prices do not increase much more.

        “We're not planning any cutbacks in services for the year, but if things get drastic, that's always an option,” said Mr. Sontag, whose organization receives most of its funding from public agencies. “We're planning to make do with some things we have in place instead of replacing them for now. And if this keeps up for next year, we're either going to have to ask for more money ... or cut back.”

        As for Tristate businesses, most say they haven't increased prices to keep up with rising costs — yet.

        Procter & Gamble doesn't protect itself contractually against such increases, and has already felt the sting of higher than expected oil prices — listing increased oil costs as one of the main reasons for its earnings shortfall in the third quarter.

        Manufacturing expenses in Europe, for instance, were affected by a nine-year high in oil prices that hit $35 a barrel, although the company has not announced any plans to raise prices.

        “Most of our oil usage is through raw materials that ultimately go into our products,” P&G spokeswoman Linda Ulrey said. “The higher raw material costs are providing a challenge. But from our standpoint, we've already incorporated that impact into our financial plans.”

        Don Walker, spokesman for Frisch's Restaurants Inc., said the chain has not raised prices, even though the company is absorbing increased costs from higher gas prices.

        He said things might change the next time Frisch's considers a price increase, scheduled for September.

        “If this were going to be an ongoing thing through the summer, yes, we would take it into account,” he said. “If prices come back down, it's a moot point.”

        Freight-carrier DHL Airways is already $250,000 over budget this year at the company's Midwest hub because of the increased cost of keeping its 260 vehicles operating daily at the Cincinnati/Northern Kentucky International Airport.

        But the company hasn't raised rates, said Dick Cozzi, DHL's vice president for airline operations, who said the company uses 800 gallons of gasoline a day at the hub alone.

        “Right now, we're just eating it,” said Mr. Cozzi, who did not rule out future rate increases.

        DHL is instead trying to conserve fuel by stopping the practice of allowing trucks to idle on runways while they wait for planes to arrive, he said.

        “We used to keep the tugs idling for about 10 minutes. Now we wait until we see the plane before turning on the engines,” said Mr. Cozzi, who added the increased costs are for gasoline only, not for jet fuel.

        Cinergy Corp. buys its gasoline wholesale for its vehicle fleet, but that hasn't helped much lately.

        Last week, Cinergy paid $1.45 a gallon for its gasoline. That's 45 percent more than the $1 a gallon it had budgeted.

        The utility had budgeted about $4 million for vehicle gasoline this year but is running about $1 million over that figure, said spokesman Steve Brash.

        Cinergy can't pass those higher costs along to customers right now. It's in a rate freeze in Ohio and has no rate cases pending in either Indiana or Kentucky.

        “There's not a great deal we can do to control the cost,” Mr. Brash said. “We have to ride it out like everybody else, and hope the price comes down.”

        Cinergy also operates 270 natural-gas-powered vehicles, but because of the time and effort involved in converting from gasoline, that's all that will be switched for now, Mr. Brash said.

        Customers of Mason-based Cintas Corp. — which operates 3,400 trucks daily picking up and deliverying uniforms nationwide — could see increases soon, said company treasurer Karen Carnahan.

        Such costs are usually passed on to customers because all Cintas service contracts include a Consumer Price Index clause. That allows the company to recover higher fuel costs from its customers, Ms. Carnahan said.

        “As the CPI is impacted (by higher gasoline prices), we have an automatic escalator in our contracts,” she said.

        Janice Morse, Sarah Anne Wright, Randy Tucker, Mike Boyer and Lisa Biank Fasig contributed to this report.

        • Continuing coverage from Associated Press

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