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Oil Hit #2
Looking
at the title of this article we would hope to have a “hit”
on our hands ala Bruce Springstein, but the
“hit” is more the likes of a torpedo hitting an aircraft carrier
mid-ship. Over the past two years American business
has been reeling over the
astronomical cost of energy. The price of a
barrel of oil has shot up from $15 to over $30. The increased
cost of crude oil and the related gasoline, propane, natural
gas, plastics, chemicals, and fertilizer products have sent
a shiver down the spine of corporate America. These increased
raw material costs along with the massive slowdown in the
worldwide economy and the weakness in foreign currencies have
helped to stifle profits. BUT these factors are only a portion
of the assault on corporate profits that energy is going to
exert. The second shoe dropped a handful of months ago when
the energy shortage hit California. Poorly engineered
deregulation policies combined with a quantum leap in the
demand for energy brought on by a ballooning population and
the massive demand for energy from the blossoming technology
companies has created a huge problem. This increasingly high
demand for power linked to a too aggressive lobby for environmental
protection that has blocked the building of new power plants
and forced the shut down of some existing power generation
facilities has brought a dark side to the supply and demand
equation. Without warning companies are seeing their facilities
literally thrown into darkness as the power grid managers
are required to implement rolling blackouts of commercial,
industrial, and residential facilities to keep the power grid
from becoming unstable as power demand approaches an amount
greater than can be provided. And the problem will become
much worse this summer when the demand for electricity to
run residential and corporate air conditioning will be even
greater than the current demand that can’t be supplied. Many
people initially laughed at the difficulties California is
experiencing until local energy officials all across the nation
chimed in saying that their municipalities are on the brink
of having demand exceed their ability to supply consistent,
uninterrupted power through all seasons of the year. What
is the effect on business with an unreliable power grid? You’ve
probably noticed those glass front boxes on peoples’ desks
at most businesses.
When the power goes off you are still paying salaries
to people that can’t complete the computer-related work they
are paid to perform. Computer users will lose all their unsaved
work when the lights suddenly go out, resulting in thousands
of hours of work that needs to be recreated. An industrial
facility with a production line can see it come to a screeching
halt without warning. Half painted products with a dry paint
edge, partially welded seams, and expensive chemical ingredients
with a short pot life that are combined but not yet mixed
to a usable state are just a sample of what awaits businesses
and the bottom line of their income statements. The
effect on business’ bottom line was significant due the increased
cost of crude oil and related raw materials, but an even greater
cost may be levied by the inability of local power authorities
to provide uninterrupted electric energy resulting in the
sudden loss of electricity to a firm’s administrative and
production facilities.
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