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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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