Oil is starting to trickle down through the gears of business, potentially gumming up the works.
As business owners assess their energy budgets for 2009 and beyond, a federally funded study has found their decisions affect not just the bottom line, but also possibly their ability to maintain credit lines that provide cash during economic downturns.Â
In July, the Consumer Price Index spiked upward at the sharpest pace in 17 years and twice the gain analysts had expected, despite gasoline prices having dropped the past several weeks.
Despite improved profits, the United Illuminating Co. division of UIL Holdings Corp. filed for a 6 percent rate increase. The company left some exasperated in justifying the increase in part on lower demand from customers adopting energy conservation measures ”“ the converse effect those customers are hoping for.
“UI is clamoring to clobber consumers and businesses already reeling from record gasoline and power prices,” said state Attorney General Richard Blumenthal, in a written statement after the company”™s filings. Struggling ratepayers simply cannot afford to pay more. UI must ”“ like its customers ”“ tighten its belt and make do with less.”
Whereas large, sophisticated companies often hedge their energy costs by purchasing energy from volume brokers able to secure discounts, small businesses ”“ or their landlords ”“ more often deal directly with their utilities.
Energy budgeting for Connecticut small businesses could soon radically change, as Connecticut Light & Power Co. and United Illuminating finalize plans for advanced metering, which would track hourly consumption to make real-time pricing a possibility.
In a recent survey, excluding farms, escalating energy costs are hitting hardest at the pump, with trucking and delivery companies”™ expenditures equal to 12 percent of total sales, according to the Small Business Administration. Landscaping nurseries and greenhouses were just behind, and hotels and retail stores also suffered relatively high expenditures.
Many small businesses simply take a hit on their bottom line. The SBA study found that in 26 of 31 commercial sub-industries studied, small businesses had higher energy costs than big businesses for each dollar of revenue generated. Similarly, profit margins were tighter for manufacturers in 13 of 18 product sectors included in the study.
“Profit margins will be reduced or even eliminated when firms are forced to absorb energy price increases,” said Andy Bollman, a researcher with E.H. Pechan & Associates Inc. of Durham, N.C., who authored the study. “Reduced profits generally result in cash-flow impacts, which may in turn affect firms”™ access to capital for investments. This is likely to be a particular concern for small firms which have more difficulty in obtaining necessary capital.”
In the past year, half of small businesses that use a vehicle in their operations did nothing to counteract the higher price of gasoline and diesel, according to a May survey by the National Federation of Independent Business.
With heating fuel contracts constantly renewing, however, the timing of a renewal decision can be key. As of mid-July, Fairfield County had both the highest average retail price for heating oil in the state at nearly $4.90 a gallon, according to the Connecticut Department of Consumer Protection. The top price so far has topped off at $5.50 per gallon.
Over the course of last winter, heating oil rocketed up more than 40 percent to nearly $4 a gallon on average by the time April arrived. Â It was not the fastest increase of this decade ”“ during the winter of 2002-2003, fuel-oil prices increased by half.
In the winter of 2005 and 2006, however, businesses and homeowners that locked into a contract on October 2 lost money on the deal, as prices dropped 10 percent within six weeks.
