Tuesday, May 08, 2012

I don't want cheaper Energy!!


Ever thought, if some one would actually say this. Of all the people, do you actually expect this coming from the largest Energy consumer in the world!!!
Many companies in USA are suddenly fighting with a decrease of more than 25% in their total energy cost.
All power utilities and major states which predicted revenue for the fiscal at a target price of $4 per gallon, are forced to work under less than $3 a gallonn.
This has dented the profitability of all utilities and many states, especially in Texas and the Floridas ofthe world.
Imagine a state whose primary soruce of revenue is gas. Now, gas prices have crashed by 25%, so this would decrease their revenue by 25%.
This is precisely the reason that the stock prices of major utilities companies are down.


Obviously the whole story is one-sided i.e. from the producers of energy.
A country doesn't run by the producers of energy alone and hence overall the economy is bound to benefit .. 
but Iam in the industry of energy producers, hence it is a perspective that Iam very much inclined to believe in!


You may ask, if the cost of gas goes down, the cost of eletricity generation should also go down and hence should benefit all the utilities.
Typically utilities get their revenue based on their input cost. So, as and when the input costs goes down, the price at which they can sell the electricity also goes down..
and with a very tight margin (In USA it is arnd 5%) that all these companies operate at. Such huge decline in input costs will only reduce their revenue drastically, making the whole business un-viable.
Hence, all the utilities are shouting at the top of their voice to increase the cost of Energy :)