Energy: Fuel's Gold
Only about 5% of the operating expenses at Metro-Rooter, a 54-person plumbing and sewer service company in Jacksonville, Fla., goes toward fuel. But with rising energy costs also pushing up prices of supplies, the $7 million company hiked its own prices 10% this spring. "It's costing me more to buy parts and to get equipment," says business manager Hugh McLean. "I'm seeing increases across the board."
The numbers aren't pretty. Since July, gas has been hovering around $3 a gallon and natural gas is up 36%. And with unrest continuing in the Middle East, many entrepreneurs are concluding that higher energy prices, and their domino effect on the economy, are here to stay. "You don't hear too many people saying this is a temporary blip anymore," says PNC Financial Services Group Chief Economist Stuart Hoffmann. In July, 17% of companies reporting weaker earnings in a National Federation of Independent Business (NFIB) survey blamed rising energy costs. In response, businesses are raising prices, conserving energy, and, increasingly, turning to alternative fuels.
Price hikes bring the quickest payoff. Some 31% of small companies plan to raise prices in the next three months, compared with 25% the previous July, according to the NFIB poll. "My insurance costs have skyrocketed, my medical for my employees has gone out of the roof, but my customers don't see that. But they do go to the pump to put gas in their car," says Walt Stearly, owner of Stearly's Motor Freight, a 10-employee, $2 million Collegeville (Pa.) trucking company. Because customers know he's feeling the pinch, Stearly was able to institute a 10% fuel surcharge on deliveries when gas hit $1.90 a gallon early in 2005. That surcharge is now 35%, an amount Stearly says is based on a standard industry formula that reflects the higher prices he is paying for fuel.
Conservation strategies may take longer to pay off, but the government offers some help. As part of last year's energy bill, the Energy Dept., Small Business Administration, and Environmental Protection Agency are launching a joint program this fall to help small companies become more energy-efficient and find financing to upgrade their facilities. Utilities or state agencies in 10 states already offer free or low-cost audits for small companies, according to Energy Star, a joint EPA and DOE energy efficiency program. But in Pennsylvania, one of three states offering free evaluations of energy use through the SBA's Small Business Development Centers, demand was up about 44% over the previous year, and state matching funds for improvements ran out after just five months. And a handful of New England utilities offer no-interest financing to small businesses for upgrades of cooling and lighting systems.
Mike Milam went further. After raising prices 10% when gas hit $2.70 a gallon, the owner of 10-employee Runabout Courier in Cocoa, Fla., began swapping pickups that were getting 18 miles per gallon for four-cylinder Chevrolet Cavaliers that get 30. "If you weren't efficient prior to the big spike, then you've got to be now," says Milam, whose company had revenues of $400,000 last year. "The way we look at it is we have to work harder."
Alternative energy is perhaps the best hope for a long-term solution. Commercial demand for renewable energy is expected to rise 5.7% this year, after holding flat in 2005, according to the Energy Information Administration. There's no mystery as to why: Solar and fuel cell systems purchased by the end of 2007 qualify for a 30% federal income tax credit. Twenty states add their own tax breaks for renewable power, according to the Interstate Renewable Energy Council. And local utilities and nonprofit groups offer additional rebates.
Incentives from Catherine Long's utility, Minneapolis-based Xcel Energy (XEL ), whittled the cost of the solar panel system she installed in July at Long's Gardens, her iris farm and nursery in Boulder, Colo. Xcel gave her a rebate of around $42,000. The federal tax credit reduced costs $22,000 more. Long expects to recoup her remaining $10,000 outlay in five years by lowering her monthly energy bills. And the utility will credit her next month's bill for any excess power that the panels feed back to the grid. Says Long: "When you look at that, it's like, 'Why not?' It's exciting to feel that you're helping."
By Andrew Park