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The Honolulu Advertiser
Posted on: Thursday, May 11, 2006

Companies adjust as oil prices soar

By Steven Mufson
Washington Post

WASHINGTON When Hawaiian Electric Co. submitted a rate plan to regulators last fall, it included a worst-case scenario in which oil prices would start at $70 a barrel and escalate over time to $119 a barrel.

Today, the worst-case scenario has come true for current prices.

"When we did the scenario at the $70 range, it did seem high at the time," said Lynne Unemori, a spokeswoman for Hawaiian Electric. Company planners thought prices were more likely to be "in the $40 to $50 a barrel range," she said. Now the company says that the rate increases it received last September aren't enough, and that it will seek more from regulators.

In many U.S. corporate boardrooms, strategists are taking another look at their assumptions about oil prices and trying to figure out how it will affect business. The price of petroleum can make a significant difference in a company's profits.

Last fall, the jump in oil prices seemed more like a blip. Temporary factors, such as the hurricanes in the Gulf of Mexico, seemed to be the main culprits. But nine months later, persistently high prices are changing forecasts and assumptions about future prices.

That could mean passing along price increases to consumers, changing capital spending plans and altering the way businesses are run.

American Airlines has asked employees for ideas about how to cut consumption. Courtney Wallace, spokesman for American Airlines' parent, AMR Corp., said a variety of innovations had saved the company $110 million over the past 18 months. Among the bigger ideas was using a single engine when a jet taxis, to save about $8 million a year. Now the company is installing "winglets" on the wings of its Boeing 737 jets that will reduce fuel consumption and help takeoff performance.

A lot is at stake for American: A 1-cent increase in the price of a gallon of jet fuel equals an additional $33 million in annual costs, the company said.

Small companies are being hit, too, including Ottenberg's Bakers Inc., which has 50 delivery trucks.

Said company president Lee Ottenberg: "We're getting more selective about where we go to make deliveries. Areas you might go when gas was at $1.50 a gallon might not make sense when gas is at $3 a gallon."