High demand doesn’t equal high profits

Amy Scott Aug 3, 2006
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High demand doesn’t equal high profits

Amy Scott Aug 3, 2006
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SCOTT JAGOW: How hot is it? It’s so hot, they turned off the video billboards in Times Square to save power. They dimmed the lights on the Brooklyn Bridge and in the halls of Congress. And still, up and down the East Coast, demand for electricity broke records yesterday.On Wall Street, that drove up the price of power company stocks. The Dow Jones Utilities Index hit a record high. But investors hoping for huge profits might be disappointed. Amy Scott reports.


AMY SCOTT: You’d think power companies would be raking it in these days. As their customers plug in more air conditioners and fans, they’re naturally paying more for all that extra juice.

But energy consultant Richard Lauckhart says it’s not that simple. Many power plants produce electricity by burning natural gas. And the recent surge in demand has been pushing natural gas prices through the roof.

RICHARD LAUCKHART: In addition as utilities need to provide higher amounts of power they’re getting into less efficient units, so they actually burn more gas just to make the same quantity of energy.

Some states cap the price utilities can charge for electricity so they can’t always make up the difference.

Even when power companies profit from higher demand, they also run the risk of damaging equipment. When that happens, as it did in New York a few weeks ago, repairs and customer rebates can drain any extra cash.

In New York, I’m Amy Scott for Marketplace.

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