Archive for Saturday, October 1, 2005

Big bonuses

October 1, 2005


To the editor:

In what is predicted to be a very expensive winter for utility customers, it's incredulous to read that top Aquila executives were being awarded bonuses EQUAL to their annual salary ("Aquila execs get bonus from sales," Journal-World, Sept. 28). It's a shame that I can't switch utility companies to one that cares more about bringing customer prices down rather than rewarding outrageous bonuses to itself. By the way, when I do well, I get taken out to lunch, or have doughnuts on Fridays (sometimes).

Tom Worker-Braddock,



Richard Heckler 10 years ago

Golden perks and parachutes is what we seem to be paying for...

Jamesaust 10 years ago

What the author does not mention is that the bonuses were awarded by the Board of Directors and represent money that would otherwise have gone into the shareholder's pockets. (Note: the Board is chosen by the shareholders.) The author fails to note that the bonus was a result of finding buyers of nearly $1 billion of utility plants, which in turn will allow the utility to pay off a significant amount of debt. That debt had become so onerous that, as the author again fails to note, these same executives had their pay frozen since 2002.

What the author does express is a high (but all too common) degree of economic ignorance. Aquila does not control the price of energy nor does it have any power "to bring customer prices down." The price is the point where demand and supply meet. Supply of natural gas in particularly difficult to alter as, being a gas, supply can only be delivered where a pipeline has been constructed. (Question: how much would gasoline cost if the supplier had to build a road at its own expense especially and solely for delivery of the gasoline to the place where you buy it?) Also, because the pipeline must be continuous (obviously) foreign suppliers cannot move in to make up local (North America) shortfalls. Supply is also constrained by the same factors limiting the supply of (the liquid) petroleum - constrained drilling rights, hurricane damage, etc.

The author finally notes an inability to switch suppliers. While literally true, the author may find alternate means of supplying energy other than natural gas. Moreover, because of this competition restraint, Aquila, like all energy providers, are closely regulated. As a result, Aquila, the stock, is a reasonable bet for widows and orphans, but anyone looking to "get rich quick" will be well advised to invest elsewhere. Aquila, which sold for about $40 per share in 2002 now is valued at about $4 (which is perhaps a non-ignorant reason for someone to write the editor complaining of the awarding of bonuses).

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