Will You Benefit From Electricity Deregulation?
UNIVERSITY PARK (Centre
Co.) The imminent deregula
tion of the electricity industry
could have a significant impact on
Pennsylvania companies and con
sumers, and people will need to be
ready for the changes deregulation
will bring, said an agricultural
engineeer in Penn State’s College
of Agricultural Sciences.
In December, Pennsylvania
Governor Tom Ridge signed a law
to deregulate the generation of
electricity in Pennsylvania, mak
ing it a competitive industry. Pre
vious deregulations have involved
GLENN A. SHIRK
Extension Agent - Dairy
Lancaster County
LANCASTER (Lancaster Co.)
Dairy herd profits are affected
greatly by the price, the quality
and the availability of feeds. Thus,
feed inventories can be thought of
as good business insurance, a form
in insurance that can also be util
ized and converted to income.
One good way to manage your
business risks is to lock in the
kinds and quality of feed you need
for the next year at reasonable
prices. The best time to do this
generally is at harvest time; that’s
when the selection of feeds is
greatest and prices are generally
more reasonable. Basically, you
have two choices; growing your
feed or purchasing it.
Growing Your Own Feeds
Growing your own feed can be
economical, but not in all cases.
To be sure, you need to carefully
consider ALL costs, cash and non
cash, including labor, feed stor
age, land charges, interest, taxes,
repairs, field and storage losses, as
well as the obvious production
costs. When you consider all these
costs, your home grown feeds may
be more expensive than you think.
If you grow your own feeds,
you have several management op
tions:
1. Grow all your forages and
grains.
2. Grow all or part of your for
ages, but purchase your grains,
especially if you are short on land
and if you can purchase grains
cheaper than you can grow them.
Also, be aware of the fact that for
ages produce more feed nutrients
per acre than grain. This translates
into higher milk yields per acre
and more income per acre.
3. Do all the field work your
self.
4. Hire a custom operator to do
all or some of your Held work in
order to reduce your cost of own
ing, operating and maintaining ex
pensive field equipment It also
reduces the demands on your own
labor so you have more time to
manage the herd and perform
other critical tasks.
S. Share field machinery with
your neighbors in order to reduce
machinery investment costs.
trucking, airline travel, natural gas
and long distance telephone
service.
“In 1996, Pennsylvania con
sumers spent $lO billion for
electricity,” said Dr. Dennis
Buffington, professor of agricul
tural engineering. “If the price of
electricity drops to the national
average because of deregulation,
then Pennsylvania consumers will
save $1.5 billion per year. The
savings could rise to $2.5 billion
per year if rates drop to the antici
pated competitive prices when
deregulation is fully im-
Purchasing Feeds
If you are purchasing feeds, you
also have several management op
tions.
1. Buy feeds at harvest time or
as you need them. If you buy feeds
at harvest time and lock in their
prices, you can take delivery im
mediately, or at a later date. To
take immediate delivery you as
sume the cost of storage and the
risk of storage losses. If you take
delivery at a later date, expect to
compensate someone else for
these costs and risks.
Either way, you tie up capital
for several months, but the interest
on this capital can be peanuts
when compared to the potential
savings in feed costs and to the
peace of mind of knowing that you
have secured the feeds you need to
and at a known cost. That’s
good business! If you take out a
loan or note to make these early
feed purchases, the loan payments
may begin immediately before
you start generating income from
the use of these feeds. Therefore,
to protect your cash flow, you may
want to ask your lender about lines
of credit and other forms of crea
tive financing.
2. Work with your feed com
pany, your boker, or your supplier
and lock in supplies and prices of
feed supplements and commodi
ties when prices become favor
able.
3. Buy in bulk to take advantage
of bulk discounts. If beneficial,
cooperate with neighbors to as
semble bulk orders.
4. Shop and negotiate for favor
able prices. Strive for early pay
ment discounts. If appropriate,
hedge feed prices, and rely upon
the advice and service of experi
enced brokers if necessary.
5. Remember, when you buy di
rect. you are in charge of quality
control. Be sure you get the qual
ity and weight you paid for. Col
lect representative from EACH
delivery. Accurately identify and
label these samples and set them
aside for future testing if circum
stances dictate that you do so. cir
cumstances such as: poor herd
performance, residues in meat and
milk, etc. Also analyze samples
for moisture and nutrient content
so you can balance rations more
accurately.
plemented.”
One-third of all residential,
commercial, and industrial cus
tomers must have freedom of
choice in selecting an electricity
provider by January 1,1999. Two
thirds of all customers must have
choice by January 1,2000, and all
customers must have it by January
1, 2001.
Deregulation will result in
many changes, and utility compa
nies already are establishing pilot
programs to gain experience with
the deregulated environment.
‘The state Public Utilities Com
mission currently guarantees
investor-owned utilities the op
portunity to make a profit,” Buf
fington said. “In the competitive
environment, these companies
will no longer be guaranteed a
profit. Rural electric cooperatives
have never been guaranteed a
profit, since they are operated as
nonprofit cooperatives.”
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Electricity pricing will change.
“Today, pricing options are lim
ited and relatively easy to under
stand,” Buffington said. “In the
deregulated environment, there
will be many pricing options and
some may be very complex.”
Customers also will have more
choices. “Today you buy just your
electricity from your designated
utility company,” Buffington said.
“Soon, utility companies will
offer many products and services,
which may include propane diesel
fuel, energy services, financing,
equipment and maintenance.”
In addition, many organizations
will be vying for your business.
“You can expect pesky phone
calls just when you are sitting
down to enjoy supper,” Buffing
ton said. “If that happens, investi
gate offers that sound too good to
be true. They probably are.”
Consumers should begin to
become better informed in order
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to respond to the upcoming dere
gulation. First, become aware of
your own electricity needs.
“Document how much electricity
yoli use and when use it, then
identify what equipment or opera
tion uses the most electricity,”
Buffington said.
“If you’re a fanner, document
how much electricity you use,
both in kilowatt hours and dollars,
to produce 100 pounds of milk,
one dozen eggs, one pound of
meat, one flat of bedding plants or
one bushel of fruit,” Buffington
said. “After you have carefully
documented how and when you
use electricity, then you will be
able to negotiate effectively to get
the best buy for electricity.”
More informaiton about dere
gulation is available from your
utility company, trade journals,
the Pennsylvania Public Utility
Commission, or from Agricultural
and Biological Engineering Ex
tension, The Pennsylvania State
University, 246 Agricultural Engi
neering Building, University Park,
PA 16802.
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