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ELECTRICAL POWER DEREGULATION COULD HAVE NEGATIVE AGRICULTURAL IMPACT
Irrigated crops, employment may suffer

LUBBOCK -- The deregulation of the electrical power industry in Texas is a major topic being addressed by the Texas Legislature. Deregulation has the potential to broaden the electrical power markets in Texas by allowing consumers to purchase their electrical power from more than one supplier.

However, preliminary results of a study conducted by Texas Tech University, of how electrical power deregulation may affect the Texas High Plains economy, show there could be a negative impact on agriculture and related businesses. The initial assessment was conducted by Phillip Johnson, Ph.D., assistant professor of agricultural and applied economics, in Texas Tech's College of Agricultural Sciences and Natural Resources.

Overall, the state may benefit from lower electricity costs. However, the report lists several reasons why sections of the state and some specific industries may see rate increases. One factor is that the costs of building and maintaining electrical distribution systems for rural consumers are high, due to fewer customers per mile of transmission line and large transmission losses. This may work against agricultural electrical power customers in a deregulated market.

Johnson's report concerning potential economic impacts on irrigated crop production and regional economic activity from increased electrical rates under utility deregulation raises some concerns for producers on the Texas High Plains (THP). The THP region is a major consumer of electricity for irrigation during the peak summer consumption period, when electricity generation costs reach their highest levels. Approximately 55 percent of the irrigated acres in the region use electricity to power irrigation wells and sprinklers. For study purposes, crop acres for the four major crops in the region (cotton, corn, grain sorghum and wheat) were estimated at various electric rate scenarios. Cotton was the most heavily affected. Regional employment also would suffer, with the City of Lubbock experiencing the greatest proportion of the losses.

The study shows that, "if the short-term effects of deregulation result in electric rate increases, an important part of the state's economy could be harshly affected." A farm-level example used in the study was Hale County.

Hale County was selected to illustrate the micro impacts on cotton profitability as electrical rates increased. Results indicated that there would be a 40 percent reduction in per acre net return for irrigated cotton production when electricity was used as the irrigation fuel under a 30 percent rate increase scenario. Results using a 50 percent increase scenario indicated that per acre net returns would decrease 67 percent for land using electrical power for irrigation.

"There are many economic, technological and managerial approaches to mitigating the problems that agriculture is likely to face, which could ease the transition to a fully deregulated electric power market," said Johnson. "There is a need to provide research and evaluation of these alternatives to provide farmers and electric utilities the best information possible for them to be able to make informed decisions."

Texas Tech's mechanical engineering department already is working on a possible alternative to alleviate problems predicted with electrical power deregulation. Researchers in that department are developing a system of "distributed generation," which involves a series of small generators fueled by natural gas, placed on individual producers' land to power irrigation systems. South Plains Electric Cooperative also has done some work with this system.

A complete copy of the report is available by calling Phillip Johnson at (806) 742-2821.

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CONTACTS:

Phillip Johnson, Ph.D., assistant professor, agricultural and applied economics, (806) 742-0277 ext.227.

Don Ethridge, Ph.D., chairman, agricultural and applied economics department, (806) 742-2821 ext.225.

Tom Burton, Ph.D., chairman, mechanical engineering department, (806) 742-3563.

Jordan Berg, Ph.D., assistant professor, mechanical engineering, (806) 742-3563.

David J. Schmidly, Ph.D., vice president for research and graduate studies/graduate school dean, (806) 742-2781.