As seen in the June 1999 issue of Resource magazine:

Taking Care of Business

By Jackie Elowsky

Like any other business, agriculture has no crystal ball to tell its managers how to cope with the years to come.

But consultant Jimmy Hill says producers have a better alternative because agribusiness planning help is a phone call away  and much of it is free.

“They don’t know what’s available or how to get ahold of the right people,” says Hill, president of The Hill Group in Grayson, Georgia.

Hill has been working with agribusiness development nearly 30 years and says universities and agricultural extension agencies are good sources for free advice and education for farmers. As a consultant, he makes referrals to these agencies during meetings with farm managers.

“I help them develop their plans for the future,” he says. “Sometimes, I have to play the devil’s advocate role with them a little bit.”

Typically, the farm management team is composed of family members, Hill says, who need guidance to succeed in the marketplace.

“They call and say, ‘We’re thinking about the future but we’re not sure what direction to take,’” he says.

Hill first meets with the managers at no charge to talk about their goals and expectations. Perhaps they are considering purchasing land or machinery, or expanding staff.

“We explore what their interests are,” Hill says, “to see what the scope of the project is going to be.”

Hill then offers his services  for a fee  to work with the managers to find the best path to reaching their goals. He says the number of producers requesting business advice has recently increased.

“There are more now than there have ever been,” he says. “Times are more complicated. In the past, you maybe just grew a product and knew that somebody was going to buy it. Today, you have to understand marketing.”

Hill says the trend toward less government subsidies for farmers is changing the way producers conduct business. To make a profit, farm managers must learn about the global marketplace, its limits and opportunities.

“A lot of people I deal with came up in the old school,” Hill says, and must learn that society’s views on agriculture are changing. Producers are faced with environmental, waste management and other public concerns that have become priorities for communities, states and regions.

For example, swine operations have come under fire in recent years as waste from these facilities is associated with polluting surrounding areas. Hill says new government regulations have made it “almost impossible” for a prospective hog producer to get the permits needed to start a swine facility.

In this situation, Hill recommends that producers take a rational rather then emotional approach to be successful.

“A lot of people start out saying, ‘This is my land and I’m going to do what I want with it,’” he says. That attitude may have accomplished a purpose in the good old days, he adds, but today’s landowners could face fines and other penalties for disregarding environmental laws.

Hill, an agricultural engineer, advised farm managers to consider the technical and scientific aspects of difficult issues such as these. He refers clients to the decision makers he met during the majority of his career serving as Georgia Power’s manager of agribusiness development.

To survive in the 21^st century, producers must be willing to evolve with a global marketplace and public policy changes, Hill says.

“It’s more focused than ever,” he says. “You can’t take a shotgun approach anymore. You have to take a rifle and zero in on problems.”

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As seen in the February 1999 Progressive Farmer:

Making Sense Of Electricity Deregulation

Just like you now choose your long-distance phone service, you may soon get to decide who supplies your power. But will this be good for agriculture?

By Del Deterling

Editor's note: Jimmy Hill, an agribusiness consultant in Grayson, Ga., was a major contributor to this report.

You're getting ready to relax for a quiet dinner with your family, and the telephone rings. Is it a salesperson? someone taking a survey? a charity wanting a donation? Nope. It's a representative from an electric company you've never heard of trying to persuade you to switch to their power. What's the incentive for you to change? Lower electricity rates, maybe. Or how about improved service, free frequent flyer points or a month's worth of free power?

You may be making that kind of decision in the not-too-distant future. In Congress and in state legislatures throughout the country, moves are afoot to deregulate the giant $220 billion electric power industry and stir up more price competition.

If lawmakers approve deregulation, you will be able to pick the company that provides the electricity for your home or farm just as you now can choose your long-distance telephone service. And the options may be just as confusing. Your decision to stay with your existing provider or to switch companies may hinge on rates, service or other enticements.

Your electric service involves three basic components-generation, transmission and distribution. Generation is the actual production of electricity using giant turbines powered by coal, natural gas, water or nuclear power. Transmission involves those high-voltage power lines you see stretching across the countryside-the superhighways, if you will, that carry electricity from the generating plants to your local utility company or co-op. The lines, poles, transformers and meters that deliver power to your home or farm are part of the distribution function.

Most of the restructuring is targeted toward generation. Until recently, utility companies have had a virtual monopoly on generating power. Many of them also controlled transmission and distribution.

Deregulation would "unbundle" these three components. Utility companies would have to separate their generation functions, which are considered a competitive business, from their transmission and distribution businesses, which will remain monopoly functions.

The Big Push.

In some parts of the country, companies involved in all three  functions would have to sell off their power plants. This would open the door to new players who could either make electricity or buy power from generating companies, set their own rates and compete with each other in the sale of energy to customers. The big push is coming from large industrial users who hope that competition among new companies will give them cheaper electricity, according to Susan Tierney of The Economics Resource Group in Cambridge, Mass. Some federal and state regulators are also encouraging the idea.

Some believe deregulation is an idea whose time has come.

"Electric utilities are the last regulated monopoly in the U.S.," notes Joe Tanner, executive director of the Georgia Alliance for Lower Electricity Rates. "Opening up the electricity market to competition will be good for consumers and, ultimately, for the power suppliers. It will put more money into the economy, and that will benefit all of us."

Ernest Righetti, an avocado grower from San Luis Obispo, Calif., hopes competition will lower his energy rates. On April 1, 1998, California began giving residents the option to choose who supplies their electricity (see accompanying story).

On the other hand, David Waide, president of the Mississippi Farm Bureau, believes deregulation will hurt rural customers. He fears that service to rural areas will suffer and net costs will increase. "I'm paying 6.25 cents per kilowatt-hour for power now," says Waide, who farms at West Point, Miss. "That's one of the lowest rates in the country. The way I figure it, the only way our rates can go [under deregulation] is up."

Delmas McCormick, a cotton and grain producer at Floydada in the Texas High Plains, also wonders how much clout farmers would have in a truly competitive market.

"When we're irrigating, we can't shut down for a day or two because a large industrial user can afford to pay higher prices during a peak demand period," McCormick says.

This past summer, the combination of a heat wave and a generation plant failure in the Midwest caused electric rates to shoot up dramatically (in some cases, by more than 100%). Some large industrial customers had to shut down their plants for several days. In a deregulated market, it could be farmers who are shut down.

As for promises that competition could mean cheaper electricity, McCormick sniffs that the same promises were made when long-distance telephone rates were deregulated. "I've changed companies several times," he reports. "I can't see that our service has improved, and it certainly doesn't cost any less."

Many farmers and rural residents get electricity from rural electric co-ops. The National Rural Electric Cooperative Association reports that 1,000 not-for-profit, consumer-owned rural electric systems provide service to more than 30 million Americans in 46 states.

"Cherry-picking" Areas.

If co-ops are swept up in the restructuring wave, those who own generating plants may be forced to sell their facilities and buy electricity on the open market. The majority of co-ops that function as distributors would have to compete with the growing number of investor-owned energy companies expected to spring up with deregulation.

Glenn English, NRECA chief executive officer, fears that investor-owned utilities will "cherry-pick" the large industrial consumers in rural areas. This would leave co-ops with the higher costs required to build lines and serve producers, farm families and small businesses, especially in isolated areas. He points out that some service areas of North Carolina are so rugged that line work is still done by mule.

The Tennessee Valley Authority is a major supplier of electric power to the rural South. Mark O. Medford, executive vice president for customer service and marketing in Nashville, reports that nearly one-fourth of TVA's kilowatt-hour sales are to some 50 rural electric cooperatives.

"We haven't determined how TVA will be impacted by deregulation," Medford says. "We think there is a danger that our agricultural and rural customers, because of their remoteness, may end up paying higher rates than they are now. It is our intention to make sure that doesn't happen."

Most of the initial push to deregulate the electric power  industry has been in states with the highest average rates-New England, the upper Midwest and California (see map). The pace of restructuring has moved much more  slowly in the South, the Corn Belt and the Northwest.

Oklahoma jumped out front under the leadership of rural electric co-ops. "Instead of waiting for Congress to mandate restructuring, we decided to do it ourselves and do it right to protect our producers and rural customers," explains Larry Watkins, CEO of the Oklahoma Association of Electric Cooperatives. Their solution was to set up state-regulated boundaries for companies that provide electrical service within a given territory to keep competitors from stealing their biggest and most profitable customers.

The issues surrounding deregulation are complex. How much, if any, of the large investments they've made in generation, transmission and distribution facilities will utilities be allowed to recoup? And how will rates be set? Will rate reductions be mandated? Will users have to pay extra line charges and buy meters that measure hourly use of electricity? How will consumers be protected?

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