Cotton Farming Ginners Marketplace October 2022 by One Grower Publishing

Ginners Marketplace COTTON

COTTON FARMING IS THE OFFICIAL PUBLICATION OF THE GINNING INDUSTRY.

Electricity Take A Rates Hard Look Likely AtTo Insurance IncreaseCosts For 2022 And Safety Culture At The Gin

In Texas, we have spent a good bit of time and energy trying to untangle the mess that was caused by Winter Storm Uri. We Distractions have become “routine” in our daily lives. Our have seen legislation passed, new rules written and now various phones go off, we get text messages and we’re bombarded by actions by our Public Utility Commission. If you are reading this the never-ending news cycle. Everything seems to be trying to from outside of Texas, hang on for just a little bit, and I’ll get to get our attention, and it’s easy to lose sight of what’s important. why I think this issue may have an impact across the Cotton Belt. Things can sneak up on you, and those are the ones that will If you followed this in the news, there was a lot of talk about jump up and bite you. ERCOT, the power grid in Texas, and the huge power outagIn the last year or so, we’ve seen huge increases in our costs. es we faced during the storm. Parts of ERCOT were out for As I write this, we’re getting news of the highest inflation in a week or more. One common comment heard was that this more than a generation… maybe two. wouldn’t have happened if ERCOT were part of the “National While I’m personally seeing some of the things that increased Power Grid.” so much ease down a bit, it’s not common for costs that have This is a bit of a misstatement because there actually are gone up this much, this fast, to come down or come down very nine grid systems in the United States. ERCOT just happens much. We will likely have to learn to live with some of them. to be the only one that does not cross a state line, and so is not regulated by the Federal Energy Regulatory Commission. The Cost Of Insurance There are several areas of Texas that are not in ERCOT, and One of the costs that snuck up on many gins in the past year this is where the effect from the storm on these areas may be or so is the cost of insurance. Normally, this is a once-a-year of interest to folks across the Belt. expense we get hit with. The past renewal cycle or two have been more than a bit of Gas And Electricity Spot Prices sticker shock for many in the ginning industry. Your associaDuring Winter Storm Uri, there was a large disruption in

the natural gas supply system, which is one of the things that caused natural gas to jump substantially during the turbulence. tions have been aware of this and have brought it to the attenAs power plants were shut down by the storm, some of the motion of our memberships. But I think many of us got distracted tors that pressurized the natural gas lines lost power. by the other things going on and have now been hit with the At the same time, the remaining natural gas-fired power reality that it’s not getting better. plants were ramped up to handle the additional load. Most had This is a simplified explanation, but insurance companies are to buy more gas on the spot market to keep running. The spot going to do what they need to in order to stay in business. They price for electricity went through the roof as well, hitting $4/ must make money like we do. The companies take our premikWh outside of ERCOT and $9/kWh inside ERCOT. The utilities um and invest it. They pay claims with it, and they expect to that had to buy spot electricity during this time frame incurred have some left over. If losses are low and return on investment substantial losses. is good, you have happy insurance companies. We get stable premiums and competition. What’s Happening In Texas If they have poor investment returns and higher-than-exIn Texas, we are just now seeing the results of this increase in pected cost of claims (read inflation), you have unhappy ingas and electricity prices. Electric utilities have assessed their surance companies. They may decide to pull out of the market losses and are now passing these costs on to their customers. and/or significantly increase rates. This is where we are today. Additional charges in the range of $0.01 - $0.03/kWh are being Your ginners associations and the National Cotton Ginners’ assessed to make up for losses during the storm. This amount Association have been concerned about this for some time. We is highly variable, based on what mix of generation the power need healthy insurers and competition, but we really can only company was using and whether they had adequate fuel conhelp one side of the insurance problem…losses. NCGA has put tracted. together a list of questions to ask yourself, so you can evaluate The City of Austin Utility, for example, did not lose any money

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during the storm and actually made money. This was mainly because so much of the Austin system was down, and they were able to sell the additional electricity they could not get into the city to other utilities in ERCOT at a hefty profit. On the other hand, one of our power plants outside of ERCOT went down, and the utilities that relied on this power were forced into the spot market. These companies now have a large deficit they are having to make up. Natural Gas Plants And Electric Utilities The costs we are seeing to make up for losses during the storm are only one side of the equation. Adding to this is the fact that gas prices are up today. Spot prices for natural gas this August averaged $8.81/MMBtu on the Henry Hub. Last August, this same average was $4.07/MMBtu. While this difference will only affect natural gas power plants, our electric utilities across the country are relying more on natural gas plants, as the coal-fired plants are being phased out. Stated in cost per kWh, we see fuel typically at about $0.02. Doubling of the natural gas price could mean an additional $0.02/kWh. Fortunately, most of the natural gas is not purchased on the spot market. But you can see the potential problem if the price of natural gas continues to stay at these levels.

Cotton Ginners Marketplace

Renewable Sources Of Generation Our utilities are facing increasing pressure to use renewable sources of generation, especially wind and solar. The problem with wind and solar is they only work with the correct weather. Utilities must continually balance generation against the load on the system. The main method most utilities use to balance the load is through natural gas-fired power plants. With the renewables on the system, the natural gas plants must balance both the changing load and the changing amount of generation provided by the renewables. If you have a major cold snap with snow and freezing rain, you will likely lose most of your renewable energy generation, forcing the natural gas plants to ramp up considerably. Ginning Cost Survey Participation Is Critical All these variables combine to put significant upward pressure on electricity prices. This season, it is important that you communicate with your electricity provider to be sure you know what they will be charging. If you have not participated in the past, this year would be an excellent time to begin taking part in the ginning cost survey coordinated by the National Cotton Ginners Association. The ginners associations use these survey results to track energy prices across the United States. It is important that we have good participation across the country to have an accurate understanding of how prices are changing in different regions. The more participation we get for the survey, the better the data quality will be. This data is a key part of our efforts to help the industry operate in the most efficient manner possible.

the Air District’s Governing Board Meeting following a presentation by staff on receiving funding for heavy-duty trucks. With more than $12 million in funding, the District is encouraging interested parties to apply. Unfortunately, the funding is tied directly to efforts to electrify the goods movement industry and only allocates money towards zero and near-zero trucks. McGlothin testified that the agricultural industry has made significant investments in compliant trucks following ARB’s Truck and Bus Regulation. Unfortunately, many subhaulers who were vital to the industry have had to cease operation due to the regulatory requirements associated with heavy-duty trucks. Along with that point, those businesses that invested in updating fleets to Engine Model Year 2010 or newer equipment are now facing another mandate to upgrade to unproven, electric equipment in the coming years. The association supports incentives towards updating fleets and meeting compliance, but the electrification plan has been relied upon too heavily over this past year.

Cotton’s Calendar  Oct. 19: PCCA Board, Delegate Body & Marketing Pool Committee Meetings, Lubbock, Texas 

Nov. 18: Calcot Board of Directors Meeting, California

Dec. 14: PCCA Board, Delegate Body & Marketing Pool Committee Meetings, Lubbock, Texas 

2023  Jan. 10-12: 2023 Beltwide Cotton Conferences, New Orleans Marriott, New Orleans, Louisiana  Jan. 11: North Carolina Cotton Producers Association 2023 Annual Meeting  Jan. 18-21: Southern Southeastern Annual Meeting, Marriott Myrtle Beach Grand Dunes, Myrtle Beach, South Carolina  Jan. 22-24: 2023 ACSA Mid-Winter Board Meeting, Fort Lauderdale, Florida  Jan. 23-27: 2023 NAICC Annual Meeting and AG PRO EXPO, Omni Nashville Hotel, Nashville, Tennessee  Jan. 25: 2023 Georgia Cotton Commission Annual Meeting, UGA Tifton Campus Conference Center, Tifton, Georgia  Feb. 8-10: Louisiana Agricultural Technology & Management Conference, Paragon Casino Resort, Marksville, Louisiana  Feb. 10-12: National Cotton Council Annual Meeting, Fairmont Hotel, Dallas, Texas  Feb. 23: SCGA Annual Meeting, The Peabody Hotel, Memphis, Tennessee  Feb. 24-25: 71st Mid-South Farm and Gin Show, Renasant Convention Center, Memphis, Tennessee  March 30-31: TCGA Annual Meeting & Trade Show, Lubbock, Texas  April 12-14: American Cotton Producers, Hyatt Regency DFW, Dallas, Texas

J. Kelley Green, TCGA executive vice president, contributed this article. Contact him at kelley@tcga.org.

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CCGGA Testifies At Air District Meeting The California Cotton Ginners and Growers Association reports that in early September the association’s Director of Technical Services, Chris McGlothin, attended and testified at

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