A major regional supply cooperative is urging electric cooperatives and other utilities to adjust their system planning to factor in long wait times and higher prices for many of the supplies and components they need to serve consumers.
Shipping delays, materials shortages and cost increases that plagued the U.S. supply chain at the height of the pandemic are not expected to subside anytime soon and may impact major projects scheduled for next year, said Matt Brandrup, president and CEO of the Rural Electric Supply Cooperative, a member-owned logistics and supply co-op serving more than 250 utilities in 10 Midwestern states.
“Inflation is having a major impact on our industry,” he said. “In 2021, the overall inflation rate impacting the basket of products we sell was 14%. In 2022, we’re estimating an overall rate of 15% to 18%. That will place a huge budgetary burden on work plans.”
That means projects for next year and beyond may require more capital than co-ops or developers expect.
Brandrup said RESCO has about $42 million worth of products in its warehouses, but sporadic shortages of some items are presenting challenges.
“We’re carrying a record amount of inventory … but there’s tremendous demand from our members,” said Brandrup. “Longer lead times for delivery from our suppliers have forced us to carry more inventory, and there are no signs that expected fulfillment periods will return to what we considered normal two years ago.”
RESCO recently opened a 30,000-square-foot warehouse complex in Iowa that doubled its inventory capacity. Another facility is slated for construction next year in Wisconsin and is expected to open in 2024.
“This enables us to negate the long lead times that have plagued the industry for the past few years,” said Brandrup. “Our new Wisconsin warehouse will ensure that our members and customers have access to the products they need, when they need them.”
He said one key advantage for co-ops is the relative uniformity since most systems are built to standards set by the U.S. Department of Agriculture’s Rural Utilities Service.
“Transformer and cable specifications needed to meet the needs of our members drive our decisions on the level of those materials we keep on hand and our planning for future orders,” said Brandrup. “That keeps us from having units of multiple design in stock to meet anticipated demand.”
“You can’t install a new service or upgrade an existing service without a transformer,” he said.
He noted that ERMCO, a major supplier of transformers for the co-ops, has committed significantly more of its 2023 production to RESCO and the other eight members of the Electric Utility Supply Association that serve the co-op market.
Brandrup said they’re also trying to keep up with changing supply needs as co-ops expand their operations to include electric vehicle charging services, broadband networks and distributed generation.
“EV chargers are among the items with a lot of momentum now,” said Brandrup. “Trying to obtain the number of residential and commercial units members want has been challenging.”
And as more members and businesses switch to EVs, co-ops must upgrade infrastructure to handle the additional load.
How co-ops weather this crunch will ultimately come down to how well they plan, Brandrup said.
“We’re advising our members to not think in terms of weeks or months when they consider major projects or meet with developers,” he said. “Multiyear planning is getting much more important to their overall operations, particularly for key products.”