Fueled by increased demand to power electric vehicles, support high-speed broadband communications and expand commercial and industrial development, electric cooperatives are ordering more materials and components to maintain and modernize their infrastructure.

Shortages that began during the COVID-19 pandemic continue to slow or stall delivery of essential products, which can delay completion of major projects or idle restoration crews following major regional outages. Production challenges have also led to spiraling cost increases for many widely used products.

Spare parts and components are crucial to maintaining electrical and telecommunications systems. What can co-ops and publicly owned system operators expect in 2024?

Brandrup: Demand has remained very strong across the board for utility products with the electric cooperatives. Many of our members are experiencing robust residential and commercial development within their territories and, of course, need more and more material to build out and maintain their distribution and transmission lines. Also, there is still a significant amount of replacement and upgrading of older distribution and transmission lines that needs to occur, and we expect that to continue for at least the next five to 10 years. Additionally, we continue to see many of our members rolling out broadband to their members, which is adding to the demand for hardware, including bolts, connectors and anchoring used both in broadband and electric utility applications.

Increased demand, global shortages and delays of necessary materials needed for production can lead to rising costs. What is RESCO experiencing in those areas, and what has been the impact on wholesale costs for your members?

Brandrup: Inflation on the products we distribute has been at record highs over the past few years. Manufacturers have experienced large increases in their labor and manufacturing costs, and those additional costs have contributed to product price increases. In 2021, the industry experienced about a 14% inflation rate increase on all the products we provide. In 2022, the inflation rate increased even more, and we experienced an additional 18% cost inflation. So, in two short years, the costs of all the products we provide increased by 32% on average. While inflation has slowed in 2023, we expect to end the year with about an 8% product cost increase. That represents a 40% increase in product costs since 2020, which places a huge burden on our members’ capital expense budgets.

Supply chain issues that occurred during the COVID-19 pandemic slowed or stalled delivery of many parts and materials needed across the American economy. Are lead times getting any better?

Brandrup: Over the past few years, lead times on most of the products we sell have increased, in some cases dramatically. Although we are starting to see lead times gradually improving and expect continued improvement in 2024, some critical electric utility items continue to experience extended lead times, such as transformers, medium voltage underground cable, and underground rubber goods like junctions, elbows and connectors. Extended lead times for those products are expected to remain in play beyond 2024.

Capacity upgrades, modernization and expansion into areas including electric vehicle and broadband operations have many co-ops adding new products to their warehouses and supply yards. What is RESCO doing to meet those needs?

Brandrup: RESCO has continued to invest in much larger inventory levels, ensuring that we are meeting our members’ needs. In recent years, we’ve more than doubled our available inventories to over $50 million in products on hand. We’ve increased warehouse space in Michigan and Minnesota and added a new distribution center in Iowa. We’re also building a new logistics center in Wisconsin that will provide us with an additional 40,000 square feet of warehouse space and 80,000 square feet of secured yard storage.

The demand for distribution transformers is a major concern across the electric utility industry. What are you telling RESCO’s members to help them plan for system maintenance and expansion?

Brandrup: Single-phase, three-phase and substation-class transformer demand has been at record levels the past few years. We expect that to continue for several more, spurred by robust residential and commercial development and rapid development of renewable energy projects. Residential load growth is also forcing utilities to upgrade and replace 20- to 25-year-old transformers, particularly as more electric vehicle charging is needed. That is an emerging trend we expect to see for years to come.

RESCO partners with ERMCO, the largest domestic manufacturer of transformers. They are owned by Arkansas Electric Cooperatives Inc. and are the leading supplier of transformers for the co-op and public power provider markets. ERMCO has shifted the majority of its production to meet the needs of co-ops and public power providers through RESCO and the other eight co-op distributors who belong the Electric Utility Distributors Association. While we still see lead times of up to two years for transformers purchased from for-profit manufacturers, EUDA’s relationship with ERMCO typically allows us to fulfill most orders within 14 to 20 weeks. RESCO now carries larger inventories of transformers at our nine warehouses and using a “member first” strategy, we’re able to ship transformers within two weeks of receiving orders.

Government regulations also have the potential of impacting our members’ and customers’ operations. We remain concerned about the Department of Energy’s proposed transformer rule that could worsen the transformer supply chain situation. The proposed regulation would mandate greater energy-efficiency standards for distribution transformers, which would then require manufacturers to increase the size and weight of transformers at additional cost to them, and ultimately, to the cooperatives that need them. It would also require the use of more amorphous steel in their production at a time of global shortages.

Current transformer designs already have efficiency rating above 98%, and requiring larger, heavier and more expensive units could not only lengthen the delivery lead times for our members, but also worsen the shortage of fabrication materials developed since the beginning of the decade.

What advice can you offer co-op managers as they plan their materials purchases for 2024 and beyond?

Brandrup: Work very closely with your material supplier to order your critical material needs as early as possible. Additionally, given the extended lead times on many products, make sure your cooperative increases its inventory levels on longer lead time products, especially on material needed to serve critical loads. If you are not already working with one of the nine cooperative distributors, be sure to reach out to the cooperative distributor that serves your region to find out how it might be able to assist your material procurement department, given all of the supply chain challenges. The nine members of the EUDA group maintain about $700 million combined worth of distribution and transmission inventory at the ready to help your cooperative with its material needs.