In T&D World’s July issue, the cover feature written by Senior Editor Jeff Postelwait focused on large transformer shortages. It was an insightful article, and if you haven’t read it yet, you should. Jeff’s article reveals that lead times for these important components is now up to three years or more.
Short supply of large transformers is concerning, but it’s not the only challenge electric utilities face when it comes to supply chain. I attended a press briefing in late June that revealed supply chain issues go way beyond large transformers and are impacting large and small electric utilities. The virtual event was organized and hosted by the United States Energy Association (USEA). The four panelists — Rudy Garza, Interim president and CEO of CPS Energy; Joy Ditto, president and CEO of American Public Power Association (APPA); Ray Kowalik, chairman and CEO of Burns and McDonnell; and Scott Aaronson, vice president of Security and Preparedness for Edison Electric Institute (EEI) — shared their thoughts about supply chain and equipment availability and answered journalists’ questions.
It was an enlightening discussion, so I thought I’d use this month’s Global Viewpoint to share some of what I heard during the discussion. Unfortunately, this short column doesn’t allow me to cover everything, so I’ve selected a few high points.
Price and Uncertainty
As is the case with most products these days, prices of components and equipment vital to electricity delivery have increased. Burns and McDonnell’s Ray Kowalik, who is knowledgeable on the various vertical markets the company covers, not just electric utilities, said prices are up about 20% across industries, but began stabilizing in June. He explained that because of rising and varying prices, there is no certainty in the market. Businesses can no longer give a sure or fixed price for projects, new equipment, and supplies. This is a change from how construction projects have historically been done, but nevertheless, things are still getting built and utility work is still robust, Kowalik said. “Projects require much more collaboration now. We are no longer working in the world of firm prices,” he said.
CPS Energy’s Rudy Garza agreed that firm pricing is no longer the norm. “We must get comfortable with ranges of prices for components and projects,” he said.
Supply Chain Bottlenecks
We’ve all heard how transport and delivery of equipment has been constrained on the seas, in the air and over the road. According to the experts on the USEA panel, however, delivery is not the problem.
EEI’s Scott Aaronson said delivery problems can be fixed with money. The biggest problem is caused by manufacturing delays, according to Aaronson. He said there are about 10,000 SKUs (stock keeping units) just for transformers in the U.S. “We need more standards at the distribution level to allow for better sharing of equipment among utilities and to make it easier for manufacturers,” Aaronson said.
Graza also said delivery is not the problem. He warned, however, that while standardization could simplify things for manufacturers and help with supply issues, standardizing transformers and other components across the electricity delivery industry would be difficult. Because distribution utilities have so much equipment installed in the field, standardization would be extremely expensive and it would take years for utilities to replace existing equipment, Garza said.
He added that the main problem is obtaining raw materials to manufacture the products and equipment needed. He also said the push to decarbonize is being slowed by supply issues. Preparing the infrastructure for large amounts of green energy requires infrastructure upgrades and lack of supplies is hindering preparation and slowing decarbonization.
Joy Ditto of APPA said many public power utilities are dealing with these same issues. APPA is working with the federal government to get manufacturers in the room with utilities to address pricing and lead time issues, she said. Ditto also revealed that the smaller utilities APPA represents have small budgets and supply needs, which equates to less buying power. This has prompted some to refurbish components that a few years ago they might have replaced, she said.
Collaboration/Mutual Assistance
The importance of mutual assistance cannot be over-hyped. Black sky events are becoming more frequent and extreme, and utilities impacted by these events rely heavily on help from other utilities. I usually thought of workforce sharing as the main piece of mutual assistance, but this panel pointed out that the ability to share equipment is just as important.
Ditto said APPA utilities’ biggest concern is not being able to respond and help other utilities after weather-related events. “They can send people, but they might not be able to share and send components, especially transformers,” Ditto said.
Aaronson said the same is true for EEI member utilities. “It has never been more important for utilities to work together than it is now,” he said.
Parting Thoughts
“We are in a very tenuous time,” Burns and McDonnell’s Ray Kowalik said near the end of the discussion. Labor shortages, high fuel costs and the higher cost of money are driving inflation. Trains, trucks, barges, ships are moving as much material as they were pre-pandemic, he said. But, supplies are not yet built back up – there are no reserves in warehouses. The supply chain is fragile and there is no room for error or breakdown anywhere along it. Such a thing will lead to more disruption, Kowalik cautioned.
Rudy Garza of CPS Energy agreed and added that the push to decarbonize and rapid electrification are big concerns. In addition to preparing the grid, the industry must expand the generation fleet to serve the electrification of the world. It (generation) is not being talked about enough, but the industry must tackle it. It is a big issue, Garza said.
The full press briefing, "How Supply Chain Chaos is Upending the Electric Utility Industry," is available on USEA’s website at www.usea.org.
