Are Supply Chain Disruptions Impacting Your Energy Project?

We’re all familiar with the term “supply chain,” a phrase used in our industry much like “aging infrastructure,” that has become a part of everyday conversation. And we all have had our individual, personal experiences navigating disruptions to the supply chain in our daily lives, as well as in the roles each of us perform in the power and utility sectors. But what are the numbers – just how bad is the problem?

At a conference this past month, a major distributor of equipment and material to utilities laid out how much inflation and demand have impacted pricing and availability. A few examples:

  • U.S. Bureau of Labor Statistics (BLS) long distance trucking index: Up 30% since January 2021.
  • Fuel surcharges are closely correlated with oil indices: Up 80% since January 2021.
  • U.S. BLS forecast for labor cost increases: 12% in 2022.
  • Steel prices peaked in 2022 yet hot rolled and plate steel are still about 200% above 2020 levels.
  • Copper and aluminum are up 55% and 62% over the same period.
  • Resins such as HDPE and Styrene are up 100% since January 2021.

Shipment lead times have had comparably dramatic increases:

  • 25kVA pad-mounted transformers (a key component for underground distribution in residential subdivisions) – one year,
  • 336 aluminum wire for aerial distribution – 30 weeks (or more),
  • Substation power transformers – two years, and
  • Manufacturers have put customers on allocation, something not seen since the 1970s.

While this impacts all aspects of your operation, here are just a few things to think about:

  1. Scheduling Changes
    If your role involves planning or capital allocation decision making, the assumptions you made as recently as just a few months ago just got tossed out the window.
  2. Lead Time Increases
    Material and major equipment lead times are approaching critical path, a status usually reserved for permitting and approval of major projects.
  3. Inflation & Rising Interest Rates
    If you’re fortunate enough not to be subject to a stay-out agreement, it’s time to think about your next rate case, considering not just inflation but also interest rate increases.

What Can You Do to Address These Issues?

  1. For your capital program, is major material and equipment being requisitioned at the right time in your planning and engineering process?
  2. Can you recondition or temporarily extend the life of equipment such as transformers?
  3. Which test year is appropriate for your next rate case: Was 2021, 2022 – or some other period – more indicative of your view of the future?

The engineering, program and project management and engineering professionals at Tangibl can help you find the answers to these – and other questions specific to your unique circumstance. Contact us to discuss any of these issues in more detail.