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Supply Chain Mitigation: In It Together

Supply Chain Mitigation: In It Together
August 18, 2022

Supply chain issues are an unfortunate sign of the times. Whether it’s a longer wait to receive the new kitchen cabinets for your remodel, higher prices or limited availability of your favorite foods or longer Amazon shipping times, it’s something we’ve all experienced to some degree.

Within the electric industry, we are facing similar challenges, and not one utility in the nation is immune.

Even so and as always, NPPD is committed to providing affordable and reliable electricity to power your home and your life whenever you need it.

Future planning is key

NPPD diligently prepares for future potential disruption to our business by looking ahead and mitigating risks before they occur. It’s exactly why in 2021, as the height of the pandemic wound down, yet global shutdowns and what is known as the “Great Resignation” remained at large, NPPD created a Supply Chain Disruption Mitigation team to address specific difficulties experienced when buying certain materials and equipment needed to operate.

I don’t think anyone could have predicted the state of our markets right now – issues that began with the onset of the pandemic and escalated with the war in Ukraine, among other things.

As a result, material availability and delivery times have been negatively impacted, and prices have dramatically increased. Throughout most of 2022, aluminum prices have been higher than last year, while steel prices have nearly doubled since the pandemic. In turn, global demand for electrical grade steel is expected to increase 30 to 40% by 2026 according to Border States (a significant supplier to the electrical industry). What’s more, in 2021, Ukraine and Russia supplied a large portion of the U.S.’ crude iron, from which steel is made, and 25-50% of all neon is made from Ukraine – critical material in semi-conductors.

These are real issues that not only impact the energy industry, but many others as well, including community development.

How we’re navigating the uncertainty

NPPD’s Supply Chain Disruption Mitigation team empowers our organization to get what we need, when we need it, to power our customers and our communities. But, it doesn’t stop there. We’ve also been collaborating with our customers experiencing similar issues. Doing so may not only strengthen our leverage as a whole, but may also increase purchasing power with suppliers, and we do it by consistently securing time-sensitive production slots and exploring alternate ways to receive the items we need to keep the lights on.

NPPD works hard to have inventory on hand to complete big projects like regular maintenance outages at our power plants and work on our lines. We also have storm-specific inventory to quickly restore power during adverse weather events. Yet, though we’ve successfully made expeditious and effective repairs following this year’s storm season, our reserves are decreasing.

Line hardware, transformers, insulators, poles, and wire are all difficult to keep at acceptable levels. NPPD has approximately 635 transformers on order, half of which will arrive next quarter, and 20% which will arrive next year or later. In turn, suppliers report lead times are more than 120% higher than pre-pandemic levels for many electric utility products.

Fortunately, NPPD has a capable and talented staff who can machine many spare parts for our power plants and facilities so we don’t need to rely solely on external suppliers. In addition to in-house machining capabilities, our comprehensive inventory optimization and planning efforts have greatly helped protect our inventory.

Our strong partnerships with wholesale customers allow us to share materials when possible – an effort we spoke to in detail Aug. 5 when NPPD met with 26 customers representing 20 utilities during a Wholesale Power Partner Summit to identify even further supply chain mitigation strategies including collaborative buying. In addition, NPPD is a member of the Utility Service Alliance, which is comprised of 17 members and where we can source other inventory items. The American Public Power Association’s new equipment request tool helps us further source materials.

Amidst it all, rate stability continues

The good news is even as inflationary pressures span the nation, NPPD is providing rate stability thanks to our diverse generation mix that is dispatched continuously in the Southwest Power Pool’s Integrated Market and proves extremely competitive. Our plants are bringing back money to keep rates low for customers and/or to use for system improvements. In fact, Retail customers haven’t had a rate increase in nine consecutive years, and Wholesale customers for five consecutive years.

To that end, we recently learned our wholesale rates benchmarked in the first quartile and are some of the lowest in the nation compared to more than 800 other utilities within the 2021 National Rural Utilities Cooperative Finance Corporation (CFC) Ratio 88 results.

This achievement reflects the commitment of our entire NPPD team and their resolve each day to control costs by making sound decisions on how best to run our organization, operate our power plants and safely deliver electricity to our valued customers.

We understand you may not have control over the price increases and supply chain challenges you are personally facing in your life today, but we want you to know we are doing everything in our power to keep costs low and electricity reliable for you.

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