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2022-068 DME Notice to Developers Due to Supply Chain ImpactsOctober 21, 2022 Report No. 2022-068 1 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: DME Notice to Developers due to Supply Chain Impacts to Electric System Development. BACKGROUND: Supply chain issues faced by DME for the equipment needed to connect new customers and to implement upgrades to the DME distribution system are starting to impact DME’s ability to meet the demands of the development community. The equipment and devices include, but not limited to, many of the raw materials and components for transformers, PVC piping, underground cable (copper and aluminum), overhead conductor (aluminum), High Voltage connectors, and pedestal style termination cabinets. Despite the supply chain issues faced by all electric utilities, development in Denton continues at an ever-increasing pace as shown in Figure 1. Figure 1 – DME Customer Growth DME currently has 61,793 customers. Since 2017 (5 years), DME has seen a 36.692% increase in customers. Besides the need to provide the necessary materials and equipment to meet this growth, DME must assure it has sufficient material stocks to respond to daily service issues as well as its ability to respond to a more widespread event on the system. As a direct result of serving more customers, the number of pieces of electrical equipment and materials necessary to 0 10000 20000 30000 40000 50000 60000 70000 2017 2018 2019 2020 2021 2022 Customer Growth Residential Government Commercial Industrial October 21, 2022 Report No. 2022-068 2 maintain the system due to routine outages has increased and getting that equipment during this supply chain interruption has further exacerbated the lack of inventory available to meet developer needs. DME Engineering tracks all developments that we have the penitential to serve and all that we are obligated to serve. Table 1 provides a quantity breakdown of project classification and status of the database used. Figure 2 depicts the number of historical residential and multifamily units that have been interconnected to the DME system and forecasts the 2022/2023 units based upon the projects that have entered the development services queue. Table 1 - Project Class and Status Residential Multifamily Commercial Improvement Total In Design 17 24 29 57 127 Active 10 9 7 6 32 Totals 27 33 36 63 159 Figure 2 – Historical and Known Developments 414 1,080 502 739 1,272 2,409 108 1,862 743 1,495 1,225 5,151 - 1,000 2,000 3,000 4,000 5,000 6,000 - 500 1,000 1,500 2,000 2,500 3,000 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 MultifamilyResidentialResidential & Multifamily Residential Multifamily October 21, 2022 Report No. 2022-068 3 During the COVID years DME’s experience with each revenue rate classes were mixed. Residential development did not slow but increased dramatically this past fiscal year with a higher projected growth of over 2,400 new residential lots added to the system for FY 22-23. Construction of multifamily units dipped slightly between FY20-21 and FY21-22, but projections show expected growth in FY22-23 of over 5,000 new multifamily units. Additionally, commercial customer growth has been high as depicted on Figure 3. Figure 3 – Commercial Rate Base Growth (square feet) Commercial development within the City of Denton did not slow during COVID, and in fact, DME expects an exponential growth in new commercial square footage. The chart shows DME can expect an additional 6,254,518 square feet of commercial space in FY 22-23. Most commercial development is served through use of three-phase transformers. Critical Path Equipment and Materials DME Engineering identified four (4) material items, which are critical to the delivery of electric service, for further discussion. The comprehensive list of materials is over 75 items, but DME Engineering is highlighting these for illustrative purposes. Table 2 is a listing of these items broken down into the minimum requirements (the level DME needs to have on hand to handle daily and emergency situations), the number that has been committed to projects that are “active” (released or can be released to field operations for construction), the number of each item on-hand and currently in stock, the calculated shortfall, purchase order dates of the material along with the quantity ordered, and finally the current lead time. - 572,877 141,493 285,767 2,073,536 6,254,518 - 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 Commercial October 21, 2022 Report No. 2022-068 4 Table 2 – Warehoused Items Status For illustrative purposes Figure 4 depicts the projected timeline #2 Elbows, the item that we anticipate shortages of in the very near future. Similar graphs are provided for each item in Table 2 in the Appendix. Figure 4 - #2 Elbows Supply vs Demand Minimum Committed Total On Hand Shortfall On Order Leadtime 50 kVA (OH)35 8 43 8 35 40: 9/28/2021 50: 4/27/2022 60 Weeks 50 kVA (UG)25 190 215 3 212 60: 6/7/2021 45: 9/28/2021 180: 4/24/2022 30: 7/25/2022 50: 8/24/2022 60 weeks Pedestals 70 545 615 121 494 353: 5/12/2022 200: 7/20/2022 252: 8/12/2022 21-9/14/2022 6 months St Light Pole 24 171 195 0 195 125: 9/29/2021 125: 12/21/2021 150: 5/20/2022 52 weeks #2 Elbows 24 772 796 133 663 136: 3/23/2022 290: 5/04/2022 495: 5/24/2022 Allocation October 21, 2022 Report No. 2022-068 5 Termination of underground cable to a pad-mounted transformer is accomplished with an elbow. An elbow is composed of metal parts and fittings that slide into the receiving port of a transformer. The elbow is insulated with a rubber covering that protects its energized parts from ready access. A minimum of two elbows are needed for every transformer installed. Our current supplier, Techline, has notified us the vendor has them on an “allotment” for orders. It is the understanding this means Techline receives a limited amount of these items monthly – no matter how many Techline may have on order. Techline divvies these out to their multiple customers of which DME is one. DME may only get two (2) a month. The low supplied value for these critical items is extremely problematic and certainly can delay multiple active and projects in design if more are not received. The lead time for #2 elbows is on allocation. Currently, the CoD warehouse has one-hundred thirty-three (133) in stock compared to the seven-hundred ninety-six (796) needed as minimum and committed stock providing a six-hundred 663-unit deficit. There are 961 on order with an allocated lead time. Based on current inventory level, expected deliveries and known and active projects, DME expects that we will no be able to support development activities after January 1, 2023, and, depending on delivery schedules for this item thereafter, our ability to support development will be limited by available inventory. Mitigation Measures While DME has been working conscientiously to mitigate the impacts of these supply chain issues, we are now at a point that we believe our ability to support development activities will soon be impacted. Nevertheless, DME’s project planning and logistics personnel are working closely with the City of Denton (CoD) Warehouse team members to identify any activities or methods that can be used to minimize the impacts of these externalities. These measures include:. • DME’s project planning and logistics personnel work closely with the City of Denton (CoD) Warehouse to identify items. To better establish upcoming needs, DME Project Planning and Logistics staff meet on a weekly basis with CoD Warehouse leadership to review the status of materials needed for all upcoming projects. To assure the items managed by the CoD Warehouse are ordered in a timely fashion, DME Project Planning takes the lead and notifies CoD Warehouse when to order materials. • DME Project Planning provides CoD Warehouse a list of materials needed with a nine (9) month outlook. • With the increase in lead times, DME is making bulk orders to attempt to stay in front of our material requirements for maintenance and new development projects. • Space at the CoD Warehouse has been a concern to house large quantities of pedestals. However, DME is more than willing to make available space at the Spencer warehouse and October 21, 2022 Report No. 2022-068 6 at the substations to house the pedestal quantities as well as any other items that space is needed for. • If the proper transformer size is not available, DME will utilize larger kVA transformers to meet service needs. This action does have an impact since the larger kVA transformer usually is at a higher cost, reduces the inventory level of a piece of equipment that could be used elsewhere, has a greater amount of electrical losses, and is an underutilization for its capacity. But this provides service to the customer. • Upon project release, DME Project Planning continually reviews actual and anticipated stock levels of materials and informs CoD Warehouse quantity of materials that will be needed for projects. • DME’s Standards and Project Planning staff research and approve alternative suppliers for materials when contracted suppliers cannot supply demand. • DME’s current transformer contract was approved for an amendment of 25% which has already been expended. DME is preparing a new contract for Council approval in the amount of $75M. • DME has fully expended the approved spend of an existing CoD Warehouse’s LCRA contract approved by Council in May 2022. DME gained approval for a new CoD Warehouse LCRA contract in the amount of $16M. • DME’s Project Planning proactively reach out to the vendors to try to get deliveries expedited. • DME is looking into ways to expedite processes to allow for a reduced purchasing process timeline. • DME is preparing a Delegation of Authority ordinance to expedite purchasing processes. • DME is looking into the possibility to purchase used or rebuilt transformers. Conclusion DME surveyed other cities to understand what approach they are taking regarding material shortages and lead times. The findings are as follows: Garland Power & Light, Garland • Experiencing shortages on transformers and load break elbows • Have notified City Council and halted all new construction within the past month CPS, San Antonio • Developers install civil work to the point where transformer pads are installed, CPS will place the project on hold at that time • Project prioritization is made on when the developer is ready and how long they have been waiting on transformers • Has notified developers, through their website portal system, of material shortages and increased lead times October 21, 2022 Report No. 2022-068 7 • Sent an Email blast to all current developers about shortage issues Bryan Texas Utilities, Bryan • After civil work installed, developers are told up front it may be 6-8 weeks before equipment can be installed • Projects material needs and ordering 6-8 months in advance • Utilizing feed through cabinets where transformers are not needed immediately • Investigated use of rebuilt transformers Austin Energy • Has not formally stopped construction, but is experiencing delays for many of their construction materials • Looking for alternative suppliers DME does, and has done, many of the same tactics used by the other utilities. Supply and lead times are an issue affecting the entire electric utility industry. DME’s ability to meet development demand is likely to begin to be impacted by January 1, 2023. The supply chain issues have created the current material shortage issues being experienced. In reviewing the circumstances, DME has concluded that these externalities could not be controlled by CoD Warehouse or DME staff. DME believes it is a responsible action to be proactive with the development community in Denton and provide them a proactive notice of potential service delays. The proposed language for this notice is follows: "Notice to Developers: As a result of nation-wide supply chain issues, Denton Municipal Electric (DME) is experiencing extended lead times, up to two years in some cases, on various electrical equipment. As such, DME is prioritizing it’s on-hand inventory for new development on a first come, first serve basis. DME is committed to working diligently with developers to understand development timelines and will do everything that is commercially reasonable to provide electrical equipment to support those schedules. DME will endeavor to keep you informed of expected delivery dates and our ability to construct and energize your project." STAFF CONTACT: Jerry Fielder, P.E., Engineering Division Manager REQUESTOR: Staff Initiated, DME STAFF TIME TO COMPLETE REPORT: Total staff and contractor time on this project exceeds 100 hours. October 21, 2022 Report No. 2022-068 8 APPENDIX Each focused item discussion includes a chart which shows that material item’s quantity needs for active and projects in design for this and the future fiscal year (orange) along with the corresponding decline in quantities based on project needs assuming all of the quantities currently on purchase orders are actually in stock and available – which is not the case. The reality is even though sufficient quantities are on order, the current lead-time or quantity restrictions by the supplier or vendor will become problematic in assurance adequate supplies for a timely development service delivery. 50 KVA Transformers One of the most important items for DME are transformers, both pad-mounted (used in subdivision developments) and pole-mounted. Most 50 kVA overhead transformers are used by DME contractors who are working on priority pole replacement projects. DME uses single-phase, transformers in overhead and underground configurations to provide electric service to customers. The transformers ordered and used by DME are purchased with varied electrical demands and secondary voltages as outlined in DME’s Tariffs and Electric Service Standards. This image is taken of the racks used by DME to store its single-phase, pad-mounted transformers. This rack is normally full but, as can be seen, the number of transformers is noticeably down. This image is taken of the area where 50 kVA, single-phase, pole-mounted transformers are stored. There are only seven (7) currently in stock. The space to the left of the transformers is normally full – now it has grass growing in it. October 21, 2022 Report No. 2022-068 9 Chart 1 - 50 KVA Pad-Mounted Transformers Lead times between ordering and receiving 1-phase, pad-mounted transformers has increased from approximately 16 weeks to, what will be in the new contract, 60 weeks for the Howard transformers which are normally purchased by DME. DME has looked at using other vendors and understand transformer delivery times for ABB is 142 weeks and for Eaton Cooper is at 4 years. This is based on information DME received from Techline – our current contracted supplier. Lead time for 50 kVA, 1-phase, pad-mounted transformers is 60 weeks. Currently, DME Logistics has three (3) in stock compared to the two-hundred fifteen (215) needed as minimum and committed stock providing a two-hundred twelve (212) deficit. There are three-hundred sixty-five (365) on order with a projected sixty (60) week lead time. Commercial developments typically use 3-phase transformers. Due to the quantity currently in stock, DME is not experiencing too much of an issue with service to commercial customers. However, the lead times for 3-phase has increased from 16 weeks to 40 weeks. The one 3-phase transformer we are preliminary predicting may be an issue is the future is 750 kVA, 277/480 volts. October 21, 2022 Report No. 2022-068 10 Pedestals Chart 2 - Pedestals Pedestals provide a connection point for secondary and service conductors to distribute electricity to a larger number of customers. These items provide for efficient utilization of pad-mounted transformer service capacity (kVA) by allowing multiple users on one transformer. Lead time for pedestals is six (6) months. Currently, the City of Denton Warehouse has one-hundred twenty-one (121) pedestals in stock compared to the six-hundred fifteen (615) needed as minimum and committed stock providing a four-hundred ninety-four (494) deficit. There are eight-hundred twenty-six (826) on order with a projected six (6) month lead time. October 21, 2022 Report No. 2022-068 11 Residential Street Light Poles Chart 3 - Residential Streetlight Poles The standard pole installation for a residential subdivision is the aggregate post top fixture. Developers can choose between this fixture or DME’s wood poles with cobra head. Due to aesthetics, the residential streetlight option by far favors the post top. Lead times for aggregate poles has increased from 16 weeks to 52 weeks. Currently, DME has zero (0) 20-foot aggregate poles in stock compared to the one- hundred ninety-five (195) needed as minimum and committed stock providing a 195-unit deficit. There are four hundred (400) on order with the projected 52-week lead time. The City of Denton requires developers to have streetlights installed and energized before providing approval to build houses. If the City is concerned with this, they may consider a temporary lifting of this requirement for developments. October 21, 2022 Report No. 2022-068 12 Even though this document has focused on four (4) items, lead times for other critical materials used by DME have also seen lead time expansion. Table 3 provides lead times for several of the items used in this document and other items. With the increased supply chain issues, lead times between order and delivery of materials has changed (increased) several times for materials. Table 3 – Lead Time Changes Material Original Lead Time New Lead Time 1-phase pad-mounted transformers 16 weeks 60 weeks 3-phase pad-mounted transformers 16 weeks 40 weeks 20’ residential streetlight poles 16 weeks 52 weeks Electrical components (switchgears, automated equip) 14-16 weeks 20 plus weeks Poles (wood) 4-12 weeks 26-52 weeks Pull boxes (heavy & light duty) 12 weeks 12-14 weeks The United States is experiencing unprecedented levels of inflation. This certainly influences the costs seen by DME. Supply chain issues are going to have a financial impact on DME’s capital budget which blends into its cost of service. A recent price request, through the LCRA warehouse contract, provided stark indication material costs are rising rapidly. Table 4 is the quote for the LCRA pricing showing the increase for many of the 1-phase, pad-mounted transformers used by DME. Table 4 - Price Increase for Pad-Mounted Transformers Item Percent Increase 50 kVA, 240/120 V 251% 75 kVA, 240/120 V 278% 100 kVA, 240/120 V 267% 167 kVA, 240/120 V 272% Items identified as electrical components has also seen a price increase in the range of 16% between 2021 and July of 2022. Increase in cost for materials will continue to increase the stress on an already stressed capital budget.