Robert Bryce 0:04
Hi, everyone. Welcome to the power hungry Podcast. I’m Robert Bryce. On this podcast we talked about energy, power, innovation and politics. And I’m pleased to welcome a new friend of mine, Matt brandreth. He is the president and CEO of the rural electric supply cooperative. Matt, welcome to the power hungry podcast.

Matt Brandrup 0:20
Great to be here, Robert.

Robert Bryce 0:22
Now, we’re going to talk a lot about transformers and cost inflation today. But before we do that, I warned you that guests introduce themselves on this podcast. So imagine you’ve arrived somewhere that is not in Middleton, Wisconsin, where you’re based. You don’t know anyone, and you’re told that you have less than a minute to introduce yourself, please introduce yourself.

Matt Brandrup 0:42
Yeah, mapper Andrew Bennett, real electric supply cooperative. We go by the acronym Resco. been here almost 25 years, background and finance accounting and became the CEO Resco here back in 2009. So long history at Resco and really enjoy being in the electric utility sector.

Robert Bryce 1:02
Okay, so tell us what the rural electric supply cooperative does. What is your business?

Matt Brandrup 1:08
Yeah, pretty niche business. We are a cooperative, that supplies the Rural Electric Co Ops, in the upper Midwest and northern northern plains, where their electric utility supplies both on the distribution side of the business and transmission side, been around for a long time extra established in 1936. to first take care of the Wisconsin Electric Co Ops and over the decades, expanded from Wisconsin and really looking at looked at take care of the co ops, in municipalities as well, ranging from the states of Michigan all the way out to Montana. Like I said, long history, what we try to do is accumulate our members demand in terms of the products they need, and take that demand and go out and leverage that demand to get the best pricing we can with the manufacturers that we work with. And so we warehouse, material that we sell to our manufacturer to our customers, and sell that material at the lowest cost we can and we were Co Op at the end, and we’re not for profit Co Op. So we really just try to cover our costs. And as we grow and maybe make excess margins, we actually return those margins back to our coops at the end of the day in the form of patronage refunds. So we’re a true not for profit, as it relates to our members sales. Now, we do also sell to non member utilities as well. Examples that would, of course, be investor owned utilities. And so municipals to that have not chosen become members of Roscoe.

Robert Bryce 2:47
Gotcha. So that’s interesting. 1936. So Resco was formed the same year of the Rural Electrification Act and the formation of the Rural Electrification Administration. I didn’t realize it was that old.

Matt Brandrup 2:57
Yeah, absolutely. I will say this, the cops have just done a fantastic job of vertically integrating over the years. And we’re an example of that. They had a rough time back in the 40s 50s, and 60s getting material the investor Owens really had a stranglehold on supply chains. So we were created to help break that Stranglehold, and help get that needed material to remember them in their stories. And I can show you pictures of our members with poles in the air and literally no conductor to connect to because they didn’t have opportunity to buy that. So a prime example of that vertical integration, you know, there’s two coops that focused on creating their own bank and finance system insurance systems. So a pretty unique history when you look at real electrical history over the decades.

Robert Bryce 3:46
Sure. So let’s cut to the chase here, where why I wanted to have you on was we met in Grand Rapids, I guess, the Michigan Electric Cooperative event in May of 2022. And you presented on cost inflation. So what is happening? You know, we’re in the mid throes of the a lot of political discussions about electrify everything, we’re going to massively increase the size of the electric grid. What is I mean, the punch line number, I could say it, but what was the cost inflation that Resco saw last year for utility products as a whole?

Matt Brandrup 4:18
Yeah, let me let me give you just a brief history, on inflation, you know, our industry in the cost of material that we still have been pretty stable for many, many years. In fact, we look at our average cost increase on the basket of products that we sell each and every year and from 2010 to 2020, that average one to 3%, very, very tame inflation, while starting in 2021, that inflationary increase across the board and all of our products on average, went up 14%. And that was followed in 2022 by an additional 18%. So in two short years, Everything that we sell on average, is going up by by about a third. That’s a staggering inflationary increase in two years that in my 25 years in the business, I’ve never seen, even going back to the housing boom years of 2006 2007, before the Great Recession, we saw some pretty good inflationary rates on the products that we saw back then. But they’re in the seven 8% range. So to see almost a 33% increase in two short years, pretty staggering, and quite frankly, tough on our members and non member utilities to deal with that. So some significant increases that we’re seeing in the marketplace was and you

Robert Bryce 5:39
shared with me and what I saw what your your presentation in Michigan, in, in Grand Rapids last year. So you sell everything from wire and poles to arresters and transformers? Where are the biggest pinch points? Which are the which are the commodities that you’re seeing the biggest price increases on? And what are the longest lead times you’re seeing?

Matt Brandrup 5:58
Yeah, in terms of price increases, it’s across the board, but certainly transformers conductor, rubber goods, what have you, those are probably lead the way you know, we’ve seen upwards in 4050 60% increases depending upon the product. Again,

Robert Bryce 6:18
can you can you be specific on that and the 40 to 60% increase? Would that be stepped down transformers for residential use? Which what is that was that the commodity? What is it what

Matt Brandrup 6:30
phase and three phase transformers single phase transformers are, of course, the residential transformers, they’re either the pole you see at pole mounted unit you see on the pole, or the square box outside your house. And then of course, three phase transformers are the larger transformers that are serving their commercial loads, you know, the corner, gas station, industrial load, what have you. Again, depending upon the manufacturer, we have seen significant increases in Transformers conductor, again, whether it’s overhead conductor, underground conductor, depending upon the conductor size and product. You know, again, we’ve seen increases 40 50%, across the board there. And while some of that’s raw material components that ebb and flow a little bit in terms of you know, metals and what have you, you know, a lot of that cost increase is coming from other sources, labor freight costs, what have you, you know, as it relates to lead times, there’s a big supply demand imbalance right now and a number of products, Transformers primarily. And so we have seen lead times on transformers and we’re a little different. And I’ll get probably into this a little bit later on. But if you’re working with most transformers, transformer manufacturers right now, you’re seeing a one to two year lead time in Transformers right now. And

Robert Bryce 7:58
that’s for single phase three phase as well, all transformers one to two years.

Matt Brandrup 8:02
Yes, yeah. For years, again, I’ve been in this business 25 years, it was eight to 12 weeks, you’d place the order you get in queue, and they would ship you the transformers. Now I will say this, the transformer manufacturer that we partner with is Aramco transformer. And again, they’re a little bit of a niche transformer manufacturer. They’re a co op manufacturer, owned by the Arkansas statewide association of electric cars. So they’ve taken a different approach. And they’ve given us a set allocation to work with where we literally have transformers transformed production each week from them, and we decide where to send those transformers. So we’re a little different in that we’re almost doing production planning with transformers, we’re getting a allotment and Aramco is coming to us and say, Okay, where do you want to send them. So, you know, for years, we would simply send them orders, again, get those orders in queue, and they would ship out eight to 10 weeks later. So they’re taking a little different approach, but some of the other manufacturers are still continuing with the approach of a Get in line. And right now that line is one to two years in order to from time of order placement to production order shipment. And, you know, if you look at the outlook transfer is in growing sync significantly over the last few years. And it’s not these lead times going out is not for lack of manufacturers investing. It’s quite frankly, the demand that we’re seeing occurring out there. And there’s a lot of drivers that demand

Robert Bryce 9:40
and well what are those drivers then that or is this electric vehicle deployment? What is it?

Matt Brandrup 9:45
It’s all the above? I think first and foremost, it starts with a lot of the renewables that are going on right now. All those renewable projects that are going on, take the same type of material that we’re selling We have traditionally sold for decades to utilities for, you know, residential commercial development. But now these large projects, you know, whether it’s transformers, and typically they’re larger transformers, three phase transformers conductor, they’re taking that material and putting, you know, increased demand on the manufacturers. Getting ready for the Evie rollout is another example of where utilities need to get ready for this. And so what do I mean by getting ready? Well, you know, you’re in the front of your yard front of my home, there’s a transformer, and maybe that transformer was put in 20 years ago, right. And that’s not sized correctly with not only the Evie load load that’s going to be coming to each and every garage, but just the general growth and electricity use. And so these utilities, instead of having a 10, or 15 KV transformer in your front yard, maybe they’re upgrading a 25 or 1550 KV transformer. And so that is started. And that’s by no means over. In fact, we’re just in the infancy stages in terms of utilities having to upgrade their transformers, upgrade the secondary conductor serving that transformer. And so we’re going to see that demand pressure to increase transformer size for for many, many years. So,

Robert Bryce 11:26
so now this may be interesting. So this may be just the beginning then of this crunch that you’re talking about?

Matt Brandrup 11:31
Absolutely. When we talk with our close man, we’re close partners in the transform arena. You know, they’re telling us this is not a short term issue. The other thing that’s coming down the pipe or potentially coming down the pipe is a new DLP standard that they just rolled out. Department of Energy rolled out late last year. It’s not finalized the the initial rules that have come out and saying listen, you need to go to X percent efficiency standard, above and beyond what they rolled out in 2016, which was a major event in terms of increasing the efficiency standards. And if they do that, they’re saying in 2027, you need to go to this new efficiency standard. That’s going to upset the applecart even more. In order to meet those efficiencies. There, the transfer manufacturers are going to likely have to incorporate amorphous electrical steel, which is above and beyond the electrical steel capabilities that the most of the transformer manufacturers use right now. Most of our manufacturers use Grain Oriented steel to transfer it to manufacture transformers. Well, if you’re going to get the increased efficiency, the DOA is suggesting that they’re going to be rolling out in three years, you’re not only going to have to use Grain Oriented steel, you’re gonna have to use a lot of amorphous core steel. And quite frankly, everything that we hear from the transformer manufacturers is there’s not enough capacity right now to meet that demand in three short years. So you got a lot of demand drivers that are only going to intensify in the coming years. And again, the transformer manufacturers are suggesting that this is not this is not a problem going away anytime soon.

Robert Bryce 13:29
Well, so I want to back up for just one thing, and then I want to talk about steel. So I’ve heard and I don’t know much about the transformer business, but Howard industries is one of the big transformer producer. And you said Aramco, er MCO. They’re based in Arkansas.

Matt Brandrup 13:45
Yeah, yep. Yeah, they’re based in Dyersburg. actually based in Dyersburg, Tennessee, but the manufacturing is in Tennessee, but the Arkansas statewide association of electrical apps on them and Aramco has traditionally served the co op market. There are eight other distributor distributors like Resco around the country that are co owned. And so Aramco has traditionally partnered with those nine distributors for many, many years, but we also use Howard Howard is another manufacturer partner of ours that we certainly use. But again, whether it’s them Cooper, another example, Cooper Eaton, another large transformer manufacturer, all the manufacturers are full to the brim in terms of production capacity right now. And whether it’s Armco, Cooper, Howard, any of them all facing the same issues.

Robert Bryce 14:36
Well, so and you made me aware of this issue of Grain Oriented steel, so let me tell you everything that I know and it’ll only take about 10 seconds. This is a very special steel that has made the one manufacturer believe and we talked about this before that Cleveland cliffs and the Grain Oriented steel has high amount a large percentage of silicon has if I recall And that that high about 3%. And that that high silicon content gives it a special electrical property. I don’t know it can’t really I can’t explain what that is. But this is needed not just for transformers, but also for electrical vehicles if I or electric vehicles if I got this right, yeah,

Matt Brandrup 15:18
really close. So there’s two books, right? That’s almost correct me Matt. Yeah. So the Grain Oriented steel goes into transformers a very, very similar product. Non oriented electrical steel goes into Eb, in electrical vehicles. And both are very, very similar products that are manufactured by Cleveland cliffs. And so in terms of raw material in terms of production, clearly cliffs produces both, but uses the same raw material to make both so is we’re talking before via email. The the irony with all this is that we need a lot more larger transformers, and rolling out more transformers to help the EVS, Evie charging stations, whether they’re, you know, in your home or charging stations, you know, around the country, we need transformers to power those ironically, the same steel that we’re going to need to, you know, produce those those those transformers, the same similar type of steel, the same raw material that goes into that Grain Oriented still needs to go into electrical vehicles as well. And there’s one domestic manufacturer producing both of those. So, you know,

Robert Bryce 16:50
I think there’s a bottleneck, there’s a bottleneck here there is,

Matt Brandrup 16:54
and again, it’s only one domestic manufacturer. Now there are, you know, and again, I’m not a steel expert, by any means. But my understanding is, you know, there certainly are electrical steel producers around the world, but having only one in the United States, you know that that is a potential bottleneck. And then getting back to kind of wrap around back to the D O E standards. If those deals DL D O E standards go through, the transformer manufacturers are going to have to look at a different type of steel, which is a amorphous steel, more expensive, more brittle type of steel, that, you know, if the manufacturers have if the transfer manufacturers have to use more of that, maybe they go away from some of that grain oriented, electrical steel needs. So, the reason I bring that up is when you have policymakers saying, hey, in three years, you may have to use less of green oriented steel, you know, what incentive does that give a Cleveland cliffs or anyone that wants to invest in electrical steel from producing more, you know, at a time we need more? So, you know, I think that is

Robert Bryce 18:08
regular regulatory uncertainty combined with market demand meeting for a very similar type of product with a whole lot of regulatory risk of am I reading this back correctly?

Matt Brandrup 18:20
Absolutely. It’s, it’s a matrix of issues, and none of them are easily solved. And so that’s why, you know, we, in talking with our members, you know, we’re really trying to set the table and say, this is a, this is a big issue. This is an issue that needs multiple solutions, both at the manufacturing level at the policy level, and certainly at our member level to make sure that they’re managing, you know, their ability to build out their systems to so it’s very, very complex issue. And an issue I know that is at the top of the worry list for transformer manufacturers.

Robert Bryce 19:00
So can you explain the chemistry of the amorphous electrical steel? Do you know how that’s made, or what the how it’s different from Grain Oriented steel?

Matt Brandrup 19:07
I don’t what it will mean for transformers though, quite frankly, are larger transformers, you need more of that steel, transformers are going to be bigger, they’re going to be more costly because you’re putting more amorphous steel in to those transformers.

Robert Bryce 19:22
So I’m sorry to interrupt but you’re saying so the can that we’re familiar with that for a residential transformer, right? That step down transformer from 14 Four, if I’m right for it, and 14,400 volts to 210 to 20. That that can which is the size of you know, I’m saying I would say a 40 gallon gas stare 40 gallon trash can is going to be bigger, and I have to get bigger. About how much do you know the volume?

Matt Brandrup 19:49
You know, I don’t I don’t I’m certainly not transformer manufacturer expert but they are going to get bigger. They’re gonna get heavier and more costly.

Robert Bryce 19:58
It’s going to be difficult more difficult for linemen or producers to mount and there’s going to be more stuff more commodity steel, more material in there, which means necessarily more expensive because you’ve got more material in there of whatever kind. But then you’ve also got this specialty steel that and the amorphous electrical steel has a different property from the Grain Oriented steel that makes it that allows for higher efficiency.

Matt Brandrup 20:22
Correct? Correct. And, you know, if you’re looking at the efficiency standards, my understanding is efficiency standards, not going up by that much. But you know, you’re a

Robert Bryce 20:32
few tenths of a percent is what I’ve heard. It’s just not it’s not a very big increase.

Matt Brandrup 20:37
Exactly. So transformer manufacturers, the utilities are certainly trying to do the job, all the job they can to, you know, inform policymakers that, hey, you know, we’re all for better efficiency, you know, we want better efficiency, no doubt about that. But, you know, to potentially mandate this at this time, when we’re dealing with all of the supply chain issues, we’re dealing with the tremendous demand that’s out there. I mean, I think you know, all of the dollars that are flowing into renewables flowing into Evie, that’s only probably going to exasperate the demand side issue, maybe now is not the time to do that. And to take a step back, and at least let the manufacturers that the utility industry catch up with the demand, you know, before new in in arguably onerous requirements are getting to be put on utilities put on the manufacturers, for a relatively small efficiency gain, and substantial increase in terms of costs. I just laid out what what the costs have done in the last two years. You know, can you tell he’s continued to absorb much, much higher increases on transformers and, you know, potentially other products, you know, related to due to these efficiency, increase efficiency standards that they want to roll out in three short years. And from a manufacturer perspective. Three years goes by like that, in terms of, you know, ramping up production, ramping up your capability to produce so it’s a big issue.

Robert Bryce 22:17
Well, then, as you’re saying, you’re talking about the costs issue I’ve been looking at, you know, take a deep dives and into numbers and the electric power monthly, and we’re seeing big increases in electricity costs already across the US. In fact, I’m writing a piece now about California, their their residential rates last year alone went up 14%. I mean, these are big increases. So the inflation if I’m reading this correctly, the inflation that you’re talking about in the electric products sector will only then further drive higher prices for electricity for consumers of all kinds of residential, commercial, industrial, etc. Is that am I reading that right?

Matt Brandrup 22:54
Oh, absolutely. Absolutely. I mean, these costs need to be borne by the utility. You know, I mean, again, we’re a co op. So our incremental margin we put on is relatively minor. But again, we have to pass on all these cost increases, a lot of what we sell is certainly cost plus, so those increased costs are flowing directly to the utility and they need to recoup those costs. You know, I mean, we have, you know, we serve a lot of relatively smaller sized coops compared to the large IOUs. But I looked across our, our member CapEx spend each year, you know, there’s a lot of cops that buy anywhere from five to $10 million from us a couple years ago, we’ll add another 30, potentially 40%, by the time this year is done to that CapEx spend, that’s a lot of dollars, that our members have to absorb, and certainly have to pass that on in some form or fashion. And typically, that’s obviously done through electric rates to cover those costs. And, you know, this isn’t a coop only issue. This isn’t a municipal issue. This is an IOU issue. It is electric utility issue across the country that is only going to help unfortunately, drive rates up.

Robert Bryce 24:12
So let me back up on Resco. A little bit what what are your revenues, then? I know you publish these your co op and you’re very public about your numbers. What are you What is your revenue on an annualized basis?

Matt Brandrup 24:22
Yeah, so we hit 300 million in 2022. With some of the growth that we’re seeing, and it’s certainly part of inflationary growth, but part real growth as well. We’re looking to hit potentially 384 million this year. You know, I mentioned Aramco earlier. Aramco, again being Co Op don’t did a bit of a strategy change here this year, where they have focused a lot more of their production to the Electric Co Op market. They certainly still continue to support the investor on utility and municipal part of me This bull market is well as they can too. But they have really looked to Resco and the other coop disturbers to serve the coop market. And our ask was, hey, can you give us more our members need more transformers. And so that has resulted in getting more of the transformer allotment from Aramco that we are selling to remember. So we’ve seen seen some significant growth, which is good news for Resco. Good news, good news for our members, and that we’re able to give them more and more of the product that they need, especially on the transformer front.

Robert Bryce 25:36
So you’re jumping revenue. That’s partly due to the inflation we’ve been talking about, but you’re having more throughput, you’re handling more, more and more stuff?

Matt Brandrup 25:43
Absolutely. Yeah, absolutely.

Robert Bryce 25:46
So in your presentation, you were kind enough to share. I mean, I saw one of your slide decks last year, but you sent me a more recent one, you talked about the issue of labor in this is something that I hear about. Well, actually, before I get to there, you also mentioned the transformer issue that some home builders now are having to slow down their output because they don’t have transformers to finish the they don’t, you can build the house. But if you don’t have a transformative, connected, then what good is the house right? But so this is actually affecting the home builders as well, downstream?

Matt Brandrup 26:18
Yeah, I’ve seen again, more seeing more on the IOU said side of the business. There are there are literally homes I’ve seen in Michigan, I’ve seen it out west where they’re finished or about finished, they’re waiting on transformer, they literally can’t move in, they can’t electrify the house. And so you know, we’ve we’ve talked with our members, a lot of that, you know, there really needs to be communication, much more so than maybe a few years ago, between the utility and the contractor, the developer. And so we’ve seen a lot of our members take a really proactive approach and reach out to contractors to really re educate them to say, hey, for years, you know, lead times are 10 weeks, and you’d come to us, you know, 10 weeks before you need a transformer. And we ship it to you 10 weeks later, well, you know, some of these contractors that are maybe building a, you know, 100 unit subdivision, hey, contractor, you need to wait a year for transformers, potentially. And so there’s been a lot of communication and increasing communication between our members and developers to let them know, but you know, some of these out large IOUs. You know, it’s been a challenge. Getting those needed transformers to those contractors in time to electrify a house. And sure, I think that’s only the risk only, it’s gonna get greater and that that happens more.

Robert Bryce 27:41
So give me an idea with a single phase transformer like the pole mount of transformers, we’ve been talking about what are the what is one of those costs? If I wanted to get one from Resco? In order one now, what would it cost me?

Matt Brandrup 27:51
Yeah, you know, if you look at a pole mount unit, that may be a 15 KV unit, you know, anywhere from 1500 to $2,000, pad mounted units are going to be a little bit more, and they go up quickly. In terms of price, you know, the larger KV go, the quicker quicker goes up in price. You know, if you look at a three phase transformer that might be served in the local gas station or commercial development. You’re talking anywhere from $15,000. Up in terms of in terms of cost, so we’re talking significant dollars. And in terms of transformer costs for the utilities? Sure.

Robert Bryce 28:34
So you deal with a lot of rural rural entities, rural businesses are co ops. One of the points you made in your slide deck and when we talked about before is the labor issue. And that many of these production producers, you said Aramco was in Dyersburg, Tennessee, I’ve never heard of that town. I don’t think it’s very Dyersville Ville Thank you. But that there’s a lack of labor in many of these regions where the transformer producers are operating. And so that that’s one of the other constraints, which rhymes with what I hear in talking with me, you know, I travel a fair amount and talking to business owners, what’s your biggest problem can’t get enough people we don’t we don’t have enough labor to do all the projects that we have. So that’s the other driver here. One of the other drivers in terms of the cost is the availability of labor.

Matt Brandrup 29:23
Yeah, and not only transfers really, really everything we sell, but certainly in the Transformers, that’s it’s hitting the hardest. I mean, a lot of these manufacturers, they, they they want to hire and bring people in so they can produce more they literally can’t you know, Armco is a good example of being in a rural area. Howard is in a rural area in Mississippi. And you know, they are usually the largest employer in those areas and not just on the transfer front hobbles you know, a lot of a lot of their manufacturing is based in Missouri, South Carolina. A lot of these manufacturers are have literally 10 have dealt the labor market. And in order to try to get more labor, they’ve had to increase salaries substantially, pay substantially. But, again, once you tap on the labor market, it’s pretty hard to have labor magically appeared no matter what you’re paying them. So like many industries that certainly are being impacted on this impacted with labor, labor costs. Utility manufacturers have certainly been greatly impacted in that has driven a lot of the inflation on the on the products that we sell, I mean, if you’re going to have to ramp up labor, significantly attract those people that is flowing right down to the bottom line in terms of cost bottom line that they have to recoup and cover and the products that they sell.

Robert Bryce 30:49
You know, it’s interesting, just an observation that for, you know, rural America is losing population to urban areas, right, and has been for a long time. This is a long term mega trend. But that these increasing and increasingly urbanized, America is depending more and more on rural labor, as that same time rural labor is becoming harder to come by. So how does that change? I don’t know how it does change. But it’s, you know, it’s not just that rural, urban rural divide, it’s blue collar workers. And that was one of the other things that I’ve heard over and over is, you know, that a lot of kids don’t want to go into blue collar work, they want to be on a keyboard or something else. They don’t want to work in a factory. And that that is one of the other drivers here, perhaps. I mean, have you heard anything about that? Or does any observations that you might add there?

Matt Brandrup 31:37
Yeah, I think you’re you’re spot on. And that’s what we hear from all of our manufacturers is, you know, how do you change the paradigm? And and, you know, especially in the rural areas, where the main where many manufacturers are based? How do you change that you don’t change that overnight? That is a long term change, that is a long term strategy, that, you know, you need to come up with a new strategy. And I don’t know what that is, you know, we see manufacturers, even look in the urban areas. And again, to your point, whether it’s urban or rural, you know, a lot of these jobs are tough jobs, you know, if you’re in the South, in a in a transformer manufacturer, those are tough jobs, hot, humid, you know, working, working hard, lifting stuff, and putting stuff together and in a tough working environment, attracting labor in those environments getting harder and harder every day. And it’s just not utility industries. It’s every manufacturing industry. So you know, that the United States talks a lot about bringing jobs back. And I think we all support that we need to do that. Fortunately, utility industry, a lot of what we sell is made here already. And that’s something that I always like to point out, you know, one of the few industries in America that is truly American made product. But in order to bring those jobs back, you need labor to fill those jobs. And, you know, there’s no magic bullet, and I think it’s only gonna get harder and harder to do.

Robert Bryce 33:14
Well, you mentioned that about the most of these components are made in the US, but there are some of the very, the large transformers for high voltage transmission, a lot of those are, as I understand it, made in Germany, and these are best spoke, or South Korea that these are best, both projects or products that they’ll have lead times of 1234 years, right that there’s these or maybe even are those even harder to come by than some of these pole mounted in three phase transformers that we’ve been discussing here. Yeah,

Matt Brandrup 33:41
there are a number of power manufacturer power transfer manufacturers in the United States. So there are some, you know, three or four major manufacturers in the United States. Same issue, though, in terms of lead time, not one to three years, we represent Virginia transformer, we have a manufacturer’s rep division. And the demand there is staggering right now. I mean, I can’t tell you how many power transformers we have. Right? We don’t sell them we represent them through a manufacturer’s rep unit. But the demand there is incredibly strong. You know, there is a definite need for more and more substations as we try to expand the transmission grid out and so the demand there is going to stay strong. So same issue in terms of lead times in terms of cost to again, the same cost pressures on the power transformers, as compared to the single phase and three phase transformers, again, finding labor to do to do the manufacturing and keep up with a staggering demand that we see as we do everything we can to upgrade the grid,

Robert Bryce 34:56
right? You used a different term there you talked about those bigger Transformers as power transformers. What? Is there a threshold there? That is a breaking point between the three phase and these? I don’t I don’t know the terms of art here. How do you how do those break down? Is it in terms of voltage throughput? How do you break that? That? Yeah,

Matt Brandrup 35:13
typically five MVA or 5000 kPa is typically a power transformer. So you don’t have three phase transformers up to Oh, up to about 3000 or so. And then 3000 5000 Typically, that’ll move to a substation class power transformer.

Robert Bryce 35:33
So and this is one of the risks that I’ve read about it I’ve written about as well that these substation transformers because they are custom made, generally speaking, as I understand it, there was the famous attack on the Metcalf substation that I wrote about in my last book, which the FBI investigated, there were no suspects ever identified. No one’s ever arrested. But they were this substation was shot up with AK 47 is apparently no one ever was arrested again. But that this is a strategic vulnerability, right in terms of and we’ve even had the local transformers some sub other substations there was one that was shot up in the North Carolina rural North Carolina, that my getting to the question here, which is, is this ongoing shortage of available transformers? At what point does this become a critical energy security issue?

Matt Brandrup 36:26
Oh, absolutely. I mean, when you’re looking at one to three year lead times, if you take out a transformer, it’s not repairable. Boy, you’re not in a good position at all, you know, there’s capable a portable substation transformers, but, you know, if you had someone you know plot against the grid, certainly power substations, trans power transformers, substation, transformers are a key vulnerability, especially when you just can’t magically produce one overnight with the long lead time. So absolutely, it’s a risk and likely a growing risk when you have lead times like there.

Robert Bryce 37:08
You also talked about so we’ve talked about raw materials, including the different types of steel, we talked about labor. But he also talked about conductors. And so explain what conductors are and why they matter.

Matt Brandrup 37:21
Yeah, so you know, whether it’s underground conductor that might serve, you know, if there’s an underground network, distribution network, those will be buried cable that conducted the electricity to transform to your home. And then of course, everything overhead that you see on the power poles. That would be obviously overhead conductor, overhead cable, and that great demand there too. And, you know, a lot of what’s fueling that demand are all of the renewable projects, you know, a lot of those renewables are based in areas that maybe they’ll have electricity is not needed, whether it’s wind, solar, what have you. So you need conductor, whether it’s overhead or underground conductor to move that electricity. So with all of those projects going on, you know, that has really exasperated the demand for conductor. And if you look at all of the overhead underground conductor manufacturers, again, many of them based in states, their plants are full to record long lead times their costs have gone up there as well. And, you know, everything that we’re trying to do to increase the grid reliability, has put a great demand on the manufacturers of conductor to see similar issues.

Robert Bryce 38:44
So record long lead times, what does that mean, one to two years? Again?

Matt Brandrup 38:48
Probably not as long as that but we certainly are seeing 40 to 50 weekly times where before we would see eight to 10 weekly times. You know, the manufacturers are full, whether it’s self wire prismon. You know, other manufacturers that are out there. They’re full right now in terms of capacity and have you know, those 40 to 50 weekly times, depending upon what you know, what type of conductor you’re talking about. And those

Robert Bryce 39:18
conductor wires that as I recall there, some of the the ones that are in high voltage, those are a mixture of aluminum and steel wire, is that right?

Matt Brandrup 39:25
Yeah. A lot of steel ACSR which is ACSR. That was yeah, for aluminum with a steel reinforcement going between the aluminum strands. That’s mostly what you see in terms of overhead construction. And then underground. It’s insulated cable that’s buried. And both of those, both of those conductor, a lot of those conductors have long lead times and again, cost increases have impacted those manufacturers as well.

Robert Bryce 39:58
And are how copper intensive Are those the insulated wires that the

Matt Brandrup 40:02
the underground is typically or where you’ll have a lot more copper as well. So a lot of copper dipped into being being driven by utility. And of course other Evie electric vehicles require a lot of copper too. So I’m starting to hear a read a number of articles recently that they’re predicting noncom oncoming copper shortage in the next five years with all the demand out there from many different industries, utility being one of them, certainly an Eevee, being the other major driver worried about having enough copper in the United States, and quite frankly, the world in the coming years.

Robert Bryce 40:46
Yeah, Goldman Sachs, I think put out a report just in the last few days talking about this very same thing. And I’ve had a guest on the podcast, Simon meesho, talk about the mining sector in general, and how ore bodies generally around the world are declining in quality, though, as the ore quality declines, you have to process it more, you have to move more rock. And this becomes a more difficult task to then produce the same amount of tonnage of copper, given the lower quality of the ore. So again, this is one of those other parts of the flywheel here, here that we’re talking about. So then what? We’ve been talking for about 40 minutes, Matt, and you said, I don’t know how we’ll talk about supply chain, more than 30. We’ve been going 40. But let me, let me, let me ask you just a couple more things. So when you look at your job, and you’ve been at it for a long time, what’s the hardest part of this, what is the hardest part of now, your job as the head of Resco, and dealing with all these different moving parts,

Matt Brandrup 41:40
you know, it’s making sure we take care of all of our members, you know, we have a finite supply of transformers, and making you know, for years, we would take the orders from our members, and ship them 810 weeks later, as I mentioned, now, we’re almost a manufacturer now in terms of planning our orders and planning our shipments out so that instead of, you know, taking those orders and shipping when our customer wants him, now we have to allocate those out. And you know, our primary focus is to make sure we take care of all of our members as best we can. And as fairly as we can only have a limited supplies. So that’s probably what keeps me up at night and keeps my staff up at night is making sure that we keep all of our members going maybe remembers one 100 transformers in May, because yeah, in the upper Midwest, there’s construction season, and you’re not doing a lot of construction in December, January or February where everything’s froze up. And so a lot of our members have typically wanted all their transformers shipped in May, or maybe April, and go go go with those. Now, we literally need to break those shipments up, instead of maybe shipping 100 to them, we’re gonna ship them 20 in January when they frankly don’t need them 20 and march 20 in the summer and 20 in the fall, or what have you. And so there’s a lot of moving parts there that we’ve never had to manage before. And so that’s probably our biggest concern, I’ll say this, my staff has done a fantastic job of making sure we take care of our members. But you know, we have members and in some cases, non members come in us and say, Hey, we need more. And so balancing that as best we can is probably the toughest part of our job at Resco. Right now, but we’re doing a good job so far. But again, we’ve you know, we’ve talked about all the pressures that that are in place now and are likely to be in place for the future, you know that that’s a that’s a big worry for us, making sure we take care. Remember, we always take our members first approach, but you know, as we have access materials that we can sell to non members, we tried to do that, too. I mean, for instance, we’re selling some three phase transformers to investor owned utilities to help them you know, get by their supply chain issues. Right now we do the same thing with our municipal utility non members as well. So Big Short right now when you have limited access to finished goods, but I think we’re doing the best job that we can right now.

Robert Bryce 44:17
So just to repeat that, just to put a finer point on it and make sure that I’m clear. So the the the same issues that are affecting the cooperatives and all of the supply chain, exactly the same facing the publicly owned utilities and the IOUs.

Matt Brandrup 44:29
Absolutely. And I would say that municipalities are maybe in a little bit tougher shape because, you know, through their bylaws, they typically have to go out and do three bids in Dubai. They may not be partnered, like our members are partnered with us and so you know, that puts them even in a tougher situation. That’s why I say you know, we want to help our municipality customers as much as we can to but you know, when you’re out three bids in Dubai in lead times might be one to two years. errs on a transformer. You know, they might be waiting a while for those transformers because they don’t have a co op supplier like us, they may not be a member of distributor like us to, that they can fall back on. So they may not

Robert Bryce 45:18
be. Or they may not be big enough to have an ability to like I live in Austin and Austin Energy is a pretty big utility, so they could warehouse transformers if they need to. But a lot of these municipally owned utilities are very small, and they’re not going to have that ability to warehouse or, or, you know, accumulate their their stock. And just in case. And I know I’ve heard Joy ditto that from the American public power Association talk about this transformer issue is a key issue for their members. And they’ve talked to Congress and the DOE on this and I don’t know whether they made any headway or not, but that they’re very concerned about it. I know that for a fact. We’ll just a few more questions. And Matt and thank you for your time. It’s you know, one of the joys of the This podcast is I get to talk to people and learn while I’m you know, do these interviews and you know, hear what’s going on firsthand. So I asked a couple of questions of all my guests so what are you reading what’s on the top of your bookshelf book list or books? Pile? What do you what’s what? What do you read when you’re not working on transformers in conductors and arresters? In the in the lot? Yeah, I’m

Matt Brandrup 46:20
a biography Fianna I actually just starting a book and Benjamin Franklin, I’ve always been interested in history, especially early American history. So I enjoy biographies. I have a couple of young kids, I’m chasing them around a lot. So I don’t get a chance to read a whole lot on non books I you know, I’m a finance guy at heart. So I’ve certainly been a Wall Street Journal Financial Times reader. But as it relates to books, big fan of biography, and just getting started with Benjamin Franklin biography, but interesting guy and

Robert Bryce 46:53
who, which biography who read it?

Matt Brandrup 46:55
You know, I don’t have I don’t know the author, to be honest with you.

Robert Bryce 47:00
Recently. Walter Isaacson wrote a recent one on,

Matt Brandrup 47:04
frankly, it’s not him. It’s not him. But yeah, so I enjoy a good biography, and especially early American history.

Robert Bryce 47:12
And the last question, then, Matt, what gives you hope?

Matt Brandrup 47:18
Good question. You know, our industry, you know, our industry is a can do industry, particularly on the coop side, and municipal side, you know, as I mentioned before, and it’s something I’m really proud of in the utility industry should be proud of 9080 90% of what we sell is made in America. And you know, what, there’s not a lot of industries that can say that anymore. And so I’m very, very confident that there’s a lot of challenges out there, as we’ve talked about, but having the industry based here, under our control in our ability to do things about it. You know, I haven’t lost faith in the American efforts to fix things and to solve issues. So that certainly gives me hope, as it relates to, you know, the problem situations and we talked about the utility industry today.

Robert Bryce 48:12
It’s a good answer. I, you know, I’m well, I’m a complete Homer when it comes to cooperatives either a living room under the New Deal is how I think about them that these are key parts of rural America in some areas of rural America and urban America as well. So I’m a big believer in public ownership of critical energy infrastructure. You can find more about Resco, the rural electric supply cooperative on the web. Resco one.com. I looked it up. I meant to ask you first about what the call to action was, if you want to learn more about Matt, their products, what they sell, and maybe become a customer. I don’t know. Maybe you need a transformer your very own like, cost you got $2,000 for a single phase transformer if you can get it from Resco. But this has been great fun, Matt, I appreciate your time. And it’s been very informative. I’ve enjoyed it quite a lot. Thank you for coming on.

Matt Brandrup 49:06
I’ve enjoyed as well. Thank you, Robert.

Robert Bryce 49:08
And so thanks to all of you in podcast land again. You want to learn more about Matt Resco one.com Thanks for tuning in to this episode of the power hungry podcast tune in for the next episode. Coming up. It’ll probably be as good as this one. We hope so. So until then, see you