The utility market has evolved into an interesting segment of the electrical wholesaling industry where specialists and a relative handful of full-line electrical distributors with strong utility interests reign supreme. Full-line electrical distributors such as Graybar Electric Co., St. Louis; WESCO Distribution Inc., Pittsburgh; Kriz-Davis Co., Grand Island, Neb.; and Stuart C. Irby Co./Sonepar, Jackson, Miss., have always done big business with utilities. But as a whole, utilities only account for 4.4 percent ($3.5 billion) of electrical distributors' total annual sales, according to Electrical Wholesaling's 2006 Market Planning Guide.
Once upon a time, virtually all electrical distributors stocked utility products. When the United States was first being wired for electricity, local power companies built distribution systems city-by-city and town-by-town, and electrical supply houses sprang up in those markets to provide utilities with a local source of pole-line hardware and other electrical equipment.
Although most full-line electrical distributors chose to diversify the basket of products they sold, today a relatively small band of utility specialists focus entirely on servicing the needs of smaller regional utility cooperatives that operate smaller power companies in rural and smaller markets.
Several of these utility specialists run some of the leanest operations in the entire electrical wholesaling industry and are ranked as industry leaders, as measured by sales-per-employee in Electrical Wholesaling's Top 200 listing. In fact, eight of the nine members of the Electric Utility Distributors Association (EUDA) are amongst that listing's Top 25 by sales-per-employee.
“We spend so much more time working with our customers managing their inventory flow and really managing that whole supply chain,” said Johnny Andrews, EUDA chairman and senior vice president of TEC Utility Supply & Service, Georgetown, Texas. “We spend a lot less time on the whole big bidding process that goes on with most electrical distributors.”
In a unique operating arrangement, the assets of the EUDA distributors are owned by the utility cooperatives that are also their primary customers. The concept of electric utilities owning their own sources of supply was first developed by rural electric cooperatives (RECs), according to EUDA's Web site. EUDA says these cooperatives were tired of operating in a discriminatory marketplace and went on the offensive to assure themselves of a dependable source of electrical materials at a fair price. These small utilities found that they could increase their leverage with manufacturers by forming a buying cooperative.
Formed in 1996, EUDA members collectively represent $750 million in annual revenue. (See sidebar below.) In total, these utility specialists stock $85 million in inventory. Each EUDA member's inventory is available to other members in times of emergency. EUDA distributors sell to approximately 800 of the 1,000 electric cooperative utilities in the United States.
EUDA was founded with the mindset that cooperatives needed to come together to become a stronger force in the market. “The founders felt back then, as we do even more today, that smaller co-ops aren't going to be represented nationally because of this huge acquisition mode that really started in the mid-1990s,” Andrews said.
EUDA members meet together twice a year and present their needs as a group to major manufacturers to obtain regional support on utility products for member companies. Although the original concept was to become a national buying group, Mike Prom, a founding leader of EUDA and now sales manager for TEC Utility Supply & Service, said there was an overall unwillingness of manufacturers to work closely with a buying group made up of utility specialists, so EUDA focuses on developing stronger partnerships with manufacturers.
“Different members have been able to gain access to lines they did not have simply because of the membership in the group and being able to interact with those manufacturers at some of the group's meetings,” Prom said.
Adds Andrews, “I've really tried to push us in a direction where we have invited manufacturers to come in, and we're really starting to market our organization so manufacturers realize that we have a national footprint.”
EUDA members tend to carry a significant amount of stock. Gresco Utility Supply Inc., Macon, Ga., has about $25 million to $30 million in inventory, and Arkansas Electric Cooperative Inc. (AECI), Little Rock, Ark., has over $10 million in inventory and its own transport system of 11 tractor-trailers to deliver the materials. Sharing stock with each other has been very important during several recent emergencies. This past summer, AECI supplied General Pacific Inc., Portland, Ore., with extra transformers in the midst of the West Coast heat wave. During the summer of 2005, EUDA members helped AECI, Gresco, and TEC Utility Supply & Service in the aftermath of Hurricanes Katrina and Rita.
AECI did about $17 million in storm-related business during this time. Without the help of EUDA members, Pat McClafferty, the company's vice president of utility sales and services, said the company would not have had the materials to supply this huge need.
Although they are all in the business of supplying electric utilities 24/7 for emergency repair, line maintenance and expansion of power grids, EUDA members differentiate themselves by customer, product, additional services and geographic reach. For instance, Cooperative Electric Energy Utility Supply (CEE-US), West Columbia, S.C., has a rubber-goods test lab, and General Pacific provides advanced metering technical services. TEC Utility Supply & Service focuses on Texas-based co-op utilities that are part of a statewide utility association, the Texas Electric Cooperative Inc.
Utility associations often provide member co-ops with training and legislative lobbying efforts, but they occasionally get into some unique business ventures. For example, the Arkansas statewide utility association owns a construction and a transformer manufacturer called ERMCO, and the Texas Electric Cooperative publishes a magazine, Texas Co-Op Power, that has more than 1 million subscribers who are customers of the utility members of that co-op.
“One thing we all have in common is a commitment to inventory material and aggregating the customer's spend,” Prom said. “All of us try real hard to make sure we have material available for them when they need it at a very reasonable price.” He added that because EUDA performs aggregated buying, it can hold material costs down as well.
EUDA members are proud of the networking opportunities the association offers to members. For example, Western United Electric Supply Corp., Brighton, Colo., has experience in the substation packaging business, and it accounts for a large portion of its overall business. TEC Utility Supply & Service is starting a similar department to serve member co-ops, and TEC plans to use advice and insight from the experience of Western United in this endeavor.
“We're lean and mean,” Andrews said. “We each operate our own businesses, but we try to communicate enough so that we can work together to support each other, especially during emergencies.”
Where EUDA Members Stand
Arkansas Electric Cooperative Inc. (AECI)
Headquarters: Little Rock, Ark.
2005 revenue: $78.2 million
No. 88 in Electrical Wholesaling's 2006 Top 200 listing
No. 3 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
Cooperative Electric Energy Utility Supply (CEE-US)
Headquarters: West Columbia, S.C.
2005 revenue: $82 million
No. 82 in Electrical Wholesaling's 2006 Top 200 listing
No. 4 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
General Pacific Inc. (GenPac)
Headquarters: Portland, Ore.
2005 revenue: $39 million
No. 169 in Electrical Wholesaling's 2006 Top 200 listing
No. 7 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
Gresco Utility Supply Inc.
Headquarters: Macon, Ga.
2005 revenue: $129 million
No. 52 in Electrical Wholesaling's 2006 Top 200 listing
No. 10 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
Rural Electrical Supply Cooperative (RESCO)
Headquarters: Middleton, Wis.
2005 revenue: $97 million
No. 67 in Electrical Wholesaling's 2006 Top 200 listing
No. 6 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
Tarheel Electric Membership Association Inc. (TEMA)/ a division of North Carolina Electric Membership Corp.
Headquarters: Raleigh, N.C.
Texas Electric Cooperatives (TEC) Utility Supply & Service
Headquarters: Georgetown, Texas
2005 revenue: $51 million
No. 130 in Electrical Wholesaling's 2006 Top 200 listing
No. 11 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
United Utility Supply
Headquarters: Louisville, Ky.
2005 revenue: $93 million
No. 71 in Electrical Wholesaling's 2006 Top 200 listing
No. 8 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
Western United Electric Supply Corp.
Headquarters: Brighton, Colo.
2005 revenue: $74.1 million
No. 94 in Electrical Wholesaling's 2006 Top 200 listing
No. 1 in Electrical Wholesaling's 2006 Top 25 as ranked by Sales-Per-Employee
Leader in Growth: TEC Utility Supply & Service
EUDA's fastest-growing member is TEC Utility Supply & Service, Georgetown, Texas. In its first year in 2001, the company generated $1.6 million in revenue. In 2005 revenue was $51 million. The company has no intention of slowing down, and Johnny Andrews, the company's senior vice president, believes 2007 sales will hit $100 million.
The company was formed because its owner, Texas Electric Cooperative Inc., Austin, Texas, was concerned the consolidation of utility distributors would give large commercial/industrial electrical distributors the edge they needed to take over the utility market segment and greatly reduce the availability of material, thus driving up costs.
“There wasn't a void as if there wasn't enough distribution,” Andrews said. “But there was a huge shrinkage of distribution that made small electric cooperatives not have the ability to buy or get the material at the rate they want to get it.”
In addition, at that time, Texas Electric Cooperative was already starting to stock transformers to service the product needs of the 61 local utility co-ops that it services in Texas. It was a natural extension to sell other products to the utility co-ops, so TEC Utility Supply & Service was founded.
“Our mission really is that of aggregation,” Andrews said. “It is giving some power to all of our independent small cooperatives with an aggregated model so they have a stronger voice — whether that's at the state capital in Austin (with legislators) or buying material and trying to aggregate their spend.”
Part of the reason that TEC Utility Supply & Service has been able to grow at such a rapid pace is simply due to the fact that it tapped a huge market. The TEC local electric utility co-ops — TEC Utility Supply & Service's primary market — collectively purchase $200 million in utility products, and the company's secondary market, utility contractor-customers, spend approximately $200 million annually.
Working directly with major manufacturers has also improved TEC Utility Supply & Service's revenue stream, but establishing those relationships hasn't always been easy. Andrews says there was an established group of Texas distributors that didn't want to lose market share, so they put pressure on manufacturers to not do business with TEC Utility Supply & Service. That's one of the reasons the company chose to partner with “foreign” manufacturers such as CME Wire & Cable, Atlanta, a subsidiary of Conductores Monterray, a manufacturer of wire and cable products in Mexico and a part of the Xignux group of companies, which has 35 manufacturing facilities and 50 distribution centers in Mexico, the United States, Argentina and Brazil. “They are interested in coming into the States with some very high-quality products,” TEC Utility Supply & Service's Prom said.
An essential part the growth of TEC Utility Supply& Service has come through inventory-management alliances, where it takes on the warehouse or purchasing functions of TEC utility co-ops. The distributor places its own employees in the utility co-op's warehouse and performs all the typical warehousing functions for that co-op. Other services include forecasting, buying, stocking and pulling materials for construction jobs. As a result, the utility co-op is able to focus on building and maintaining electric lines as opposed to taking care of materials. The arrangement is done on a cost-plus basis — the cost of the material plus an agreed-upon markup. Andrews said he anticipates adding another five alliances during the next year.
Andrews believes TEC Utility Supply & Service distinguishes itself from the competition because its sell-from-stock strategy requires maintaining a large inventory volume. “I think one of the key things we bring to the party is a real willingness to stock material,” Prom said. “With escalating lead times, it's a touchy spot for customers and I think that has certainly helped our growth over the last several years.”
An early challenge to growth came in the form of adding infrastructure of employees, facilities, inventory and trucks to meet the anticipated future demand. This resulted in a substantial revenue loss initially, but the anticipated demand came to fruition.
“Having the systems — software, hardware and processes — in place as you grow, that's a real tough issue,” Prom said. “Thank goodness we've had good people that have been able to overcome some of that.”
Top 10 Distributors Serving the Utility Market
Among those Top 200 distributors providing both 2005 revenue and a breakdown of sales by customer segment on their Top 200 surveys, these electrical wholesalers come out on top in terms of total dollars sold to the utility market.
|Company||2005 Revenue from Utilities||Percent of Total Sales from Utilities|
|1. WESCO, Pittsburgh||$751.6 million||17 percent|
|2. Sonepar USA, Philadelphia||$300 million||11 percent|
|3. Reed City Power Line Supply Co., Reed City, Mich.||$228.6 million||90 percent|
|4. Border States Industries Inc., Fargo, N.D.||$174.4 million||29 percent|
|5. Gresco Utility Supply, Macon, Ga.||$122.6 million||95 percent|
|6. Rural Electrical Supply Cooperative (RESCO), Middleton, Wis.||$97 million||100 percent|
|7. United Utility Supply, Louisville, Ky.||$93 million||100 percent|
|8. Cooperative Electric Energy Utility Supply (CEE-US), West Columbia, S.C.||$82 million||100 percent|
|9. Arkansas Electric Cooperative Inc., Little Rock, Ark.||$78.2 million||100 percent|
|10. Western United Electric Supply Corp., Brighton, Colo.||$74.1 million||100 percent|