Disaster Impact Report part 2 of 3 - Utilities & Agriculture

Houston and Harvey NO border

Fall 2017 was filled with natural disasters, and the impact was felt across many industries. The ProcureAbility Intelligence team spent Q3 closely monitoring these impacts and reporting their damaging effects. The first blog post in our three-part series highlighted the toll hurricanes took on the Oil and Gas industries, but the utilities and agriculture across the south were also greatly impacted.

3 Part Blog Series

Part 1 = Oil and Gas – Posted on 10.31.17 – Click here to read

Part 2 = Utilities and Agriculture – Posted on 11.6.2017

Part 3 = Manufacturing  – Posted on 11.6.2017 – Click here to read

How did the 2017 hurricane season impact Utilities?

We are all familiar with the devastating toll Hurricane Harvey took on Houston, and there is no surprise that Houston’s utility industry was also impacted. Typically, in disaster recovery, utilities see an immediate impact in power restoration costs and then a second, more gradual wave as the rebuild completes and structures destroyed come back online.  The weeks that follow a storm are spent picking up the pieces and beginning to rebuild homes and businesses. But this is a story about the positive impacts of preparedness for Houston’s utility industry.

The Electric Reliability Council of Texas (ERCOT), reported that none of the major utilities in Houston suffered notable damages thanks to advanced infrastructural development that hardened the grid. However, most areas did suffer unavoidable and significant power outages, which will impact their Q3 bottom-line results. For example:

  • AEP Texas, a subsidiary of American Electric Power, transmits and distributes electric power to approximately 1 million retail customers in Texas and the company’s shares have lost 0.8%, following Harvey
  • CenterPoint Energy, transmits and distributes in the Texas Gulf Coast area including the city of Houston and the company’s shares have lost 1% due to Harvey’s impact

The enormous investments that utilities have been making in infrastructural developments to upgrade and harden their transmission lines and grid system have paid well during this period of crisis.   Nevertheless, both disasters have put a strain on utility components like distribution transformers and stretched labor resources.  Service categories lead the immediate impacts as labor markets were already constrained and disaster recovery efforts usually are accompanied by stronger wage pressure.  For the fourth quarter (Q4), short term market pressure could drive up services while finished goods are expected show more restraint until stocks are depleted.  The effect is an overall tightening of the utility and line transmission supply market with stronger prices, longer lead times and higher wage pressure. These market conditions are expected to continue into the start of 2018 before normalizing.

How did the 2017 hurricane season impact Agriculture?

Florida is more than sandy beaches and high temperatures, it is a key source of fresh fruits and vegetables for the rest of the country during the winter months. One of the most notable crops are Florida oranges. The harvest usually begins around Thanksgiving, and about 90 percent of the fruit becomes juice, which has both food services and industrial applications. Projections for the 2016-2017 growing season had called for 68.5 million boxes of oranges worth over USD 886 million. According to the Florida Fruit and Vegetable Association, an estimated cumulative 50-70 percent of crops were lost in South Florida after the hurricane season.

  • Orange crop loss = 10 percent
  • Grapefruit loss = 20-30 percent
  • Sugar cane losses = 10 percent

Fortunately, many crops aren’t in the ground yet, or it’s early enough to replant. For example, the tomato crop is expected to be light in November but recover by December and strawberry growers expect to recover quickly and harvest on time. While it is good news that many of the crops will survive, a large concern after any disaster is finding enough workers to assist in recovery efforts. The labor supply is already tight in the area and the industry was not prepared to lose workers due to relocation.  Accordingly, we expect to see additional upward pressure on wages as companies compete for remaining labor sources as well as an uptick in temporary labor costs

Please continue to the Disaster Impact Report Part 3 of 3 – Manufacturing

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