A bipartisan group of 12 U.S. senators on Jan. 18 introduced a bill that could freeze the Department of Energy’s (DOE’s) implementation of updated energy efficiency standards for distribution transformers.
The Distribution Transformer Efficiency and Supply Chain Reliability Act of 2024 (S.3627) would establish new limitations on federal efficiency rules for specific distribution transformers. Several trade groups have rallied behind the legislative measure, citing significant supply chain challenges that are affecting transformer availability and posing reliability concerns.
The bill is co-sponsored by six Republicans, five Democrats, and an Independent: Sens. Ted Cruz (R-Texas), Sherrod Brown (D-Ohio), Joe Manchin (D-W.Va.), Bob Casey (D-Pa.), John Fetterman (D-Pa.), Jon Tester (D-Mont.), Bill Hagerty (R-Tenn.), Pete Ricketts (R-Neb.), Marco Rubio (R-Fla.), Todd Young (R-Ind.), Ted Budd (R-N.C.), and Kyrsten Sinema (I-Ariz.).
A Contentious Proposed Rule
At issue is the impact of the DOE’s January 2023 proposed rule, which seeks to reduce losses in three types of distribution transformers—liquid-immersed, low-voltage dry-type (LVDT), and medium-voltage dry-type (MVDT) distribution transformers—through specific percentage-based energy efficiency standards. The rule could take effect starting three years after it is finalized, which is expected this year.
Compared to power transformers, typically used in transmission networks of higher voltages and for step-up and step-down applications and are generally rated above 200 MVA, distribution transformers are used for lower-voltage distribution networks as a means of end-user connectivity. Distribution transformers have input voltages of 34.5 kV or less and output voltages of 600 V or less and have a capacity of 10 kVA to 2500 kVA for liquid-immersed units and 15 kVA to 2500 kVA for dry-type units.
While broader and more stringent than existing distribution transformer energy efficiency standards that were finalized in April 2013 (and which have applied to units manufactured after January 2016), the DOE has said the rule is necessary to ensure distribution transformers, a “critical component” of the U.S. electricity system, would operate “as efficiently and inexpensively as possible.”
The DOE suggests that if finalized, the proposed standards “would reduce U.S. CO2 emissions by 340 million metric tons over the next 30 years—an amount roughly equal to the annual emissions of 90 coal-fired power plants.” More efficient transformers could also “generate over 10 quads of energy savings and approximately $15 billion in savings to the nation from 30 years of shipments,” it has said.
However, the DOE has also acknowledged that achieving the standards and effectively reducing distribution transformer losses will require an overhaul of the makeup of essential distribution transformer components. The proposed standards, notably, would require almost all transformers to feature amorphous steel cores, “which are significantly more energy efficient than those made of traditional, grain-oriented electrical steel [GOES],” the DOE said.
The market for GOES, cold-rolled grain-oriented steel that typically comprises iron-silicon alloys, was in 2020 primarily dominated by large power transformers (LPTs), but the domestic market is extremely restricted. Amorphous metal (AM) transformer cores comprise an alloy of iron that includes boron, silicon, and phosphorous in the form of thin foil. According to the DOE, the resulting product is thinner than GOES, has lower core losses, and reaches magnetic saturation at a lower flux density.
The DOE reasons that AM (which is not widely used in large power transformers) would free up competition for core steel supply. Metglas, the sole U.S. AM manufacturer, has noted it currently has an installed AM capacity to produce 45,000 metric tons and can readily increase capacity to another 75,000 metric tons within 30 months. Howard Industries —the largest producer of distribution transformers in the U.S.—has estimated the new standards would result in a 60% increase in demand for electrical steel or an overall increase in demand of 600 million pounds of AM.
Bill Poses Limitations on DOE’s Rule, Delays Implementation by 10 Years
The Senate’s proposed legislation seeks to modify the rule’s impact by amending Section 321 of the Energy Policy and Conservation Act, established in 1975. Specifically, it restricts the Energy Secretary from finalizing “any rule” under which the efficiency level of a liquid-immersed type, LVDT type, or MVDT type transformer is greater than trial standard level 2 (TSL 2).
In addition, the proposed Senate bill introduces a 10-year delay in implementing any regulations finalized by the Energy Secretary that affect liquid-immersed type transformers, LVDT, or MVDTs with efficiency levels of TSL 1 or TSL 2.
Trial standard levels (TSLs) represent a benchmark that the DOE typically uses to evaluate potential standards for products and equipment. For its proposed rule, the DOE analyzed different efficiency levels, which are expressed as “a function of loss reduction” over the equipment baseline. The DOE developed five TSLs that combine efficiency levels for each analyzed representative unit and their respective equipment classes.
TSL 2 represents a “loss reduction over baseline of 5% for liquid-immersed transformers, except submersible liquid-immersed transformers which remain at baseline; a 20% and 10% reduction in baseline losses for single-, and three-phase LVDTs respectively; and a 10% reduction in baseline losses for MVDTs,” the proposed rule says. TSL 1 represents a loss reduction over baseline of 2.5% for liquid-immersed transformers (except submersible liquid-immersed transformers, which remain at baseline), a 10% and 5% reduction in baseline losses for single-, and three-phase LVDT, respectively, and a 5% reduction in baseline losses for all MVDT distribution transformers.
Essentially, as Jeremy Dommu, DOE distribution transformers lead, explained during a February 2023 DOE hearing on the rule, it means that for liquid-immersed distribution transformers, the DOE is proposing a standard level that corresponds to TSL 4. For LVDTs, the standard level corresponds to TSL 5, and for MVDTs, the DOE has proposed standards that correspond to TSL 2.
Lawmakers Step In Amid Supply Concerns
The Senate bill is the latest attempt by Congressional lawmakers to stall the rule. In June 2023, 47 senators in a letter asked Energy Secretary Jennifer Granholm to “refrain from promulgating a final rule that will exacerbate transformer shortages at this strategically inopportune time.” The lawmakers instead urged the DOE to finalize “a rule that does not exacerbate the shortage in distribution transformers and convene stakeholders across the supply chain to develop a consensus-based approach to setting new standards.”
In December 2023, the House Committee on Energy and Commerce reported H.R. 4167, Protecting America’s Distribution Transformer Supply Chain Act, a bill that would have prevented the DOE from updating transformer regulations for five years. A companion bill (S. 2036) was introduced by Sen. John Barrasso (R-Wyo.) in June 2023.
On Monday, Sen. Brown, in a statement sent to POWER, noted transformer supply constraints were a key consideration for lawmakers as they crafted the measure. “A strong domestic supply of transformers is crucial to our electric grid and our energy independence. We need to meet increasing demand for transformers while keeping this critical supply chain in the U.S.,” he said.“That’s why we introduced this bill with new standards that balance the DOE’s proposed rule with the interests of transformer manufacturers, American jobs, and our energy independence.
Sen. Ted Cruz (R-Texas) laid it out in stronger terms. “The Department of Energy’s proposed rule is a misguided effort to improve efficiency,” he said in a statement sent to POWER. “We all agree that efficient energy is a good thing that benefits consumers, but by effectively forcing the distribution transformer industry to change the type of steel it uses almost overnight, DOE’s rule would actually jeopardize electricity distribution for millions of Texans and Americans, with potentially disastrous results during extreme weather.”
Power Sector Rallies Behind Bill
The bill also garnered support from several power sector and manufacturing trade groups, which have, over the past two years, repeatedly urged the Biden administration to prioritize actions that address ongoing supply chain challenges.
The DOE, in its proposal, acknowledged that the brunt of the new measures will be carried by manufacturers of the three categories of distribution transformers, as well as by purchasers of distribution transformers, which vary. Medium-voltage liquid-immersed distribution transformers are typically purchased by electric utilities, while consumers for LVDT and MVDT distribution transformers are typically commercial and industrial entities.
Among the power industry’s most prominent concerns are that distribution power transformers and large power transformers are in critical short supply. The power sector has also urged the administration to support the domestic production of electrical steel, warning that shortages are contributing to “significant and persistent” supply chain challenges. Last year, power industry stakeholders suggested that an extended supply crunch, exacerbated by electrical steel limitations, had quadrupled wait times for distribution power transformers, from three to six months before 2022 to one to two years. Wait times for LPTs in 2023 stood at two years or more.
Earlier this month, power sector and manufacturing trade groups turned to Congress, calling for the Senate Energy and Water Development Appropriations bill’s inclusion of $1.2 billion in repurposed supplemental funding to bolster domestic transformer manufacturing and other critical grid components.
On Thursday, Dan Brouillette, a former Energy secretary who now serves as president and CEO of the Edison Electric Institute (EEI), a trade group that represents all U.S. investor-owned electric companies, underscored risks posed by supply chain constraints. “Significant and ongoing supply chain challenges are impacting the transformer production process, limiting the availability of transformers and threatening electric reliability,” he noted. The Senate bill is “important legislation” that would “establish a stronger and more sustainable domestic market for high-efficiency distribution transformers, and we urge Congress to act quickly to enact this bill into law,” he said.
Jim Matheson, CEO of the National Rural Electric Cooperative Association, echoed these sentiments. “This legislation is a bipartisan antidote to DOE’s unworkable proposal to rapidly tighten transformer efficiency standards, which would exacerbate the already long lead times electric cooperatives face to obtain distribution transformers,” he said. “The bill would allow for the adoption of an updated standard over a more realistic timeframe while ensuring the appropriate supply of grain-oriented steel that manufacturers need to speed transformer production.”
The American Public Power Association (APPA), a trade group that represents 2,000 U.S. community-owned electric utilities, has also long advocated for clarity on electrical steel production and distribution transformers. APPA members report that lead times for distribution transformers appear to be growing, the group told POWER. “We are hearing that lead times are around two years, with many members saying it’s more like three,” it said. “The delays cause extreme measures to be taken on our systems, including delaying or piecemealing replacement projects in our service territory, and it has caused delay or cancellation of expansion projects.”
As currently drafted, the DOE’s proposal would “severely exacerbate the ongoing supply chain crisis and severely hamper the domestic production market,” said Desmarie Waterhouse, APPA senior vice president of Advocacy and Communications and general counsel. “This legislative effort maintains domestic grain-oriented electrical steel production, which accounts for over 95% of the cores in distribution transformers that are used by public power utilities to keep the lights on,” Waterhouse said.
The DOE on Friday told POWER it continues work to finalize a rule “that is responsive to the comments and allows American businesses, workers and consumers to deliver the most reliable, efficient, and affordable grid possible to meet growing energy demand.” The agency added that it “recognizes the critical importance of the distribution transformer market and is encouraged by the robust engagement during the formal rulemaking process.”
It also highlighted collaborative actions with lawmakers. “We appreciate the continued partnership with Congress to address supply chain issues and agree that any long-term solutions must allow for the ability to maintain and grow a secure domestic supply of electric steel, transformers, and their workforce,” it said.
Updated (Jan. 19): Corrects bill’s introduction date; adds details about GOES and AM markets, new comments from trade groups, and a response from the DOE.