Groups Say Department of Energy Proposal Raises Reliability, Affordability Questions

Reliability and affordability for U.S. electric utilities and their customers could be threatened under a Department of Energy Notice of Proposed Rulemaking related to energy conservation standards for distribution transformers, the American Public Power Association and the National Rural Electric Cooperative Association recently told the Department of Justice.

The DOE’s NOPR would transition almost the entire distribution transformer market in the U.S. to use amorphous steel cores, but there is only one domestic producer of amorphous steel cores today and that producer’s current output “is a mere fraction of what would be required to adequately meet the electric utilities’ demand,” the groups said.

“Our members are some of the primary consumers of distribution transformers and if this proposal is implemented as currently contemplated, it would have serious consequences on their ability to provide affordable, reliable electric service to millions of Americans,” APPA and NRECA said in Feb. 10 comments submitted to DOJ.

“We urge DOJ to fully consider the competition issues raised by the DOE NOPR and work with DOE to address these concerns before a final rule is issued by DOE,” the groups said.

As drafted, DOE’s NOPR would transition almost the entire distribution transformer market in the United States to use amorphous steel cores, as compared to the current widespread use of grain-oriented electrical steel (GOES) cores, APPA and NRECA told DOJ.

“We have numerous concerns about the proposal, but within the DOJ Antitrust Division’s purview, we specifically raise (1) the lack of domestic suppliers available to produce amorphous steel cores and (2) the untenable timeline in the proposal,” the groups said.

Despite the insistence in the NOPR that its effects go into place in 2027, it has immediate market implications, APPA and NRECA said.

“There is only one domestic supplier of GOES and this proposal risks putting the domestic electrical steel market in a precarious state. Rather than helping to diversify supply, the DOE NOPR is counterproductive as it would deter further domestic investment in GOES production because only amorphous steel cores would be able to meet the new energy conservation standard proposed by DOE,” they argued.

APPA and NRECA said that the NOPR will not foster competition and is instead likely to create a new monopoly supplier while simultaneously driving the existing GOES supplier out of the market. “This would create a ripple effect of likely killing further investment in the domestic production of GOES for distribution transformers under consideration or announced by other steel producers.”

The groups also have serious concerns about whether the only domestic producer of amorphous steel cores today “would even be able to meet electric utilities’ demand for distribution transformers.”

They pointed out that the only amorphous steel core producer’s output today “is a mere fraction of what would be required to adequately meet the electric utilities’ demand, raising serious implications for electric reliability and affordability. As currently drafted, the NOPR relies on a single supplier in the market to ramp up output to meet the demand in just three years.”

In addition, APPA and NRECA said that the labor shortages currently facing many U.S. industries today, including distribution transformer manufacturers, make it very unlikely that domestic production of amorphous steel cores will ramp up to the level that DOE assumes in the NOPR.

“We have serious doubts about the ability of one supplier to increase output in the timeline envisioned in this proposal. If this NOPR is finalized as drafted, and the sole supplier cannot meet the demand, manufacturers will be forced to source their material from international sources (particularly China) representing a significant national security risk to the United States,” APPA and NRECA said.

The NOPR would not increase the diversity of steel suppliers in the market, “but would rather drive out the lone GOES supplier in favor of an amorphous supplier because the new efficiency standards will drive nearly all distribution transformer manufacturing away from GOES,” the groups said.

The current manufacturing base serving electric utilities is struggling to meet demand and DOE’s NOPR exacerbates this ongoing crisis, APPA and NRECA said.

“Our members are facing unprecedented challenges securing equipment and material to provide reliable electric service to their customers. Electric utilities have been sounding the alarm for more than a year about the supply chain constraints around multiple types of equipment they require to keep the lights on, with distribution transformers being the most acute challenge.”

They noted that it now takes more than a year on average for utilities to receive distribution transformers, compared with 60 days just a couple years ago.

“Further, we expect the backlog to continue to increase absent U.S. government support as utilities invest in grid resilience and modernization projects and federal and state policies drive more electrification. With that backdrop, DOE’s NOPR sends the wrong signal at a critical moment when we need more investment in production capability right now and for the next several years to meet growing demand.”

A proposal of this magnitude requires more time and analysis to avoid unintended consequences, APPA and NRECA said.

“At a minimum, DOJ should work with DOE to better understand the competition implications raised by the DOE’s NOPR and take the requisite time to ensure that we do not create unintended consequences that will be detrimental to electric reliability and affordability, as well as U.S. national security.”