Transformer Letter June 2023

A group of U.S. Senators has expressed concerns to Secretary Granholm regarding the Proposed Rulemaking for Energy Conservation Standards for Distribution Transformers, which aims to increase efficiency standards. They argue that the rule could worsen supply chain issues and jeopardize grid reliability by mandating a shift from grain oriented electrical steel to amorphous steel cores, which are less available. The Senators urge the Department of Energy to reconsider the rule and allow both materials to coexist in the market while addressing supply chain challenges.

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Transformer Letter June 2023

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Lynne Punc

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June 1, 2023

The Honorable Jennifer Granholm

Secretary
US Department of Energy
1000 Independence Ave SW
Washington, DC 20585

Dear Secretary Granholm:

We write to you regarding the Proposed

Rulemaking: Energy Conservation Program: Energy Conservation Standards for Distribution
Transformers (Proposed Rule).1 The availability of critical grid components remains a significant
challenge for the electric power industry that could impact national security, grid reliability and
resilience, as well as the ability to continue the important work of electrification and grid
modernization.

The Proposed Rule increases efficiency standards on distribution transformers, critical grid
products, which currently are no less than 97.7% energy efficient, at a time when the industry is
struggling due to a significant increase in demand, supply chain issues, and skilled workforce
shortage.2 These factors have made it hard for manufacturers to meet current demand for
distribution transformers, creating challenging lead time conditions and concerns regarding grid
reliability and resiliency. Further, the proposed rule has introduced uncertainty that prevents
utilities from signing long-term contracts and manufacturers from making investment decisions.

The Proposed Rule would require all distribution transformers to shift from the industry standard
grain oriented electrical steel (GOES) cores to amorphous steel cores. GOES currently accounts
for more than 95 percent of the domestic distribution transformer market and, therefore,
A final rule that adopts
could meaningfully worsen the current supply chain shortage by
requiring manufacturers to change production lines to less readily available amorphous steel.

Currently, the United States only has one domestic producer of amorphous steel. Moving to
amorphous steel cores, as proposed by DOE, would require this sole domestic supplier to rapidly
scale operations from its current market share of less than five percent to accommodate the entire
distribution transformer market. Such a recalibration of the supply chain will further delay

1
Energy Conservation Program: Energy Conservation Standards for Distribution Transformers, 88 Fed. Reg. 1722
(Jan. 11, 2023).
2
NEMA, Energy Efficiency Regulations and Requirements for Distribution Transformers Sold in the United States,
available at https://www.nema.org/docs/default-source/nema-documents-libraries/doe-transformer-efficiency-
regs.pdf?sfvrsn=8253222a_0.
manufacturing production timelines currently estimated to be a minimum of 18 months to two
years.

Between 2020 and 2022, average lead times to procure distribution transformers went from eight
to 12 weeks to up to three years. This multi-fold increase is directly impacting the electric power
and reliability efforts, as well as its ability to respond and recover
from natural disasters, posing challenges for communities that need to rebuild as well as new
development.

We appreciate the actions that this and previous administrations have already taken in
recognition of the challenges associated with distribution transformer supply chains, including
3

and the invocation in the same year of the Defense Production Act to accelerate the production of
4

However, by phasing out the primary market for U.S.-produced GOES, the Proposed Rule could
jeopardize this progress, putting everyday American families at risk. Further, we are concerned
that requiring the use of amorphous steel for new distribution transformers could put the
by exacerbating an existing grid vulnerability.

At the same time, we recognize the numerous and often underappreciated benefits of energy
efficiency and support the overall goal of reducing wasteful electrical losses in our distribution
grid. We believe the most prudent course of action is to let both GOES and amorphous steel
cores coexist in the market, as they do today without government mandates, for new installations
as we ramp up domestic production and reorient supply chains.

We urge the Department to refrain from promulgating a final rule that will exacerbate
transformer shortages at this strategically inopportune time. Such a standard could come at
meaningful cost to grid reliability and national security, continuing the clean energy transition,
and bolstering domestic supply chains and the workforce. Instead, we urge the Department to
finalize a rule that does not exacerbate the shortage in distribution transformers and convene
stakeholders across the supply chain to develop consensus based approach to setting new
standards.

We request a briefing with your office on the , as well as how to

best leverage existing DOE authority to bolster domestic supply chains and help alleviate the
current and persisting supply chain challenges facing distribution transformers. We are
committed to working with you to identify short and long-term solutions to the supply chain
shortage of these critical grid components with a goal of building a robust domestic market and a
more efficient and reliable grid for decades to come.

3
See Draft List of Critical Supply Chains, U.S. Department of Commerce International Trade Administration,
available at https://www.trade.gov/data-visualization/draft-list-critical-supply-chains.
4
FACT SHEET: President Biden Takes Bold Executive Action to Spur Domestic Clean Energy Manufacturing,
available at https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/06/fact-sheet-president-biden-
takes-bold-executive-action-to-spur-domestic-clean-energy-manufacturing/.
Thank you for your consideration.

Sincerely,