Transformer Rule Pain, Little Gain


It has now been more than three years since the World Health Organization declared a global pandemic, and the coronavirus slammed the breaks on the nation’s economy and shuttered lives and livelihoods alike. However, the resiliency of rural America has since fueled a resurgence. The masks are gone, for the most part. We can breathe (literally) a sigh of relief that industries from tourism to manufacturing are back up to speed, workers are working, kids are in school, and life is normal again. Except in some cases, it isn’t.

Supply-chain issues were ubiquitous in the months and years after the pandemic landed. While toilet paper is now widely available, electrical transformers, which are critical to delivering electricity to your homes and businesses, are not. The ongoing issue is evidence that what is driving this shortage goes beyond the pandemic.

Matt Brandrup, president & CEO of RESCO

According to Matt Brandrup, president & CEO of Rural Electric Supply Cooperative (RESCO), a co-op that works closely with manufacturers to provide wholesale products—including transformers—to their electric co-op members, increased demand is amplifying the challenges of low inventory supply. “Among the factors contributing to this are electrification incentives and the push for more electric vehicles, which require a greater home load capacity than what was previously needed,” he said. “In many instances, utilities must upgrade transformers to ensure the capacity is there to account for electric load growth, like home vehicle chargers. And that’s by no means over; in fact, we’re just in the infancy stages in terms of utilities having to make these transformer upgrades,” Brandrup said.

Compounding the problem is the national labor shortage, as transformer manufacturers struggle to get enough skilled workers.

“We’ve heard of instances of newly finished and almost-finished residential homes in states that RESCO serves in which the owners are unable to move in, as the houses aren’t yet electrified,” Brandrup said. “And the reason for this is that the utilities serving that particular development are still waiting on transformers.” The National Rural Electric Cooperative Association (NRECA) concurred, saying orders for distribution transformers that used to be filled in two to four months now take between 22 to 33 months to receive.

Of course, increased demand brings increased costs, with transformer costs up 20-50% since 2020, an added expense that, at some point, all utilities, including cooperatives, have to pass on to customers or members. Utility rate increases driven by higher fuel costs, along with general inflation, are already busting budgets for people in Wisconsin and across the nation.

It seemed, though, that the White House was tuned in and ready to help. In June 2022, the Department of Energy (DOE) established the “Tiger Team,” comprised of industry leaders and government officials tasked with examining the supply-chain crisis and offering solutions. The group concluded that current transformer production is not meeting demand, and the demand will increase for the foreseeable future. The Biden administration then issued a presidential determination through the Defense Production Act (DPA), aiming to prioritize the domestic production of transformers. Manufacturers offered solutions, including the option for “emergency-use” products, which would allow them to produce transformers with greater output at slightly lower efficiency rates than the stringent requirements DOE put in place in 2016. (For example, as of 2016, the DOE requires medium voltage, liquid-immersed distribution transformers, which are typically purchased by electric utilities, to be 98.70 to 99.55% efficient, the highest efficiency rate of any major electrical device.)

But here is where the Tiger Team lost its roar. In December of 2022, DOE issued a 448-page proposed rule, not seeking to ease efficiencies to help remedy the transformer shortage but to further INCREASE efficiency requirements and mandate manufacturers use amorphous steel cores instead of grain-oriented steel. Utility leaders across the country immediately decried the move, saying it would make a bad situation worse.

“With the distribution class transformers already running at approximately a 99% efficiency rate, the push to enact these onerous and very costly DOE transformer regulations—to achieve a 99.3% to 99.4% efficiency rate—just does not make sense,” Brandrup said. “If these regulations go through, transformers will become much more costly and bigger in size. This would also occur at a time when there is a significant transformer supply/demand imbalance and when transformer costs have already increased around 40%, as some utilities—not RESCO’s members, by the way—continue to struggle to get the transformers they need to power homes and businesses.”

NRECA joined the American Public Power Association, Edison Electrical Institute, GridWise Alliance, and other national industry groups in sending a letter to U.S. Energy Secretary Jennifer Granholm in February. They write, “The proposed rule would require manufacturers to transition to a different type of steel, which is largely untested, less flexible, and more expensive. Further, the existing supply chain of this alternative steel is very limited and mostly foreign-sourced. This rule would impose unnecessary cost burdens and further delay the delivery of such critical products.”

“Currently, NEMA (National Electrical Manufacturers Association) calculates a three-phase liquid-immersed distribution transformer with a kilovolt-ampere (kVA) output rating of 2500 is already 99.53% efficient; a similar single-phase type with a kVA of 833 is 99.55% efficient,” they said. “Importantly, due to the intricate ways transformers are designed and assembled, increasing their efficiency even by a fraction of a percentage point could add months to an already lengthy order cycle.”

In issuing the rule, which is expected to be finalized in 2024 and take effect in 2027, Granholm said the new energy conservation standards would “enhance the resilience of our nation’s energy grid and make it possible to deliver affordable electrical power to consumers in every corner of America.” In its written proposal, DOE monetized perceived climate and health benefits from the new transformer standards and concluded there would be “significant” savings for Americans overall.

The rule was a hot topic during the April Senate Committee on Energy and Natural Resources hearing, in which Granholm appeared to talk about the agency’s budget request. Senators from both sides of the aisle took the opportunity to push back on the transformer rule.

Senator Steve Daines (R-Montana) told Granholm that rural electric cooperative leaders were in his office that very week pleading with him to address the transformer rule. (The Wisconsin Electric Cooperative Association [WECA] and Wisconsin electric co-ops also lobbied legislators on the issue during a recent trip to D.C.)

Wisconsin electric cooperative leaders met with Wisconsin’s congressional delegation in April to lobby legislators on the transformer rule. Pictured are meetings with Congressman Tom Tiffany (R-WI 7th district) (above) and Senator Tammy Baldwin (D-WI 2nd district) (below).

“This is a big issue,” Daines said, adding, “My rural electric co-ops are not partisan folks. They’re very pragmatic. I urge you to reverse the course. Work with manufacturers on this transformer issue. Work with our electric co-ops. Find a real solution. Stop this green delusion.”

Even Senator John Hickenlooper, a Democrat from the very green, clean-energy leading state of Colorado, suggested this rule may go too far.

“I understand the aspects of the proposed standards are still being negotiated with the transformers,” Hickenlooper said. “But even in Colorado, our rural electrical generators are very concerned about the supply chain, so I just want you to know this concern is universal.”

Granholm replied by asking for more money to help boost domestic transformer manufacturing. “With the Defense Production Act, through our manufacturing and energy supply chain office, we have about $75 million to help that (shortage). It’s not enough,” Granholm said. “So, it’s something that I would ask Congress to consider. We need a $1 to $2 billion commitment to build these transformers in the United States. And I hope we can work together on taking that to the next level.”

Granholm doubled down on her commitment to the rule, even as Senator Cindy Hyde-Smith (R-Mississippi) pushed hard on the issue. “I’ve heard from all of my local power companies in Mississippi. They are ringing me up, and I’ve read the key findings from the TIGER team about serious problems with the supply chain, shortages threatening the regions, electric infrastructure, including skyrocketing costs and the long lead times of up to two to four years and more, in order to meet your department’s most recent conservation standards for transformers. Now manufacturers will be forced to use an alternative, more expensive, and limited type of steel which has, and will continue to, worsen the supply chain. It seems to me the White House and your department have put the cart before the horse,” she said.

“So, do you think this maybe won’t go into effect when you thought it would? Do you think that this may go away?” Hyde-Smith asked.

“I don’t. No. I think it’s important to continue to move toward efficiency, but we are having conversations with industry, I’ll just say that,” Granholm replied.

Hyde-Smith pushed the DOE secretary to commit to holding off on implementing the rule at least until the current transformer shortage is resolved, but Granholm refused, saying she believes the higher efficiency standards can be successfully implemented as planned.

Under the Energy Policy and Conservation Act, DOE has the authority, and the responsibility, to periodically determine whether more-stringent standards would be technologically feasible and economically justified and would result in “significant energy savings.” Granholm does not need legislative approval to move forward on the rule.

But that will not stop WECA, NRECA, and Wisconsin co-op leaders from making their voices heard. And in some cases, it’s working.

“The Department of Energy’s transformer standards rule is narrow-minded and will only exacerbate the current supply shortage,” Congressman Tom Tiffany (R-WI 7th district). “The DOE needs to focus on reliability and affordability, not unnecessary red tape and cost burdens.”

“The WECA folks were a very effective voice during our visits with Wisconsin’s congressional delegation in April. They were focused on getting across to the members the significance of the transformer shortage and the overarching larger issue of supply-chain challenges in the energy sector,” said WECA’s Director of Government Relations Rob Richard. “We went to Washington asking them not to make a bad situation worse. Our cooperative leaders deal with these challenges day in and day out. I’m hopeful that Wisconsin’s congressional delegation will listen to, and give greater credence to, the folks that are on the ground and responsible for making sure our cooperative members’ electricity remains reliable, affordable, and safe over bureaucrats in D.C. looking for terribly insignificant and costly efficiency upgrades in our transformers.”—Julie Lund