Cruz, Brown Introduce New Legislation to Bolster U.S. Transformer Supply Chains and Protect American Energy Independence

U.S. Sens. Ted Cruz (R-Texas) and Sherrod Brown (D-Ohio) introduced new legislation – The Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024 – that would bolster the U.S. transformer supply chain, an important part of electricity grids, by setting new realistic energy efficiency standards that help stabilize domestic transformer manufacturing to meet increasing demand without exacerbating existing supply chains or undermining American steel production.

In January 2023, the U.S. Department of Energy (DOE) published a proposed rule that risks exacerbating existing supply chain challenges for distribution transformers and creating a shortage of related components. If finalized, the proposed rule would require all distribution transformers to shift from the industry standard grain oriented electrical steel (GOES) cores to amorphous cores, to the detriment of U.S. steel manufacturers. GOES currently accounts for more than 95 percent of the domestic distribution transformer market and manufacturers’ production lines are tooled for designs that use GOES. Furthermore, such a recalibration of the supply chain will further delay manufacturing timelines – current estimated to be a minimum of 18 months to two years.

Moving to amorphous cores, as proposed by DOE, would disadvantage U.S. manufacturers and risk adding significant vulnerability to the nation’s grid and pose a threat to our national security.

The Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024 would prevent the new DOE rule from taking effect and instead create new standards that increase the energy efficiency of distribution transformers at levels that preserve market opportunities for GOES as well as amorphous steel.

Upon introducing the bill, Sen. Cruz said, “The Department of Energy’s proposed rule is a misguided effort to improve efficiency. 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. As more and more people call Texas home, we need a reliable and affordable supply of distribution transformers so that new homes, businesses, and industrial facilities can connect to reliable and affordable energy. I’m proud to work with Sen. Sherrod Brown in a bipartisan manner to correct this.”

Sen. Brown said, “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. and make sure the Department of Energy gets it right. That’s why we introduced this bill with new standards that support American jobs and our energy independence.”

In addition to Cruz and Brown, original co-sponsors include Sens. Bill Hagerty (R-Tenn.), Joe Manchin (D-W.Va.), Pete Ricketts (R-Neb.), John Fetterman (D-Pa.), Marco Rubio (R-Fla.), Bob Casey (D-Pa.), Todd Young (R-Ind.), Krysten Sinema (I-Ariz.), Ted Budd (R-N.C.) and Jon Tester (D-Mont.).

This bill is supported by the National Rural Electric Cooperative Association, National Electrical Manufacturers Association, Edison Electric Institute, National Association of Home Builders, Leading Builders of America, American Public Power Association, United Automobile Aerospace and Agricultural Implement Workers of America (UAW), and Cleveland-Cliffs.

Jim Matheson, CEO, National Rural Electric Cooperative Association said, “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. 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. We are grateful to Sens. Brown (D-Ohio) and Cruz (R-Texas) for championing this effort and for jumpstarting its consideration in the Senate by introducing this critical bill.”

Debra Phillips, President and CEO of the National Electrical Manufacturers Association, said, “We appreciate Senators Brown and Cruz responding to the electro-industry’s call to prioritize and strengthen our distribution transformer supply chains. Distribution transformers are essential to delivering electricity to consumers everywhere and we’re currently staring at backlogs of two years or more. This bipartisan group of senators understands the record high demand and ongoing supply chain challenges facing manufacturers and are responding by providing legislative direction and much-needed regulatory certainty.”

Dan Brouillette, President and CEO, Edison Electric Institute, said, “Distribution transformers are vital to our nation’s energy grid and are essential for delivering the reliable and resilient electricity that powers our economy and our country. Significant and ongoing supply chain challenges are impacting the transformer production process, limiting the availability of transformers and threatening electric reliability. EEI and our member electric companies commend Senators Brown and Cruz for their leadership in introducing the Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024. This important legislation 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.”

Alicia Huey, Chairman of the National Association of Home Builders, said, “NAHB commends Sens. Brown and Cruz for their leadership in bringing forward this strong bipartisan legislation to help ease the severe shortage of distribution transformers that is delaying home building projects and raising housing costs. This legislation will give producers flexibility in the manufacturing process to increase the efficiency of distribution transformers while also ramping up production to meet historic demand and help address the nation’s housing affordability crisis.”

Desmarie Waterhouse, Senior Vice President of Advocacy and Communications & General Counsel for the American Public Power Association, said, “APPA greatly appreciates Sen. Cruz and Sen. Brown introducing this legislation that pushes back on the January 2023 notice of proposed rulemaking (NOPR) offered by DOE for distribution transformer standards. The NOPR, as currently drafted, would severely exacerbate the ongoing supply chain crisis and severely hamper the domestic production market. 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.”

Lourenco Goncalves, Chairman, President & CEO of Cleveland-Cliffs Inc., said, “The domestic production of Grain Oriented Electrical Steel (GOES) is critical to America’s electric grid reliability and, by extension, its national and economic security. Continued production of and investment in GOES by Cleveland-Cliffs requires common sense energy policy that promotes efficiency and maximizes utilization of domestically produced GOES. Any outcome that would make the grid reliant on Amorphous Metal that is either imported or produced from imported ingots would be disastrous for the United States. Senator Brown’s Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024 balances the need for continued transformer efficiency gains while preserving utilization of advanced, highly efficient electrical steels produced in Ohio and Pennsylvania.”

Texas Bill supporters include Denton Municipal Electric, Texas Electric Cooperatives, Entergy Texas, CPS Energy, Electric Research and Manufacturing Cooperative (ERMCO), CenterPoint Energy, Texas Association of Business, and American Electric Power (parent company of AEP Texas and Southwestern Electric Power Company).

Gerard Hudspeth, Mayor of the City of Denton, Texas, said, “I am very pleased that Senator Cruz is introducing this bipartisan legislation to set reasonable and attainable energy efficiency standards for electric distribution transformers without negatively impacting supply chain issues. The primary mission of Denton Municipal Electric (DME) is to provide reliable, affordable electricity to Denton households and businesses. Supply chain issues for electric distribution transformers threaten DME’s ability to not just support our rapid growth or recover from a disaster, but also to maintain the routine work of keeping our infrastructure in a state of good repair. I fully support this common-sense bill and thank Senator Cruz for his leadership on this critical issue.”

Mark Williams, CEO of Texas Electric Cooperatives, said, “Texas Electric Cooperatives greatly appreciate Senator Cruz’s leadership on the Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024 and thank him for introducing this important legislation. Our state’s electric cooperatives have been concerned about the Department of Energy’s proposed transformer rule and the negative affects it could have on economic development and natural disaster response in Texas with current transformer lead times. Senator Cruz’s bill recognizes the need for a longer, more practical transition in the middle of a supply chain crunch and would help us ensure our cooperatives can continue to provide affordable, reliable electricity to our members.”

Eliecer Viamontes, President and CEO of Entergy Texas, said, “Entergy Texas appreciates the hard work of Senators Cruz, Brown and the bill’s bipartisan co-sponsors to provide a long-term solution to address our nation’s distribution transformer crisis. Last year in Southeast Texas, we experienced an acute transformer shortage, which impacted our major storm inventory levels and ability to meet the state’s growing residential housing and economic development needs. Today’s bill is a critical first step to create business certainty and send necessary market signals for our nation’s steel suppliers and transformer manufacturers to expand domestic capacity in our country.”

Rudy Garza, President and CEO of CPS Energy, said, “CPS Energy supports the goals of the legislation introduced by Sen. Cruz and Sen. Brown. Only within the past 60 days has CPS Energy caught up on our community growth projects due to the supply chain constraints on distribution transformers. The timing of the DOE-proposed rule presents a risk of increased equipment shortages because the raw material for the proposed type of steel is less available and could result in further supply chain delays in our community—and across the industry. Equipment availability is critical to our reliability and resiliency, and we would prefer to phase these types of changes in over more time.”

Tim Mills, President and CEO of Electric Research and Manufacturing Cooperative (ERMCO), said, “Requiring manufacturers to modify production processes in a time where output is already insufficient creates one more challenge for us to overcome; that feels counterproductive to our electrification goals.  This bill will help manufacturers like ERMCO maximize output in a time where demand is far exceeding supply.”

Glenn Hamer, CEO of Texas Association of Business, said, “We applaud Senator Cruz’s bipartisan approach to ensuring that we can enhance the energy efficiency of distribution transformers – which are critical to the reliability of our electric grid – while also allowing adequate time for manufacturers to implement changes without having to stop production or delay lead time. This common-sense legislative solution ensures that supply chains can properly adapt to the new standards put forth in the Energy Policy and Conservation Act, and will help protect our state’s thriving economy that relies on the efficient operation of an increasingly diverse and dynamic energy landscape.”

Craig Rhoades, Chief Procurement Officer of American Electric Power, said, "Distribution transformers are critical for grid reliability, and AEP and companies throughout our industry have faced supply chain challenges procuring these key components over the past several years. This legislation is a step in the right direction to ensure our customers will have access to reliable electricity by improving the supply chain for this critical equipment."

CenterPoint Energy said, “We appreciate the Senators leadership in driving solutions to ongoing supply chain transformer issues. We are encouraged that the Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024 may help establish a domestic market for high-efficiency transformers to deliver reliability, resilience and efficiency to our country’s electric grid.”

Read the bill here.

BACKGROUND:

The Distribution Transformer Efficiency & Supply Chain Reliability Act builds upon another bipartisan Senate effort from last June when Sens. Hagerty, Cruz, and Brown sent a bipartisan letter to DOE Secretary Jennifer Granholm signed by an additional 13 Democrats and 32 Republicans.