Buckeye Reporter

WASHINGTON, D.C. – On June 3, 2023, U.S. Senator Sherrod Brown (D-OH) and a group of 46 bipartisan colleagues sent a letter to U.S. Department of Energy (DOE) Secretary Jennifer Granholm, expressing concerns that a new rule proposed by DOE will place further stress on the already exacerbated electric power industry and supply chains.

The proposed Energy Conservation Program: Energy Conservation Standards for Distribution Transformers increases efficiency standards on distribution transformers that would require manufacturers to redesign their products for use of amorphous steel cores instead of continuing use of grain oriented electrical steel (GOES) cores. Distribution transformers are critical components of the energy grid that are already in limited supply.  Similarly, the domestic supply of amorphous steel is a fraction of the volume that would be needed to meet U.S. demand. Furthermore, the substrate used to produce amorphous steel is imported into the U.S., creating a huge vulnerability to the grid and thereby our economic and national security.  This rule would further intensify supply chain shortages and manufacturing delays as manufacturers adjust their production lines undermining grid modernization and reliability efforts.

Cleveland-Cliffs is the last remaining North American producer of GOES cores. Nearly 70% of the electrical steels that Cleveland-Cliffs produces are used in distribution transformer cores. The new DOE rule would eliminate the market for GOES, putting 1,500 jobs at Cleveland Cliffs’ Zanesville Works and Butler Works plants at risk.

“As we continue our fight to preserve the domestic production of electrical steel and 1,500 good-paying, UAW jobs, I would like to express my appreciation for the leadership and tireless work of Senator Sherrod Brown, as well as Senator Bob Casey, Senator J.D. Vance, Senator Fetterman and the other U.S. Senators who signed this important letter to Secretary Granholm,” said Lourenco Goncalves, Chairman, President & CEO of Cleveland-Cliffs Inc. “Cleveland-Cliffs’ Butler Works and Zanesville Works are the only steel mills in the United States that produce both Grain Oriented Electrical Steel (GOES) for transformers and Non-Oriented Electrical Steel (NOES) for electric motors, including electric vehicles.  Cleveland-Cliffs has completed a turnaround of these mills, investing approximately $50 million in just the past two years to increase production of electrical steel.  This transformer efficiency standard proposed by the Department of Energy threatens to regulate GOES out of the distribution transformer market.  Such an outcome would jeopardize the real progress that has been made at these mills in recent years and would fundamentally destroy the economics of continuing to produce GOES domestically.   This bipartisan Senate letter calls attention to the very relevant economic and national security concerns associated with this proposed efficiency standard.  I urge the Department of Energy to take these valid policy concerns into account before proceeding on this matter.”

Cleveland-Cliffs Zanesville Works and Butler Works facilities also produce Non-Oriented Electrical Steel (NOES), which is used in highly efficient electric motors, including motors for electric vehicles. Eliminating the market for GOES will call into question Cleveland-Cliffs continued production of NOES. This will create further supply chain issues in the automobile industry and stunt the advancement of electric vehicles made in America.

“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 manufacturing production timelines – currently estimated to be a minimum of 18 months to two years,” wrote the lawmakers.

“We appreciate the actions that this and previous administrations have already taken in recognition of the challenges associated with distribution transformer supply chains, including the 2022 designation of GOES on the U.S. government’s list of ‘critical goods and materials’ and the invocation in the same year of the Defense Production Act to accelerate the production of ‘critical power grid infrastructure like transformers,’” the Senators continued. “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 administration’s electrification goals at risk by exacerbating an existing grid vulnerability.”

The Senators urged the DOE to refrain from promulgating the final rule that could worsen transformer shortages to the detriment of grid reliability, national security, the clean energy transition, and the domestic supply chain and workforce. They also requested a briefing with the DOE on the advancement of the proposal and alleviating the current and persisting supply chain challenges facing distribution transformers.

A copy of the letter can be found here and below.

Dear Secretary Granholm:

We write to you regarding the U.S. Department of Energy’s (DOE or the Department) Proposed Rulemaking: Energy Conservation Program: Energy Conservation Standards for Distribution Transformers (Proposed Rule). 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. 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, manufacturers’ production lines are tooled for designs that use GOES. A final rule that adopts DOE’s current proposal 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 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 industry’s grid modernization 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 the 2022 designation of GOES on the U.S. government’s list of “critical goods and materials” and the invocation in the same year of the Defense Production Act to accelerate the production of “critical power grid infrastructure like transformers.”

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 administration’s electrification goals at risk 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 path forward on DOE’s proposal, 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.

Thank you for your consideration.

Sincerely,

Original source can be found here.