No Love for Distribution Transformers in $1.7 Trillion Government Funding Law

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--When the U.S. Congress passes a 4,155-page omnibus bill to fund the federal government, it's safe to assume that there's something in it for nearly every agency and special interest group. And, in most years, that would be correct. Yearend bills like that are called "Christmas trees" because they are loaded down with ornaments for this or that agency or special interest group.

The $1.7 trillion bill, passed by Congress December 23 and signed into law by President Joe Biden a week later, will fund the federal government through September 30, 2023. It includes $45 billion in aid to Ukraine, an overhaul of the Electoral Count Act (first passed in 1887), and billions of dollars for the military, disaster aid, farm support, energy efficiency, renewable energy, nutritional assistance, college access, child care, mental health, environmental protection, food assistance, federal law enforcement, federal courts, rural economic development, early child care and veterans. There were new rules to boost personal retirement plans, protect pregnant workers and protect those on Medicaid.

At first glance, it appeared that everyone got something. But one measure that fell out of the 4,155-page bill was a comparatively modest $1 billion request for funding to stimulate domestic manufacturing of distribution transformers under the Defense Production Act (DPA), a Korean War-era law that enables the government to intervene in private markets to ensure that goods vital to national security are produced in adequate amounts.

The funding request was supported by the nation's three leading Washington-based electricity trade groups: the Edison Electric Institute (EEI), the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA).

In a November 30 letter to the U.S. Department of Energy (DoE) (Washington, D.C.), the three trade groups requested that the energy agency invoke the DPA "to prioritize distribution transformers, large power transformers and other critical grid components ahead of other technologies, and it should act quickly to alleviate the most acute supply chain challenge with distribution transformers."

Electric utilities have faced soaring prices and extended waitlists for distribution transformers, a critical piece of the nation's electric infrastructure that reduce high voltage electricity to lower levels for home and business use. In a not-uncommon story, one utility executive told Industrial Info that before COVID, a 300-kilovolt-ampere distribution transformer cost $8,800 and could be delivered in eight to 12 weeks. Today, that same piece of equipment costs $36,000 and requires an 18-month lead time.

"Distribution transformers are not eye candy, like rooftop solar or electric vehicles, but they are essential parts of the electric system. The lights will go out without them -- it's just a matter of time," said Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "The COVID-19 pandemic drove inventory levels down to dangerous levels, and extreme weather across the U.S. in 2022 has made a bad situation worse. You need to replace equipment that is destroyed or damaged by fire, floods, tornadoes, hurricanes, and so on, but it looks like Congress had other priorities."

"Recent surveys show our members are waiting longer than ever for transformers of all sizes, conductors, meters, circuit breakers, and other products," according to the November 30 letter from the three trade groups. "Industry cannot solve this challenge alone and thus we are pleased to see the government may use its authority under the DPA to address challenges created by shortages of transformers and other key components of the energy grid."

Early drafts of the House and Senate versions of the bill included some funds to bolster production of distribution transformers. But the final measure was not included in the final bill that was signed into law.

One month later, in late December, when the dust settled and members of the 117th Congress scattered to their home districts, the trade groups' plea went unheeded. Sources told Industrial Info that early drafts of the House appropriations bill included $100 million in funding. The Senate version included $500 million. But all that disappeared when the competing versions were reconciled.

It's not clear which member or members of the conference committee pulled the support for distribution transformers. Before and after the bill was passed, Republicans have said government spending was out of control and needed to be lowered, but it appears no one wanted to step forward and champion this newfound fiscal restraint. The measure passed the House 225-201. The Senate approved it by a 68-29 margin.

Joy Ditto, president and chief executive of the APPA, said the group was "beyond disappointed that funding to ramp up production of distribution transformers through the Defense Production Act has not been included in the ... omnibus appropriations bill. This is a critical issue that several industries have raised, and on which the President has called for action. Despite our collective pleas over the past year to address this issue, supplies continue to dwindle, demand far outpaces production, and if action is not taken in the near term, the U.S. will face electric reliability concerns."

In other words, don't blame utilities if the lights go out.

She continued: "Electricity is vital and underpins all aspects of our modern society. Without the reliability ensured by a steady supply of distribution transformers, we can't accomplish any of our energy goals -- including transitioning to cleaner energy sources or growing a strong economy."

APPA, the trade group representing about 2,000 community-owned electric utilities across the U.S., said it "will continue to work with our electric utility brethren and government partners to address this situation. We will also continue outreach to transformer manufacturers to seek their input on ways to step up to the challenge of adequately meeting the demand for these critical grid components."

Burt commented: "Crisis often drives congressional or presidential action, but building a transformer is not as easy or fast as turning on the lights. Wildfires in the West have consumed many transformers in recent years. The pre-Christmas blast of Arctic air damaged or destroyed thousands of distribution transformers across the country. Last week's tornadoes in the Southeast destroyed thousands more. Ultimately, dramatically higher costs for distribution transformers will find their way onto customers' bills."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).