APPA, Other Groups Urge Lawmakers to Appropriate $1 Billion for Distribution Transformers

by Paul Ciampoli
APPA News Director
November 21, 2022

Lawmakers should appropriate $1 billion this year for implementation of the Defense Production Act (DPA) to specifically address the supply chain crisis for electric distribution transformers, the American Public Power Association (APPA), the National Rural Electric Cooperative Association (NRECA), Edison Electric Institute (EEI), National Association of Home Builders (NAHB), Leading Builders of America (LBA), and Associated General Contractors of America (AGC), said in a Nov. 18 letter.

The letter was sent to Sen. Patrick Leahy, D-Vt., Chairman of the Senate Committee on Appropriations, Sen. Richard Shelby, R-Ala., Vice-Chairman of the Senate Committee on Appropriations, Rep. Rosa DeLauro, D-Conn., Chairwoman of the House Committee on Appropriations, and Rep. Kay Granger, R-Texas, Ranking Member, House Committee on Appropriations.

In June 2022, President Biden announced that he was invoking the DPA to accelerate the domestic production of certain clean energy technologies, which included grid components and distribution transformers. Under DPA authorities, DOE could rapidly support domestic manufacturing capacity through purchases of equipment or materials, financial assistance in capital to expand production lines, or making subsidy payments for the supply of high-cost materials. For DOE to utilize DPA authorities, it must receive a direct appropriation from Congress.

“Throughout 2022, the electric sector and representatives from residential and commercial building sectors have been calling attention to the unprecedented supply chain challenges both industries have been facing in procuring equipment used to maintain and grow the electric grid,” wrote APPA President and CEO Joy Ditto and leaders of the other groups.

“Specifically, electric utilities continue to have significant problems in procuring basic equipment – particularly distribution transformers – needed to operate the grid, provide reliable electric service, and restore power following severe storms and natural disasters. In housing construction, this is further exacerbating their ability to address the housing affordability crisis facing our nation.”

Due to the threats to reliability, the Electricity Subsector Coordinating Council (ESCC) established an industry “Tiger Team” to examine the supply chain crisis, the letter noted.

“Through this process, the electric industry has been able to report and confirm what individual utilities and the housing industry have been saying since late last year: that construction and electrification projects are now being deferred or canceled and that they are concerned about their ability to adequately respond to major storms due to depleted stockpiles,” the groups said.

The Tiger Team ultimately found that current transformer production is not meeting demand and that demand is expected to continue to increase in the coming years. Between 2020 and 2022, average lead times to procure distribution transformers across all segments of the electric industry and voltage classes rose 443 percent. The same orders that previously took two to four months to fill are now taking on average over a year. “This is a serious threat to reliability,” the groups said.

Among initial considerations for the federal government to address are labor shortages and material availability, which were identified as the most immediate short-term barrier to more manufacturing output. Additional long-term recommendations include building manufacturing capacity to support long-term demand and investing in domestic production of grain-oriented electrical steel (GOES), a key transformer component, the letter noted.

Usage of DPA authorities to address labor and material shortages, focused specifically on the production of distribution transformers, “is the most immediate way we can address this growing crisis. The upcoming work period is a critical opportunity to appropriate funds needed to help address these problems before the end of this year,” the letter said.

APPA is asking its members to reach out to their congressional delegation to support this appropriation request.

APPA Survey of Members Shows Distribution Transformer Production Not Meeting Demand and Shortages Pose an Urgent Threat

An APPA survey of its members shows that production of distribution transformers is not meeting current demand, “as evident in the significantly growing lead times, lack of stock in yards and the high number of project deferrals,” APPA said. Utilities are reporting low or near zero emergency stock, often used to recover post-disaster or do infrastructure maintenance. Electric reliability is under severe threat with demand increasing, lead times growing, and stockyards emptying.