The DOE Transformer Steel Rule and its Consequences

Last January, the Department of Energy (DOE) proposed a rule that would change the efficiency standards for the steel used in the cores of distribution transformers. The rule is now final pending review at the Office of Management and Budget, with lawmakers looking to push back on the standards it would impose. 

The new efficiency standards would effectively require the switch from grain oriented electrical steel (GOES) to amorphous steel in the cores of transformers on the electrical grid. The change would also be required to be implemented within three years from the publication of the rule. 

This is concerning because the new standards could jeopardize the transformer supply chain, with terrible consequences for the electrical grid and the provision of power to Americans. 

Transformers are one of the many parts of the electrical grid that most people think of seldom. They hum away in the background, and their importance is something most of us rarely consider. 

But transformers serve an absolutely essential function on the grid. Transformers are necessary to change the voltage of electricity as it goes from long-distance transmission to local transmission, and then to residential and industrial consumption. Without these voltage changes, it is impossible to move power between these stages.

Currently, GOES is the steel used in the cores of 95 percent of the transformers in the country.  It is produced by one firm in the US, Cleveland-Cliffs Inc. at two facilities in Butler, Pennsylvania and Zanesville, Ohio. 

Amorphous steel for transformer applications is only manufactured by one firm, Metglas Inc, at just one facility, in Conway, South Carolina. This type of steel is used in the cores of the remaining five percent of transformers.

A major overhaul in the type of steel used in transformer cores will have significant implications for the supply chain of transformers. 

Under the Energy Policy and Conservation Act (EPCA), the statute that DOE points to as authorizing these transformer steel standards “any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified.”  

DOE’s argument for putting forth these new standards hinges on the cost savings associated with the efficiency gains that the new rule would elicit, but it ignores the costs imposed on manufacturers throughout the supply chain, especially the steel producers and transformer manufacturers. It also ignores the burden that a major disruption to transformer manufacturing would create for the electrical grid, and the very real risks to reliability that such a disruption would pose. 

Let’s take a look at it from the perspective of the amorphous metal supply. 

During the comment period for the rule, Michael Howard, CEO of Howard Industries, one of the country’s largest transformer manufacturers which currently relies on GOES for their cores, discussed at a hearing the difficulty of meeting current transformer demand for core materials using amorphous steel:

“There is not enough amorphous capacity in the world to handle the market today. I estimate the market in the distribution transformer business to be 450-million pounds. The total market for amorphous in the world, from my understanding, is around 400-million pounds, and that’s if you get 100-percent of all the steel supplying just the United States transformer market.

Just getting to the level of necessary amorphous steel production would be an incredibly heavy lift due to the limitations of the current manufacturing capacity.”

Howard goes on to explain what this would mean for the companies that manufacture the transformers: 

“And then you’re talking about us—the transformer manufacturers—if we had to convert to amorphous or if we do some kind of hybrid of multiple, multiple lines and one-to-two-hundred-million-dollars, just for Howard Industries, I would estimate 500 to 800 million for the industry.”

Multiple new production lines do not come cheaply or quickly, and with three years to comply with the new standards, it would be incredibly difficult for transformer manufacturers to make the necessary changes to comply with the rule. 

Legislators have also expressed major concerns over the DOE rule. 

There is currently a bill, the Distribution Transformer Efficiency and Supply Chain Reliability Act of 2024, that would prevent the rule from going into effect and would prohibit any standards from being set that would remove GOES from the market. 

Sen. Sherrod Brown (D-OH) introduced the bill in the Senate that is sponsored by a bipartisan group of 15 Senators including Sen. Ted Cruz (R-TX), Sen. Joe Manchin (D-WV), and Sen. John Fetterman (D-PA). Rep. Mike Kelly (R-PA) introduced a companion bill in the House that has 17 bipartisan cosponsors.  

Ultimately, utilities should make the choice of which steel to use in transformers. If they think that switching to amorphous steel from GOES steel will be better, than they will make that choice. DOE should not be trying to dictate something that the transformer market has shown is not currently desired. 

Utilities are responsible for putting transformers in place and moving power through them. They are in the best position to make these decisions, not a federal agency far removed from the realities of sourcing and maintaining this critical infrastructure.