Congress Stepping Up on Transformer Supply Chain Issues

By Jay Stowe
Former JEA Managing Director & CEO

The rollercoaster ride that was 2023 is finally in the rearview mirror, but supply chain challenges are still likely to make for an eventful 2024 for utilities and developers all across the country.

However, there may now be some light at the end of this wild ride’s tunnel, at least in terms of the national electrical transformer shortages that have delayed new residential developments in Northeast Florida and beyond.

On Dec. 5, the U.S. House Energy and Commerce Committee recommended that Congress adopt a bill that would prohibit the federal Department of Energy (DOE) from increasing distribution transformer conservation standards for five years.

For more than a year, JEA—and like-minded partners—have advocated against DOE’s notice of proposed rulemaking (NOPR) that would require almost all distribution transformers to include amorphous steel cores rather than grain-oriented steel. While we appreciate and support the Biden administration’s goal to “reduce America’s carbon footprint while strengthening our security posture and lowering energy costs,” JEA has argued that the NOPR would only stress an already tenuous global supply chain issue.

Now, the committee-adopted measure, H.R. 4167, states that “the Secretary of Energy may not, before the date that is 5 years after the date of enactment of this section, propose, finalize, implement, administer, or enforce any rule establishing any requirements under such Act for distribution transformers that are different than the requirements under the final rule titled ‘Energy Conservation Program: Energy Conservation Standards for Distribution Transformers’ and published in the Federal Registry on April 18, 2013.’”

This is a welcome step, consistent with the chorus of voices that include JEA, the American Public Power Association, the National Rural Electric Cooperative Association, and others warning about the unintended consequences of the NOPR, including decreased reliability and higher costs, which is particularly troublesome in the midst of unprecedented supply chain disruptions brought on by a number of issues.

Even with Congressional help, transformer manufacturers continue to experience a number of challenges, as outlined in an October 2022 DOE survey:

1. Labor Constraints: Labor and workforce availability was consistently cited as the most critical threat to transformer production capacity. Manufacturers continue to find it hard to fill open positions while experiencing high turnover—around 10% in many cases—due to the skill level required and corresponding low wages. However, some reported that increasing labor input through additional shifts and expanded headcount could increase distribution transformer production by as much as 25% or more.
2. Materials Availability: The ability to source specific materials was another production barrier cited in the survey due to the volatile commodity markets for copper and aluminum—the metal used as conductive material in most transformers. According to the survey responses, resolving material constraints could enable manufacturers to increase production by about 10% when adding the potential labor-enabled increase.
3. Growing Demand: Compounding these challenges is a reported increase in demand for distribution transformers. Utility trade associations have indicated a range of increased demand, with an upper value for 2023 approximately 20% above the 2020 level. If production does not keep pace in coming years with demand growth for deferred maintenance, inventory replenishment and service expansion, the gap between supply and demand will continue to widen and the backlog will grow.

In addition to these survey findings, we’ve observed other challenges, including:

• Source Material Availability and Inflation: Manufacturers of finished products have experienced source scarcity and unprecedented inflation in raw materials costs, shipping, packaging and handling costs in the past two years, contributing to finished good inflation.
• Overhead Costs in Manufacturing: Equipment, facilities and costs of capital have all increased, exacerbating the issues with capacity expansion.

Yet, how do we move forward in this ongoing supply chain crisis?

Supply chain experts suggests replacing supply chains with supply networks. What that means for us is continuing and expanding strong collaboration with our suppliers, manufacturers, customers and industry partners.

Nowhere is that more evident than our increased communication with the developer/construction community in the Jacksonville area. Our Supply Chain Resource Hub features weekly updates on current development projects and our progress toward electrifying those projects, along with steps JEA is taking to meet local development needs.

And, because we see this as a national problem that requires a national solution, I personally sit on the Electricity Subsector Coordinating Council, a group of utility CEOs from across the country, which works with the federal government to seek solutions to national security challenges, including supply chain shortages.

We’re also looking to exploit advancing technologies as we address supply chain challenges. The rise of generative artificial intelligence, or AI, gives us an opportunity to focus on workflow automation and analytics to find efficiencies and adopt new supply chain software to boost resiliency. A piece on 2024 trends in supply chain from One Network Enterprise gives a more comprehensive look at where we may be headed over the next year. Additionally, we have already restructured our procurement and inventory planning teams to better respond to disruptions by adding resources to expand the network and to better capture the data and utilize new tools. And don’t forget to check out the video interview with Alan McElroy, our VP of supply chain and operations support, on JEA’s supply chain approach in 2024.

In summary, the bottom line is that JEA continues to take aggressive steps to mitigate the ongoing supply chain crisis, including:

• Partial releases for construction to coordinate closing dates with energization.
• Electric single meters on specific townhome installations.
• Construction of up to 100 homes prior to generator installs.
• Preliminary startup inspections on pump stations with generators.

And, right now, residential-type projects are trending favorably with many projects released to construction with only two (as of Dec. 8) impacted by upcoming deliveries. We’ve begun to capitalize on efforts to diversify the sourcing of three phase pad-mount transformers, similar to the successful strategy explored with single phase pad-mount transformers, while implementing shipping schedules to improve coordination of project execution.

But, it’s a value-add proposition for us—and the rest of the utility industry—that Washington is giving us time to seek alternative and, hopefully better, solutions that will help us continue to deliver power to our expanding population and support economic development within the JEA service territory.

Published January 2024

Jay Stowe was JEA's managing director and CEO from November 2020 through April 2024.