"We view the [Entergy-ITC] transaction [as] an attempt to extract excess value."-Mississippi PSC
New DOE rules mandate more efficient (and expensive) equipment.
When a federal court ordered the DOE to develop more than 20 energy-efficiency rules, 1 the first rule DOE created was a commercial rule for energy transformer distribution equipment. The new DOE rule, published at the end of last year, is the first increased efficiency standard created since the beginning of the Bush administration in 2001. 2 Transformers were high on the list possibly because upgrading them puts the burden on businesses as opposed to the consumer, at least initially, to bear the costs of efficiency improvements.
In the final rule for distribution transformers, DOE determined that energy-conservation standards for liquid-immersed and medium-voltage, dry-type distribution transformers result in significant conservation of energy. Furthermore, DOE determined these new standards technically are feasible and economically justified. The new standards will go into effect on Jan. 1, 2010.
According to the published rule, it could raise the cost of liquid-immersed transformers by up to 12 percent, but it should decrease electrical losses by as much as 23 percent. It also would raise the cost of medium-voltage, dry-type transformers by up to 13 percent, but should decrease electrical losses by as much as 26 percent. For liquid-immersed transformers, the energy savings nationwide would reduce generating capacity requirements by 2.5 GW, or roughly six 400-MW power plants. For dry-type transformers, the energy savings from the new standards would reduce the installed generating capacity by 100 MW. These savings take on added significance in today’s challenging environment of rising costs for power generation fuel and infrastructure.
Some industry groups are disappointed by the seemingly timid restrictions in comparison to what major buyers and the largest supplier, the ABB Group, originally proposed. However, DOE completed extensive analysis of cost-to-efficiency on several transformer standards levels to determine the best proposed designs and candidate standards levels. The engineering analysis provided a cost-efficiency relationship relating manufacturer selling price, no-load losses, and load losses for a wide range of transformer designs. Finally, distributor markup and installation costs were incorporated into the analysis. The model incorporates specific load growth and electricity price trends as inputs from the DOE, available in the supporting documentation at the DOE website.
The rule leaves energy companies to deal with the costs associated with transitioning to the newer standards, equipment that will, in the long run, deliver energy-cost savings. Eventually these costs will be passed on to consumers, at least in part. But because rate regulation generally results in a significant lag time between utility capital expenditures and cost recovery, investment in the required equipment will fall squarely on the shoulders of utility companies.
Suppliers of distribution transformers also face changes in design, raw-material supply, supply-price uncertainty, and risks in assessing demand. In general, suppliers expect neither an unusual increase in demand for compliant transformers after the new rule goes into effect, nor a spike in