As of late, the power sector's supply chain has come under intense scrutiny. Recent cybersecurity events and the COVID-19 pandemic have highlighted vulnerabilities related to our dependence on a global supply chain and underscored the importance of bringing power sector manufacturing back to the United States. Domestic production of essential critical infrastructure components will help ensure the provision of reliable electric service and national security.
Supply Chain Under Intense Scrutiny
One of the ways utilities ensure the reliability of the electric grid and prepare for disasters, is by addressing supply chain risk. Utility pandemic plans were kicked into action in response to the COVID-19 public health crisis and helped mitigate the associated supply chain risk caused by manufacturing slowdowns in Asia.
Additionally, on May 1, 2020, President Trump signed an Executive Order that establishes oversight of foreign-made equipment used in the United States bulk-power system. The Order directs DOE to examine current procurement policies, identify threats to security, and develop risk-management protocols to inform future procurement. The Order impacts future power equipment purchases and may also affect components already installed on the generation and transmission systems.
Shortly after the Executive Order, the Department of Commerce (DOC) announced an investigation into whether transformers were being imported under such circumstances as to threaten national security. The decision to launch an inquiry follows requests from multiple members of Congress as well as industry stakeholders.
Impetuous of Government Intervention
There are a lot of unknowns related to what may have precipitated these recent government orders and investigations. Many in the power industry say this direction came as little surprise, following the Administration's previous restrictions on telecommunications providers sourcing foreign-made equipment deemed as a national security risk. However, articles by CSO Online and the Wall Street Journal indicate a national security event also may have been the impetus for these government actions. The reports discuss concerns related to a large transformer purchased by the Western Area Power Administration for its Ault substation from JiangSu HuaPeng (JSHP). The transformer was allegedly diverted from delivery to the DOE's Sandia National Laboratory for further investigation.
T&D World recently spoke with Thomas Popik, President of the Foundation of Resilient Societies, to try to make sense of these various government orders and investigations. Popik says the Executive Order and the DOC Investigation are part of the same problem. We don't necessarily know that the DOC investigation caused the Executive Order or the other way around. Still, it's all part of the same extreme national security vulnerability of these high-voltage transformers. The DOC investigation is about the structure of the transformer, and the Executive Order also includes their electronic devices.
Transformer Manufacturing
In the past, most transformers were manufactured here in the United States. However, domestic manufacturers had difficulty competing with the cost of labor and sourcing specialized electric steel, for which there is only one remaining manufacturer in the United States. Now, nearly all the transformers for the U.S. bulk power system are imported, typically from South Korea, Germany, and Spain. And, this lack of domestic sourcing is really the impetus of the DOC investigation. Additionally, these high-voltage transformers have a long lead-time to replace, in some cases up to 18 months, and are difficult to move due to their large size.
The industry has developed solutions to address some of these vulnerabilities through the Spare Transformer Equipment Program (STEP) established by the Edison Electric Institute and several utilities in 2006. Additionally, Grid Assurance, is a company that has broadened that model and focuses on the rapid restoration of the transmission system in the event of a catastrophic event, by having some of the long lead-time critical infrastructure on-hand. A subscription model protects utilities from these vulnerabilities in a cost-effective manner. Current subscribers are MidAmerican Energy, NV Energy, Evergy, AEP, FirstEnergy, and Eversource. Grid Assurance told T&D World that half of their assets are sourced from North America. They have evaluated all of their sources from a cyber, physical, and sourcing perspective and are very confident in their supply chain. Previous press releases mention that Grid Assurance sources equipment from ABB, GE Prolec (GE Grid Solutions), and Royal SMIT.
Many Unknowns
I still have more questions than answers about the vulnerabilities of our power sector supply chain, the transformers currently installed on the grid, and the recent government investigation and Order. And I'm mostly okay with that given the extreme national security sensitivities associated with this topic. However, I am more convinced than ever of the importance of bringing power sector manufacturing back to the United States. Domestic production of essential critical infrastructure components will help ensure the provision of reliable electric service, and our overall national security.
