57737.v 6 Dear Fellow Committee Members:
ATI Allegheny Ludlum felt it was important to highlight the following issues to the entire C ommittee in light of the fact that minutes or transcripts of our previous meetings have not been shared with the group. ATI Allegheny Ludlum takes this opportunity to again request that the meeting minutes/ transcripts be issued

.

 The following issues were not properly reflected in the LB N L/ NCI model based on the comments from the transformer experts on the C ommittee:

o How many t ransformers with efficiencies below the Jan 2010 DOE standard will now be refurbished versus purchased new? Refurbished transformers will not result in energy savings.

o How will the space constraints for network (vaulted transformers ) be handled ? It appe ars that no increase in efficiency will apply to these units and thus any energy savings in the LBNL/NCI model will need to be removed.

o Pole transformer weight increases were not properly analyzed thus potentially resulting in a significant under costing ( zero cost included in the LCC) of the need for potential pole replacement. Also, the utility members of the C ommittee advised that the $2000 per pole replacement cost estimate suggested by LBNL/NCI was significantly understated. Please outline the pole r eplacement cost component of the revised economic analysis.

o Impact on regulation and impedance

. o The cost impact associated with numerous utilit y reports of higher failure rate s of amorphous transformers as compared to grain

- oriented transformers.

o Costs ass ociated with lost manufacturing jobs for the production of GOES, small tr ansformer producers who cannot afford to convert to amorphous, smaller utilities, etc.

o Has the model be en adjusted to factor in stray and eddy current losses?

o What was the cost per KWH r used for the energy savings calculation?

o Why was the 3% cost of money value used for the payback period (PBP) analysis?

 In addition to the above economic analysis background and assump t ions, b ased on my notes from our first two committee meetings , the issues listed below were all raised by various committee members and need to be considered by the C ommittee and the DOE when considering new efficiency standards:

o During the committee meetings or via documentation shared between meetings, every transformer company representative stated that they support a DOE standard that maintains M

- 3 as a material of choice and indicated that mechanically scribed high perm material, which is not available today for US producers, should not be used as a core steel option when evaluating future transformer effici ency standards.

o Transformer producers report that amorphous material is currently in short supply based on the current global demand and current DOE efficiency standard

. o No US owned companies produce amorphous. Hitachi Metals Ltd, a Japanese company, has a n
a morphous facility in Yasugi , Japan and Conway (near Myrtle Beach), SC . T he only other amorphous capacity has just been developed in China with unknown levels available for export

. Does it require the DOD and/or DOJ a pproval to permit a transformer standard to be established for which there are no US owned companies who can pro duce the required core material?

o The lack of diversity of production makes the amorphous supply chain vulnerable to disruption. It is unclear if there will be an adequate supply of material to meet the US transformer demand if the57737.v 6 amorphous factories in Japan or SC are damaged in a facility

- specific event or a natur al disaster such as

an earthquake or hurricane

. o What will happen to the price level of amorphous (and the cost of transformers) if amorphous i s mandated as the material of choice for liquid

- filled transformers? Amorphous usage is projected to increase over f ive fold (from 25,000 tons to 147,000 tons), based on the 8

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- filled transformer efficiency levels are increased to Efficiency level two (EL2) or above. Likewise, global c hanges in pricing could serve to redistribute limited supply to other regions.

o The expansion of amorphous production capacity cannot be predicted. The technical barriers to entry are high, particularly for traditional steelmakers unfamiliar with t he specialized production methods inherent to amorphous.
Finally , I wish to document an alternate option offered for consideration by a committee member during our October 13th meeting to increase the efficiency of transformers. It was proposed that utility tax incentives be put in place to encourage the replacement of the most inefficient transformers on the grid (a transformer “cash for clunkers” type program which is pro

- environment and pro

- jobs at a time when the US is in the midst of one of our most prolonged period s for high unemployment and our worst housing crisis on record). Should the C ommittee request a study to determine the energy savings associated with this alternative program? This program has the added benefit of improving grid reliability. What are the hidden costs in lost productivity when the grid fails due to very old transformers that fail while still in use?

H opefully, the entire C ommittee will consider all of these issues during our next meeting on November 8 , 2011

.

Raymond Polinski
General Manager of Grain

- oriented Electrical Steels
ATI Allegheny Ludlum

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