From: Robert Berman [mailto:bermaneconomics@gmail.com]

Sent: Monday, October 10, 2011 10:49 PM

To: Bob Smith

Cc: 'Robert Berman'; 'Phil Hopkinson'; 'Caskey, John' ; Brian Coffey; 'Alex Hofmann'; 'Andrew Delaski';

Aris Marantan; 'Art Rosenfeld'; 'Bob Saint'; Caitlin Jo hnson; 'Carlos Gaytan'; 'Charlie Drexler'; 'Charlie

Stevens'; 'Chris Bolduc'; 'Silcox, Clark'; 'Creevy, Jim'; 'Dan Cohen'; 'Daniel Young'; 'Eric Peterson';

'Freeman, Jeremiah'; 'Gary Fernstrom'; 'Greg Coulter'; 'Greg Rosenquist'; 'Hirsch, Bruce R'; 'James Lass';

'Jennifer Tiedeman'; 'Jerry Corkran'; 'Jerry Hodge'; 'Jerry Schoen'; 'Joanna Mauer'; 'John Cymbalsky';

'John Rossetti'; 'Katie Coughlin'; 'Ken Winder'; 'Mah esh P. Sampat'; 'Matt Miller'; Matthew Nardotti; 'Meg

Waltner'; 'Meyers, Aaron'; 'Michael Hyland'; Michae l Rivest; 'Millure, Dave'; 'Phil Harter'; 'Polinski,

Raymond'; 'Puesh Kumar'; 'Rick Anderson'; 'Rob Greeso n'; 'Robert van Buskirk'; 'Robin Roy'; 'Ryan, Paul';

'Scott Beck'; 'Simmons, Chuck'; 'Steve Nadel'; 'Steve Rosenstock'; 'Tim Ballo'; 'Tom Eckman'; 'Wes

Patterson'; Zhimei Luo; rjstahara@centralmoloneyinc.com; 'Ali Ghafourian'; 'Ned Brush'; 'Dave Brender';

jay.ballard@schneider-electric.com; Kenneth.Harden @schneider-electric.com; 'Tom Patzner'; 'Steve

Nizinski'; 'Richard Parker'

Subject: Re: Distribution Transformer Loading and other Analyses



### Thanks for you response, Bob.

I don't take issue with any analys is of how a transformer manages a load, or the te chnical aspects

of how a transformer is designed to manage that load. The nature of that load, though, I accept as

a given. In the LV meeting at the end of September, I was surprised to learn that the LV dry load

was a low as it was. Couldn't imagine why anyone would deliberately overs ize a transformer so

inefficiently. A near-by engineer simply said "fire codes" and that immediately made sense. I

was also directed to ASHRAE and related K-12 studies that assessed th e likelihood of further

falling loads due to increased efforts for energy c onservation, and the need, for safety reasons, to

maintain the capability for a full load on every outlet. I view that load as a reality -- a fact of life

-- something as an analyst I cannot choose to disregard. I also see the load for measurement of

efficiency, for manufacturer compliance purpos es, as a separate and separable question.

Although my own predilection is that the load for measurement "ought " to be the "real" load, I'm

certainly prepared to hear arguments for doing ot herwise; recognizing that they are not the same.

What I am unwilling to accept is an argument th at asserts a reality based on the regulatory

measurement decision. That's at best backwards. I ndeed, I would insist that the impact evaluation

be done at the real load; possibly even consider ing some alternative measurement points on cost

and efficiency given the real load.

As far as a payback period is concerned, my own pr eference is for an incremental rate of return

given my orientation to economics. However, since one is simply the reciprocal of the other, I

have no objection if someone is more comfor table having gone to a different school. Some

recognition of the cost of money, productivity of capital, and business risk is absolutely

necessary, whether a hospital or c ookie factory. The question, then, is the appropriate hurdle rate

(or payback period) for the investment. In the case of energy conservation, a 3-year payback

period seems inappropriate. Th at would correspond to a 33% return on investment, and is

consistent with substantially higher costs of capital than we see in the current economy, and

substantially greater risks than is present in an energy savings inve stment, whose only real

private risk is a substantial fall in energy pr ices. Moreover, there are public benefits (e.g.,

environmental costs, impact on energy prices, etc) that is a fundamental part of the reason for

Federal intervention in the market in this case. Those considerations would obviate for a criteria

### that may be different from the one some comp anies may use in their private, more risky

investments. At this point, I would not recommend a particular PBP, but support one based on an

appropriate assessment of the additional risk to consumer, with appropriate recognition for the

additional, social return.

With respect to an "economically justifiable" investment: genera lly speaking, it is one consistent

with the opportunity costs -- with what you give up in order to have it. Similar to the reason for a

hurdle rate, it is what a purchaser give up in order to have it (or not have it). If users (electricity

consumes) made the investment decision, and there were no third-party be nefits or costs, the

decision would be rather straight forward. Ener gy Star appliances are a great example. The

consumer looks at the difference in cost and effi ciency, evaluates the effi ciency at current energy

prices, and decides whether it's a good buy.Nothing lik e that is available here: the consumer does

not get to direct the utility's purchase, and there are other, non-market costs. The situation was

beautifully illustrated by a conversation I had with the transformer purchasing manager at a

major IOU. I pointed out that the energy savings associated with the incremental cost of an

efficient transformer in a particular situation resu lted in a return on invest ment of more than 80%

annually (PBP= about 15 months), based on current energy prices alone. He agreed, but properly

noted that his company and stockholders did not get it. Except for a very small return on the

incremental investment, it all went to the ratepaye r. And that doesn't even begin to address the

environmental and other social costs. That's the reason for the Federa l action. Cookie factories

can figure out how to run their businesse s w/o any Federal help or direction.

Hope that helps. Look forward to seeing you Wednesday.



### Regards,

Robert A. Berman, Principal

Berman Economics

www.BermanEconomics.com

1915 Grand Court

Vienna, VA 22182

703

‐ 281

‐ 0490

703

‐ 655

‐ 8398 (cell)

BermanEconomics@gmail.com

On Oct 10, 2011, at 4:51 PM, Bob Smith wrote:

Dear Robert:Phil’s paper utilizes a lot of good and diverse loading situations. I believe his analysis is going to be as

accurate as we’ll find anywhere. Tom Paztner wrote an interesting follow

‐ up (attached) to his

comments during the last meeting. His comments started me thinking about another source for loading

on 600 volt dry transformers. Th at source, which has not been fully utilized, includes the many

consulting engineers (Fluor, Black & Veatch, Kiewit, Burns & McDonald, O’Neal, CH2MHill, etc.) that are

specifying the power ratings of the LV Drys based on their connected loads. I’d encourage those doing

the technical loading analysis for this co mmittee to utilize this source. Phil’s da ta; however, may still be

much more valuable, because it is empirical by measurements actually made at installations.

Robert, in the area of economics I would value greatly your listing of attributes that fall into the category

of “economically justifiable”. For instance, in the attached note that I sent last week I expressed great

concern that the “A” and “B” values were not appropriate for our ICI customers. What do yo u th ink?

How do you feel about the appropriate payback period for an incremental investment by a hospital,

paper mill, or a tire plant? I would greatly value your input on these subjects. For I am also searching

for the right answer to the equipment efficiency question, whether it be a gas oline en gine, steam

turbine or a transformer.

Going back for a moment on your concern for the loading on transformers, I think I can say with almost

perfect accuracy, that if we establish efficiency levels another 1⁄2 percentage point higher for the Low

Voltage Transformers, the consultants and end users, as they are faced with substantially increased

pricing, will defin itely start buyin g smaller size KVA ratings with the effect that the loading as a

percentage of nameplate rating will exceed the assumed 35% that we are now using. For the sake of

energy conservation I don’t think this is a good outcome.

Sincerely,

Bob Smith, PE

Product Manager

Federal Pacific

601 Old Airport Road

Bristol, VA 24201

TEL: (276) 645-8836

FAX: (276) 645-8212

CELL: (276) 591-6143

Email: bsmith@federalpacific.com

The information contained in this message and any attachments is intended only for the use of the individual or

entity to which it is addressed, and may contain informa tion that is privileged, confidential and exempt from

disclosure under applicable la w. If you have received this message in error, you are prohibited from copying,

distributing, or using the information. Please contact the sender immediately by return e-mail and completely delete

the original message from your system.From: Robert Berman [mailto:bermaneconomics@gmail.com]

Sent: Monday, October 10, 2011 2:40 PM

To: Richard Parker

Cc: Phil Hopkinson; Caskey, John; Brian Coffey; Alex Hofmann; Andrew Delaski; Aris Marantan; Art

Rosenfeld; Bob Saint; Bruce Smith; Caitlin Johnson; Ca rlos Gaytan; Charlie Drexler; Charlie Stevens; Chris

Bolduc; Silcox, Clark; Creevy, Jim; Dan Cohen; Daniel Young; Eric Peterson; Freeman, Jeremiah; Gary

Fernstrom; Greg Coulter; Greg Rosenquist; Hirsch, Bruce R; James Lass; Jennifer Tiedeman; Jerry

Corkran; Jerry Hodge; Jerry Schoen; Joanna Mauer; John Cymbalsky; John Rosse tti; Katie Coughlin; Ken

Winder; Mahesh P. Sampat; Matt Miller; Matthew Nard otti; Meg Waltner; Meyers, Aaron; Michael Hyland;

Michael Rivest; Millure, Dave; Phil Harter; Polinski, Raymond; Puesh Kumar; Rick Anderson; Rob Greeson;

Robert Berman; Robert van Buskirk; Robin Roy; Ryan, Paul; Scott Beck; Simmons, Chuck; Steve Nadel;

Steve Rosenstock; Tim Ballo; Tom Eckman; Wes Patterson; Zhimei Luo;

( rjstahara@centralmoloneyinc.com ); Ali Ghafourian ( aghafourian@ermco-eci.com ); Ned Brush

( Ned.efbrush@gmail.com ); Dave Brender ( dbrender@cda.copper.org ); jay.ballard@schneiderelectric.com ; Kenneth.Harden@schneider-electric.com ; Tom Patzner ( thomas.patzner@us.schneiderelectric.com ); Steve Nizinski

Subject: Re: Distribution Transformer Loading and other Analyses



### Richard,

I have carefully reviewed the HVOLT analysis . Although I am not an engineer, and will not

comment on particular engineeri ng designs, I am concerned about a number of the assumptions

made regarding electricity utility system economics as well as th e transformer prices. The latter

appear at odds with published market data and appear to misquote the DOE PTSD. As the

analytical conclusions appear to be riven by the assumptions, it is important to put the

assumptions in their proper context. Attached are my detailed comments.



### <Patzner.doc><October 6.doc>