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UNITED STATES OF AMERICA

DEPARTMENT OF ENERGY

**MEETING of the MV WORKING GROUP** 

Volume II

National Rural Electric Cooperative Association 4301 Wilson Blvd, Rm. C2 Arlington, VA

Thursday October 13, 2011

**Facilitator :** 

Richard Parker University of Connecticut Law School

**Host :** 

National Rural Electric Cooperative Association ( NRECA)Executive Court Reporters (301) 565

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**Participants Identified:**

Rick Anderson Fayetteville Public Works Commission

Tim Ballo Earth Justice 1625 Massachusetts Avenue Suite 702 Washington, DC 20036

Scott Beck Lakeview Metals

John Caskey Electrical Manufacturers Association

Greg Coulter Consultant Prolec GE

Jim Creevy National Electrical Manufacturers Association 1300 North 17 th Suite 1752 Street

Rosslyn, VA 22209

Andr ew deLaski
ASAP 20 Belgrade Ave, Suite 1 Boston, MA 02131

Tom Eckman Northwest Power and Conservation Council

Gary Fernstrom Pacific Gas & Electric Company 13055 Parkhurst Dr Oakland, CA 94619

Chuck Foster Edison Electric InstituteExecutive Court Reporters (301) 565

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Carlos Gaytan Prolec GE

Bruce Hirsch Baltimore Gas and Electric

Gerald Hodge Howard Industries PO Box 1586 Laurel, MS 39441

Philip Hopkinson HVolt, Inc. 3704 High Ridge Rd. Charlotte, NC 28270

Mike Hyland American Public Power Association

Aaron Meyers Cooper Power Syste ms

Dave Millure Metglas Incorporated 440 Allied Drive Conway, SC 29526

Jim Murkowski Allegheny Ludlum ATI

Steve Nadel American Council for an Energy

- Efficient Economy

Wes Patterson ABB, Inc.

Eric Petersen AK Steel

Ray Polinski Allegheny Ludlum

- A TIExecutive Court Reporters (301) 565

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Steven Rosenstock Edison Electric Institute 701 Pennsylvania Avenue NW Washington, DC 20004

- 2696

Robin Roy Natural Resources Defense Council 1200 New York Avenue, NW, Suite 400 Washington, DC 20005

Paul Ryan Hitachi Metals America 800 Grand Avenue, Suite AG

- 6 Carlsbad, CA 92008

Bob Saint National Rural Electric Cooperative Association

Mahesh P. Sampat EMS Consulting 1180 Brookview Dr Athens, GA 30606

Jerry Schoen AK Steel Corporation 705 Curtis Street Middletown, OH 45043

Chuck Simmons Progress Energy

Bob Smith Federal Pacific Jim Rakowski Allegheny ATI

Ken Winder
NRECA

**Participants from DOE:**

John Cymbalsky DOEExecutive Court Reporters (301) 565

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**Participants from Navigant/LBL:**

Brian Coffey Navigant

Mike Rivest Navigant

Rob Carmichael Navigant

Matt Nar d otti Navigant Con sulting

Chris Bolduc Lawrence Berkley National Laboratory

Katie Coughlin Lawrence Berkley National LaboratoryExecutive Court Reporters (301) 565

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**AGENDA**

**ITEM PAGE** 

Agenda Review 305

Discuss ion of Metals and Materials 306

Supply 309

Competitive ness 358

Presentation: Distribution Transformers Manufacturing Impact 381

TSL Selection 395

Concepts: The Bigger Picture 400

Take

- away Action Items 423Executive Court Reporters (301) 565

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8:47 a.m. 1

3 P R O C E E D I N G S 2

MR. HOPKINSON: And before you st art, I plan 4

not to talk today, but I just wanted to

-- (laughter) 5

-- I just wanted to publicly commend Carlos for his 6

excellent job of putting our report together with 7

Greg’s help, and the two of them did really well, and 8

their data for M3 lies right on to p of mine, I think 9

Carlos would agree, and so we’ve got independent looks 10

that are coming up with the same picture. Wes also 11

did a particularly fabulous job with real data of what 12

he sold. I don’t think that his presentation breaks 13

out the steels individ ually. He has the data and he 14

can do it on separate screens

-- 15

MR. PATTERSON: (comment off mic) 16

MR. HOPKINSON: Okay. So he will have it. 17

But he’s done a really good job too. 18

MR. PARKER: Thank you, every body, we really 19

appreciate that. So let’s get started. We have a lot 20

to cover and I’m sorry for the late start. Why don’t 21

we just

-- do we need to go around the table and give 22

names for the court reporter or can we dispense with 23

that? Let’s just go. 24

25Executive Court Reporters (301) 565

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**Agenda Review** 1

Great. So three main item s on the agenda. 2

**•** First the presentation on metals and material 3

prices. That’s one of the key parameters in the 4

talk, as we all know . So we’ll get down to brass 5

tacks and we really need to be able to give the 6

analytical team clear guidance from the group as 7

to whether we’re comfortable with that, coupled 8

with the values that they’re using. 9

**•** As part of that we also need to look at this 10

illusive variable of the competitiveness break 11

point of price point for setting that TSL for 12

analytical purposes. So that’s another outcome 13

that I hope we will achieve in this meeting, at 14

least coming up with an analytical concept, a 15

construct, for how to define that in a clear and 16

rigorous way. 17

**•** The third thing we need to do is hear from the 18

advocates and from Steve Rosenstock and from 19

anybody around the table who wants to put forward 20

sort of concepts for moving into the next phase 21

as we look ahead, to actually develop sort of 22

broad parameters, guidelines, what have you, 23

principles to apply, for getting to “yes” in this 24

talk. We’ve spent a lot of time in the weeds, 25Executive Court Reporters (301) 565

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and we’re moving out of the weeds and into the 1

bigger picture stuff now. 2

**•** And then the final thing we’ll do, we’ll break at 3

an appropriate time so that people aren’t 4

overstressed at the table and then we’ll have a 5

wra p

- up session where we review the action items 6

leaving this meeting, not only the action items I 7

think we agreed on yesterday, but those that we 8

agree on today, and we’re going to try to attach 9

timelines to that so that we make sure that the 10

next meeting th at we have can really be a very, 11

very productive meeting

. 12

So without further ado, let me turn it over 13

to Eric, are you presenting? 14

MR. FERNSTROM: So, Richard, Gary from PG&E. 15

You wanted to point out that we spent a lot of time on 16

windings and now we should get to the core of the 17

matter? 18

MR. PARKER: Thank you. The record will 19

reflect a drum roll. 20

MR. PETERSEN: I promise my jokes won’t be 21

any better. 22

**Discussion on Metals and Materials** 23

MR. PETERSEN: One of the things that we 24

submitted in e

- mail s which has two different 25Executive Court Reporters (301) 565

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documents, one of them, comments on the global supply 1

of grain

- oriented and electrical steels, I have 25 2

copies here if anyone would like for me to pass them 3

around, I’ll just start anyone here, get one of these 4

e

- mails, take a co uple, if not, I’ll just go around 5

the table. You should have this in your e

- mail as 6

well, and Jeremiah’s got a document there that he’ll 7

pull up. 8

Before moving forward on that, the comment 9

that I wanted to make, just as regards as we finished 10

up last ni ght with Phil Hopkinson’s presentation. One 11

of the closing comments that was made last night, I 12

wanted to make sure did not cause a degree of concern 13

in regards to Phil Hopkinson’s role, and I wanted to 14

attempt to address that. 15

We actually submitted P hil Hopkinson early 16

on as a sponsor, potentially, to sit at this table. 17

We were very clear up front in regards to the work 18

that Phil Hopkinson had done, provided his background. 19

He had worked with Navigant, et cetera. We’ve also 20

been very upfront in reg ards to Phil Hopkinson having 21

worked with us in regards to helping us put this data 22

together. So there is a comment that was made last 23

night, which is the first time that I’ve heard this at 24

this table, to any of the folks around this room, 25Executive Court Reporters (301) 565

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which is essent ially, who are you working for, where’s 1

the dollars coming from? 2

I wanted to ensure that it’s understood by 3

this committee that the reason we have been up front 4

in regards to Mr. Hopkinson’s role with AK Steels as 5

one of the providers of the dollars be hind taking a 6

look at the analysis he has conducted, as we are a 7

steel company. We’re not a transformer manufacturer, 8

and yet we’re here to make decisions on a number of 9

transformer modeling, information that quite frankly I 10

have no background in. My bac kground is steel. It 11

has nothing to do with transformers, and I am looking 12

to have someone help bring myself, my company, an 13

understanding that any decision we make moving forward 14

is based upon data that we have confidence in, which I 15

know is what this wh ole organization is for, and we 16

are utilizing Mr. Hopkinson to help us sort through 17

that information. 18

As we come to take a look at the direction 19

that we believe the committee should potentially take, 20

I’ve appreciated some of the comm e nts that have been 21

m ade around this table. I think ultimately steel, for 22

AK Steel, we are a company that produces carbon, 23

stainless and electrical steel. Electrical steel is a 24

critical component of our product mix. I don’t want 25Executive Court Reporters (301) 565

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to emphasize that enough in regards to how im portant 1

electrical steel is to our company. 2

So this has a very significant potential 3

impact upon our company, just as Mr. Meyers made the 4

comment yesterday in regards to the potential 5

ramifications of where this committee’s decisions 6

could go. 7

In attem pting to define some of the 8

questions we heard

-- we heard two different questions 9

from the committee. One associated with the supply, 10

one associated with competitiveness. I’ll address the 11

supply and then right after, Mr. Schoen will discuss 12

the competit iveness portion of the presentation we 13

provided. 14

**Supply** 15

On the supply side, just to be able to 16

provide you a perspective of the industry. Early on, 17

we had, at the very first meeting, I’m not sure 18

exactly who the individual was that came in here and 19

sp oke with us and told us about the criticalness of 20

anything that we bring to this table should not 21

represent my interest alone, but should represent the 22

interest of the industry that I am a part of. 23

So we have attempted to take the supply 24

document we ar e providing, and give to you, as a 25Executive Court Reporters (301) 565

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electrical steel global supplier, a perspective of the 1

supply base of steel. So our recommendations are not 2

based upon a niche market for us, something that we 3

could provide domestically that others couldn’t 4

provide. Ou r intent is to provide something that is 5

representative of the commission we were given, 6

associated with conflict of interest, to provide a 7

recommendation that befits the industry we represent. 8

So having done that, I’m just going to jump 9

to the results. If you can move down to the table at 10

the bottom of three, this is a listing of the steel 11

suppliers, globally. As you can see, this is a small 12

number of suppliers, but it is the total number of 13

suppliers of electrical steel. Just for comparison, 14

if we we re to attempt to list carbon steel suppliers 15

on here, this table would be pages and pages long. So 16

it is a relatively small number of suppliers. So our 17

intent in taking a look at understanding what is the 18

supply base that could provide a product which 19

re presents a multiplicity of potential suppliers for 20

the transformer industry, directly looks at this 21

graph. 22

So some of the things to note is that on the 23

left side we have the first column, which is the 24

conventional or the regular grain

- oriented steels, an d 25Executive Court Reporters (301) 565

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over on the right side, you have the high permeability 1

or grain

- oriented steels. I would note that the group 2

all the way on the far right hand side, which is 3

domain

- refined, wound and annealed, these are the 4

products that we refer to as EMH as well as J FE, JGS

- 5

- I don’t remember

-- JGSG. Both of those are trade 6

names associated with their product, but those are the 7

products that represent that particular class of 8

material. 9

To cut directly to the chase, as I think 10

that most of you with transformer bac kground certainly 11

are familiar with these companies, our intent was 12

simply to take a look at where could you go and be 13

able to provide a range of suppliers that would be 14

able to allow you, as transformer manufacturers to 15

leverage your supply base against o ne another such 16

that you can insure that you can make the best 17

business decision from a competitive marketplace. 18

So from that perspective, M3 clearly stands 19

out, because if you take a look at M2, M2 is supplied 20

just within the United States by just the two 21

suppliers here at the table. We talked about ZDMH and 22

the JFE product, both of those supplied directly out 23

of Japan, but not here domestically. And we would 24

also note that we are the only supplier of high 25Executive Court Reporters (301) 565

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permeability grain

- oriented domestically her e in the 1

United States. So our recommendation associated with 2

where your broadest opportunity for supply base, 3

really lands right on M3. So the intent of this first 4

document is purely to define to the group, because 5

there have been question that had dire ctly come 6

forward associated with the supply base. This gives 7

you a picture of approximate capacity, the relative 8

size of the “X” is how big of a player they are, so to 9

speak, and as you can see there’s a very large basis 10

of suppliers at M3, which is what we make a 11

recommendation on for those design lines of one to 12

five, and then considering the amount of supply per 13

demand that could potentially come on M3, as a result 14

of DL one through five, we would recommend that 15

transformer manufacturers should look at M4 to insure 16

that core mate rials would be widely available as the 17

two areas of steels that best represent the steel 18

industry. 19

So I’ve cut that very short because I know 20

we’re on a lot of short schedule today. Wanted to get 21

just directly to the heart of the result in regards to 22

our intent associated with producing this document, to 23

give you a background associated with where you can 24

go, and who

-- what suppliers you potentially have, 25Executive Court Reporters (301) 565

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the number of suppliers with the various grades 1

available. Any questio ns. Please. 2

MR. PARKER: Aaron. 3

MR. MEYERS: Can you explain your last 4

comment? You said

-- what I heard you say is M3

-- 5

your recommendation is to consider M3 for design lines 6

one through five, and you said M4 for

-- and I didn’t 7

follow your point a bout M4. 8

MR. PETERSEN: The point was that the 9

concern would be

-- I think there’s a question 10

associated with the total amount of demand associated 11

with DL one through five, and whether or not there 12

would be enough supply if DL 1

- 5 had a specification 13

th at required the use of M3. I think there’s a 14

question associated with whether or not there would be 15

enough supply of M3, such would you have to take a 16

look at M4. So I think that is part of the 17

consideration that would have to be made. Please. 18

MR. COU LTER: This is Greg Coulter. I’m 19

just trying to understand. If we were to look at that 20

and let’s just say it came out high B. Could you just 21

shift all that production, you know, all those tons 22

and just make high B, big X’s and no X’s for M2, M3, 23

M4, M5? 24

MR. PETERSEN: Good question and the answer 25Executive Court Reporters (301) 565

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is no. These products have unique chemistries, unique 1

processing. It would require potential capital 2

investments associated with moving from one to the 3

other, so there are capacity constraints on existing 4

eq uipment. So quite frankly, the MOH product today is 5

completely sold out, booked out, one of the comments 6

we made in here. That is a product that is in very 7

high demand. We’re producing essentially everything 8

we can today in that category, so it’s not ev en a 9

question that, you know, with the weakness here within 10

the U.S. economy, if we could produce more, we would. 11

MR. SCHOEN: Jerry Schoen, AK Steel. The 12

MOH, the high permeability steels that we sell, and we 13

make a lot of them, go into power transform ers, ultra

14

high voltage transformers, substations, step up, and 15

that type of thing. Those have their own price 16

structure in a very high value added for the high 17

permeability steels because of excitation 18

characteristics and transformer noise, making 19

restri ctive noise. As a result of that, there’s a 20

premium on the high permeability steels for that 21

sector that doesn’t exist in a distribution 22

transformer. And basically, we play to that. That is 23

a very strong market and it’s actually a very rapidly 24

growing m arket. Most in North America it’s 25Executive Court Reporters (301) 565

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replacement transformers, but around the world, 1

everybody’s putting in systems in the developing 2

world, and that’s one of the reasons why you see the 3

10.7 million metric tons of supply. If you go back to 4

the 20, about 20 00, Navigant looked around and saw 5

what the world of electrical steels was and they 6

scarcely found 1.6 tons of capacity at that time. So 7

-- and I also just noticed, Ongon (ph) Steel was not 8

on there, and there’s another 100,000 metric tons of 9

capacity tha t’s coming up this year, also again in 10

China. So the Chinese have been the main source of 11

growth, although we have almost doubled our capacity 12

for making grain

- oriented in roughly the last 12 13

years. 14

MR. HOPKINSON: Could I just add something. 15

This is P hil Hopkinson, HVolt. What I would say is 16

being a veteran of large power transformers, as well 17

as of distribution transformers that when you are 18

looking at large power transformers, they’re operating 19

the steel at the highest induction that they can get 20

aw ay with, and it’s just about a 17 kilogauss. And at 21

that point they still have an over

- voltage capability 22

of maybe ten percent before they get up to saturation, 23

so they’re right up on the verge. But the high 24

permeability steels do especially well when yo u’re 25Executive Court Reporters (301) 565

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operating at high inductions. The low permeability 1

steels actually do fine when you’re operating at the 2

inductions that we are for the loss evaluations that 3

are part of the DOE mix. And many times you’ll see 4

the M3 designs down under 14 kilogauss. Now why I 5

mention the 14 is several people have done some 6

analysis to show that the crossover point where 7

conventional steel does as well as high

- B is right at 8

14. 9

MR. PETERSEN: I tried to keep him from 10

talking. It didn’t work. Are there any other 11

que stions? I tried to keep this quick and right to 12

the point. 13

MR. SIMMONS: Eric, this is Chuck Simmons. 14

Just a quick question. Are there any other major 15

users, say, of M3 or M4 core steel, other than 16

transformer distribution type pieces? Is there

-- wh o 17

are the other users? 18

MR. PETERSEN: My background’s all carbon 19

steel. I have this guy behind me to answer all these. 20

MR. SCHOEN: Jerry Schoen, AK Steel. We do 21

make a heat flattened version for power transformers. 22

We don’t push it because it compe tes with our high 23

permeability steels in that same market segment, and 24

it doesn’t offer the noise and excitation 25Executive Court Reporters (301) 565

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characteristics. The thing about it, to amplify on 1

what Phil said is, you can get

-- you know, 2

transformers are weight limited for the power u nits. 3

Moving them is very difficult and expensive. You can 4

get more KVA per pound out of the finished transformer 5

if it’s made with a high permeability steel than with 6

the conventional grain

- oriented type like an M3. So 7

we’ve expanded our high

- B product ion capacity hugely 8

in the past ten years to service that need. 9

MR. DeLASKI: I remember in the last docket, 10

leading up to the 2007 final rule, but at the time AK 11

had made a number of announcements, or it made some 12

announcements about capacity that you w ere adding at 13

that time, capacity that was coming on. So based on 14

what you just said, you followed

-- that did happen, 15

you did follow through. Could you have added

-- you 16

said over the past dozen years a lot of capacity? 17

MR. SCHOEN: When the rulemakin g

-- Jerry 18

Schoen, AK Steel. When the whole rulemaking process 19

started back in late 90s, we had a nameplate capacity 20

of about 160,000 metric tons a year electrical steel. 21

Today we’re a little over 300,000, but it’s strong 22

mix

- dependent. For example, if we were to rotate 23

capacity to the high permeability steels, we would 24

make fewer tons. There is a displacement effect. And 25Executive Court Reporters (301) 565

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all the manufacturers worldwide, experience that. We 1

basically expanded our capacity to make both. 2

MR. DeLASKI: And do you have any plans, 3

announced plans to increase capacity at this time? 4

MR. PETERSEN: No, we do not. We have a 5

number of projects that are literally sitting in 6

engineering forms with ROIs attached to them as we 7

watch the economy and the projections of demand. 8

MR. DeLASKI: Right. I guess I could ask 9

the same question of Allegheny. Do you guys have any 10

announced plans to

-- 11

MR. POLINSKI: Ray Polinski, ATI Allegheny. 12

At this time the one item that we are working on is 13

the gentleman, Jim Rakowski that’s sit ting behind me, 14

we are working to put a few more X’s on our chart as 15

well, but we’re not there yet. We’re trying to 16

develop some high permeability steels, not for 17

distribution, though, for power, and we’re working on 18

that and if we’re successful in develo ping that 19

product, then we would try to do some investment to go 20

there, but it’s just developmental at this time. So 21

we don’t have any firm plans for expansion at this 22

time. 23

MR. FERNSTROM: Gary Fernstrom, PG&E with a 24

question. One of the variables in these rulemaking 25Executive Court Reporters (301) 565

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processes is when the rule might go into effect, 1

especially from a negotiated consensus point of view. 2

So my question of you is this, I presume, represents 3

the current market situation. If some change were 4

envisioned in the future, how l ong does it take you to 5

accommodate that? To get ready for it? 6

MR. SCHOEN: Jerry Schoen, AK Steel. When 7

the Energy Policy Act of 2005 enacted basically TTP

- 1 8

on the dry type distribution transformers, AK Steel 9

basically invested about $50

- 60 million d ollars to 10

increase our production of M4 and M5 and M6 to meet 11

that need. And that took about two and a half to 12

three years to realize that. But that was expansion 13

into frankly what was not a huge segment for us. We 14

had been mostly concentrated on the M3 and high 15

permeability steels up to that point in our investment 16

plans. 17

MR. FERNSTROM: So if there is some agreed

18

to standard in the future, the market demand is 19

assured because that’s the standard, of course it’s 20

subject to variations in the economy an d so on, but 21

that would give you confidence in where the market is 22

going to be in the future, and should give you some 23

assurance around return on your investment, provided 24

market shares stay the same, and so on. 25Executive Court Reporters (301) 565

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MR. PETERSEN: I think one caveat I’d put on 1

that

-- Eric Petersen, AK Steel

-- is that you have to 2

recognize as you move into the high permeability, 3

you’re dealing with another market segment, another 4

group of manufacturers to deal with. As I mentioned, 5

that product is a premium product that we have sold 6

out and committed for. So I think that you have to 7

take a look not just your base associated with the 8

conventional grain

- oriented, but understand all the 9

pricing aspects associated with where that product is 10

today as that represents opportunity that if we were 11

to make investments to look at more into high 12

permeability, our range of potential customers grows 13

quite a bit as well under an area that’s in very high 14

demand, and another price structure. 15

MR. DeLASKI: This is Andrew again, just so 16

I un derstand you correctly

-- this is back to your 17

point about the growing economies and the demand from 18

overseas for this high permeability steel for

-- is 19

that what you’re referring to? 20

MR. PETERSEN: Yes, it is. 21

MR. DeLASKI: Okay. Thank you. 22

MR. PET ERSEN: It is very much a global 23

product. 24

MR. SMITH: Eric, Bob Smith with Federal 25Executive Court Reporters (301) 565

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Pacific. I have two questions. One, as I look at the 1

transformer industry history, the steel manufacturers 2

over the past century have been terrific at developing 3

higher permeability steels to allow the manufacturers 4

of the transformers to make their transformers smaller 5

and less expensive. With the development of the 6

higher permeability steels, have come lower Epstein 7

(ph) by a use of the losses per pound of that steel 8

h ave gone down, so we’ve got a double benefit. We’ve 9

got a higher permeability, and lower losses. I’m very 10

discouraged to hear that we’re not continuing for 11

distribution transformers to push the higher 12

permeability steels which I would assume would allow 13

us to continue this trend of getting lower cost 14

product and better efficiencies. 15

MR. SCHOEN: Jerry Schoen, AK Steel. When 16

we’ve looked, with our transformer models, crude as 17

they are, we don’t see a significant difference 18

between a 9 mil M0H type and an M3 type, down at the 19

induction ranges around 14 to 16 kilogauss. They’re 20

just not that light year of a difference. 21

Now, if you’re a stack ... transformer and you 22

are putting in an M3 heat flattened product against a 23

laser

- scribed 9 mil high permeabi lity material, the 24

laser scribing is huge boost. The ... processes are a 25Executive Court Reporters (301) 565

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huge boost in the relative performance value of the 1

high permeability steels. Your point is well taken, 2

but at the same time, do not think that we have not 3

invested in the high permea bility steels. We’ve 4

quadrupled our capacity to make them in the last ten 5

years. We now make more H0 today that we made

-- 6

actually twice as much H0 as we made all the high 7

permeability steels in 1995 to 2000. 8

So, no, that has been our development focu s 9

for our business. 10

MR. SMITH: Second question. Bob Smith, 11

Federal Pacific. If you took an M6 steel that you are 12

processing, and I guess I ask this of both Allegheny 13

and AK, and say that the energy to produce however 14

many tons you want to base it on, let’s say 1000 tons 15

of M6, is 100 percent. Does the energy to produce the 16

M3 or the M2 go up or go down? 17

MR. SCHOEN: It goes up. 18

MR. SMITH: And by how much? 19

MR. SCHOEN: I

-- 20

MR. SMITH: Roughly. 21

MR. SCHOEN: There’s a

-- there’s an 22

additional annealing step to make any M4 and better 23

grades. There is a very intensive and very slow 24

annealing step to make the high permeability grades, 25Executive Court Reporters (301) 565

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and all of the process cycles downstream are longer. 1

So we’d have more contact time, therefore more BTUs 2

per to n in our processing. 3

MR. SMITH: Could you give us just a rough 4

estimate

-- we won’t hold you to it

-- as to what that 5

increase is? 6

MR. SCHOEN: I really don’t have that. 7

MR. PETERSEN: The point is, it’s for us to 8

be able to follow up and provide th at information at 9

your request. 10

MR. SMITH: That would be great, Eric, thank 11

you. 12

MR. PETERSEN: So we try, we try. 13

MR. SCHOEN: We’ll certainly look at that 14

and see what we can do. 15

MR. SMITH: I would like to see that 16

information published to this committee if you would, 17

please. 18

MR. SCHOEN: I will look into it. 19

MR. PETERSEN: We will commit to take a look 20

at it. 21

MR. SCHOEN: We have had other customers ask 22

us the same thing, and it is not easy information to 23

get and separate out, because o ur plant is processing 24

all the materials on common units with different 25Executive Court Reporters (301) 565

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routings and things like that, so separating that out 1

accurately and precisely isn’t very easy for us to do. 2

MR. SMITH: And Ray, can I ask Allegheny to 3

do the same thing for us? 4

M R. POLINSKI: Yeah, Ray Polinski, ATI 5

Allegheny, and I just

-- we will certainly take a look 6

at it. It’s very difficult. It’s kind of like a 7

scrambled egg and trying to pick the yolk away from 8

the whites because, as Jerry points out, a lot of our 9

equipme nt

-- we’re also making titanium, nickel alloy, 10

stainless, and we’re sharing a lot of the same 11

equipment so it’s sometimes difficult to separate your 12

energy costs. But some of our

-- there’s over 20 13

operations involved in producing the grain

- oriented. 14

It ’s a very extensive process. Some are not

-- for 15

different products, but a lot of them, when you start 16

talking about an M3, they’re much more linear footage, 17

not only natural gas and those type of energy, but 18

also electrical energy and coal rolling mills and 19

things of that nature. But we’ll do our best to try 20

to put some ratio or factor, comparing M3 and M6. 21

MR. SMITH: I appreciate that very much. I 22

would ask that the accuracy of your response doesn’t 23

have to be any higher than our load estimates for the 24

transformers. 25Executive Court Reporters (301) 565

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MR. POLINSKI: That should be very easy to 1

accomplish. 2

MR. SMITH: Thank you, gentlemen. 3

MR. ROSENSTOCK: Hi, Steve Rosenstock, 4

Edison Electric Institute. Looking over this chart, I 5

really appreciate this. Just want to double

- chec k. 6

In this table RGO plus TCH

-- what do those acronyms 7

stand for? I couldn’t find them in

-- 8

MR. PETERSEN: I’m sorry. TCH is our trade 9

name for high permeability steels. So RGO is our 10

trade name for the conventional steels. 11

MR. ROSENSTOCK: Gotch a. So again, just 12

looking at this chart, again, if I’m misstating, 13

please let me know, it looks like on the RGO plus TCH 14

that US manufacturers have about a 15 percent market 15

share for those steels? 405 out of 2690, is that an 16

accurate number. 17

MR. SCHOE N: Steve, the problem

-- Jerry 18

Schoen, AK Steel. This doesn’t actually show relative 19

capacities by grade. This shows capability to make a 20

grade. 21

MR. ROSENSTOCK: Okay. 22

MR. SCHOEN: For example, Bio Steel has M3 23

in their catalog. No one’s ever s een a pound of Bio 24

Steel M3 as far as we can tell. It’s just in their 25Executive Court Reporters (301) 565

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catalog. You can see that, for example, Mittal Steel 1

VPFM in the Czech Republic, they make M3, they say, 2

but we’ve never seen any of it. It’s in their 3

catalog. The actual people that really do supply that 4

market, which would be M3 and 9 mil M0H types, would 5

be AK Steel, ATI, Nippon Steel, JFE, ThyssenKrupp , a 6

little fro m Kogen (ph), a little from Sta l (ph), a 7

little from Amparamp. 8

MR. ROSENSTOCK: Okay. I’m just trying to

- 9

- and is it a similar situation on the high grain 10

side? The reason I’m asking is I’m just kind of 11

curious about what is the kind of current domestic 12

market share for these products out there, and I’m 13

also kind of curious what the trend has been, 14

obviously over th e last several years, it obviously 15

seems like overseas manufacturers seem to have ramped 16

up. So I’m just kind of curious about current market 17

share, past market share and

-- 18

MR. SCHOEN: If you go back

-- Jerry Schoen, 19

AK Steel. If you go back to the p re

- regulation world, 20

let’s say around 2000, by our reckoning, about 50 21

percent of the US distribution transformers were made 22

using something poorer than M3. M5, M6. A substantial 23

amount of that was material that came from the former 24

Soviet Union. We conc entrated, and I believe ATI 25Executive Court Reporters (301) 565

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concentrated on the M3 market portion. Now as the 1

rules rotated to require M3 or better in 2007, I 2

believe our increase in market share went up, because 3

if you look at Russian import statistics, in fact, all 4

oriented electrical steel import statistics, imports 5

dropped, because most of these manufacturers are 6

supplying M5 and M6 don’t have a good, established 7

technical capability to make the higher grades. They 8

are working on that. 9

Now the other problem you have is the market 10

collapsed. So the contraction in the US new housing 11

market basically turned the US market into virtually a 12

replacement transformer market. About 75 to 80 13

percent of what’s moving out there are replacement 14

units, not units for new construction. Those are 15

mostly M3 or better. Our shipments of M4, M5 and M6 16

into that market segment has dropped into single 17

digits, thousands of tons. 18

MR. PATTERSON: Wes Patterson. I’d like to 19

make a point on this. Steve, you were asking about 20

the relative grades and how they’re distributed world

21

wide. There is a distinct anomaly with respect to 22

distribution transformers in the US relative to the 23

rest of the world. And this is the utilization of 24

wound core. By and large, the distribution market 25Executive Court Reporters (301) 565

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outside the US is a stack ed core market, using stacked 1

core grades of steel. Now the special type of steel 2

that you have to use for wound core, because you have 3

an annealing process with the core, so what you’ll 4

find is that the US is dominated on the wound core 5

grades, which is different than the stacked core 6

grades. And this is why you see the dominance with 7

the M3 and the M4 and the M2, because we can anneal 8

all these grades. But if I take things like, you 9

know, the high B’s and the domain refineds, we can’t 10

anneal them, so w e can’t make them with wound core. 11

And our whole manufacturing base is wound core. 12

MR. ROSENSTOCK: So if I could follow up, 13

Wes, depending on where the standard goes, that could 14

have a shift in terms of market share of US steel in 15

these products? 16

MR. PATTERSON: It could if we shifted to 17

things that required stack core, we could put a strain 18

on our production capacity here in the US. But, you 19

know, most of the conversations so far have been 20

focused on the amorphous grade. This is an 21

alternative to w ound core, which has its own 22

constraints compared to stacked when you get to the 23

bigger MVA units. The 2500 KVAs. So it could have an 24

impact. 25Executive Court Reporters (301) 565

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MR. SCHOEN: Jerry Schoen, AK Steel. Wes’ 1

exact point is why we recommended M3 for design lines 2

one through five. Because between AK Steel and ATI, 3

and imports from Japan and a little from Europe, we 4

can provide enough M3 and 9 mil M0H to meet the market 5

needs and provide a competitive market. Then when you 6

move to the stacked core dry types, the concern we ha d 7

was as that market grows, and it’s substantial, the 8

supply of M3 and better could be strained. So the dry 9

types, if they were locked to an M3 or better 10

specification, would be forced to shift to either high 11

permeability steels, which are available, but 12

expensive, because you’re competing, not with the 13

distribution market, but a large power transformer 14

customer that’s building a two million dollar 15

transformer and not using as many pounds of core steel 16

per KVA, versus an M4 which is widely available. 17

Ever y single producer on that list can produce M4 18

abundantly. So you have a very competitive and well

19

served market in that situation, and that’s what we 20

took our charge from at the last committee meeting to 21

be. 22

MR. ROSENSTOCK: And again, a quick follow 23

up , if I could. In terms of the M3 and M4 market, 24

domestic versus overseas manufacturers, can you give 25Executive Court Reporters (301) 565

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me a relative market share? In terms of sales for 1

distribution transformers? 2

MR. SCHOEN: We do have that break out of 3

what we deliver into the US vers us the rest of the 4

world, but virtually all of our M3 is delivered

-- 5

PARTICIPANT: (comment off mic) 6

MR. SCHOEN: Yes, total demand of M3 and M4. 7

MR. ROSENSTOCK: Yes, and how much is met by 8

domestic manufacturers and how much is met by overseas 9

ma nufacturers? 10

MR. SCHOEN: M3, probably 75 to 80 percent 11

is AK and ATI. Because it’s just not a popular 12

product overseas. For all the reasons that Wes talked 13

about. They will use an 11 mil high permeability 14

steel instead of an M3 and make a better, qui eter, 15

more efficient transformer. And it’s also easier to 16

cut and stack because its’ 20 percent thicker. 17

MR. ROSENSTOCK: And M4? 18

MR. HOPKINSON: They use a lot of M5 too. 19

MR. SCHOEN: They use a lot of M5 for 20

standard, non

- evaluated mostly, transfo rmers. 21

MR. ROSENSTOCK: And M4? 22

MR. SCHOEN: Our sales of M4 to the US 23

market are limited. It’s mostly stack core types. 24

MR. ROSENSTOCK: So it’s fair to say that 25Executive Court Reporters (301) 565

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domestic manufacturers have a much smaller percentage 1

of that market? 2

MR. SCHOEN: I t’s

-- the market for M4 is 3

mostly dry types, and that is a smaller market, 4

period. 5

MR. ROSENSTOCK: Thank you. 6

MR. SCHOEN: So as a percent of our mix, 7

it’s a smaller number. 8

MR. ROSENSTOCK: Thank you very much. I 9

appreciate it. 10

MR. DeLASKI: So a few follow up questions. 11

So Wes, overseas and the markets that are dominated by 12

stack core design, how does the efficiency of those 13

products compare to what we see with wound core 14

designs? 15

MR. PATTERSON: It varies according to the 16

KVA, because there ’s break points where the wound core 17

is more efficient than the stack core. But it gets a 18

little complicated because in the US, we are dominated 19

with a Y

- Y circuit connection, whereas outside the US 20

they’re dominated with a double

- Y circuit connection. 21

T his has an implication on the construction of the 22

core. So when I look at the electric network in the 23

US, and try to compare that, then our product is more 24

efficient when we look at the Y

- Y circuit connection. 25Executive Court Reporters (301) 565

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You can’t just arbitrarily say I’m going to compare 1

the US to Germany, because Germany’s working on a 2

double

- Y grid, and by and large our utilities have 3

installed Y

- Y circuits on these types of transformers. 4

And we are talking, guys, basically the pad

- pole 5

market, the wound core section. We ignore the 15 6

percent of the distribution market that is stacked 7

core, which is these network transformers and stuff, 8

which gets screwed because all this conversation is 9

focused on the wound. 10

MR. DeLASKI: If I could follow up, I want 11

to keep going if you don’ t mind. So the other 12

question is, you know, I think the other key to the 13

steel supply, the point Gary made about time is an 14

important thing for us to consider. I mean this is 15

your snapshot of today. Right? 16

MR. PETERSEN: That's correct. 17

MR. DeLASKI: And I think, as we move 18

forward, we need to be thinking about time as one 19

variable in our discussions and how time can help 20

address how this table changes. Given the time it 21

needs to meet the needs of a growing market. So I 22

just wanted to reinforce wha t Gary had said earlier. 23

And then one other question I had is, the 24

ranking of the materials. The table that shows us 25Executive Court Reporters (301) 565

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the, you know, M2 through M6, I understand as you go 1

to the lower grade, the efficiency improves as you go 2

lower. But the M2, the hig h perme

-- what is the 3

performance of high permeability relative to M2, M3? 4

MR. SCHOEN: I have to be careful because we 5

do these evaluations with our customers. But where we 6

have compared our M2 light ... product, which is a 7

domain refined treatment of our own type, it compares 8

very, very well to

-- it’ll out

- perform an M0H type, 9 9

mil M0H type, which we call H

- zero, and it’ll compete, 10

not as good as EDMH, but it’s reasonably close. The 11

difficulty is we have limited capacity to make M2. M2 12

is a subset of our M3 production. We aim everything 13

to make M2, based on our melt chemistry, but the 14

chemistry permit limits are tighter. We can analyze 15

the chemistry with great precision, but when you’re 16

tossing material into heat sizes that are 175 to 300 17

tons, th e precision of recovery and everything leads 18

to a statistical distribution. So we aim for that, we 19

take the stuff we hit the bull’s

- eye on all the 20

different components, constituent elements that go 21

into making it, that’s stuff is always selected out 22

and a pplied to M2. Then the body of it is applied to 23

M3, M4 or M5, depending on how far away from the 24

bull’s

- eye are we. It’s not an issue of capacity, 25Executive Court Reporters (301) 565

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it’s an issue of capability. 1

MR. PATTERSON: The ZDMH is a material 2

that’s used for wound core also, and it’s used outside 3

the states. And our experience, from a design 4

perspective, is that I can interchange and get 5

comparable performance between ZMH and M2 at any time. 6

So functionally in the design, there’s not a whole lot 7

of difference, then it becomes a cost equation, and by 8

and large, the M2 product, manufactured in the US, 9

delivered to a US factory, is more economical than a 10

ZDMH manufactured someplace else and then shipped into 11

the US. But from a performance perspective in wound 12

core, they are compara ble

. 13

MR. DeLASKI: And then can you use H0 in 14

that situation as well? 15

MR. PATTERSON: You cannot use the H0 in the 16

wound core. 17

MR. DeLASKI: Okay. 18

MR. SCHOEN: You can

-- Jerry Schoen

-- 19

PARTICIPANT: (comment off mic) 20

MR. SCHOEN: No, you ca n’t use H0DR, you 21

can’t use the laser

-- Jerry Schoen, AK Steel. The 22

laser scribed material for stack core is when you 23

anneal it, the core loss ... which is about ten percent 24

or so, it goes away. ZDMH is permanently de... defined, 25Executive Court Reporters (301) 565

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so you can’t anneal it. It is very appropriate for 1

stack cores, but it’s intended for use in wound and 2

annealed cores, particularly. We never capitalized 3

that kind of technology because, a, we made M2, and as 4

Wes said, it competes very well; b, laser scribed 5

material goes in stack ed cores, which is the body of 6

the transformer market. If you look at global 7

transformer deliveries, wound and anneal core 8

transformers are peculiar to Canada, US, Mexico, 9

Japan, Taiwan, and that’s about it. China’s dabbling 10

in it. They’re looking at th em. India makes some of 11

them, but of dubious manufacturing

-- there are a lot 12

of issues there. But the wound and annealed core type 13

is used here, and that constitutes, perhaps in a good 14

year, maybe ten percent of the global market. The 15

rest of it is all stacked core. 16

MR. PATTERSON: The history class, if I can 17

advertise American technology, this is Westinghouse. 18

So we can thank Westinghouse for giving us everything 19

we see on wound. 20

MR. DeLASKI: And just one last clarifying 21

question if I may. So I understand, Jerry, from your 22

statement that most of

-- you said the sales for you 23

guys of M4 and higher grade has dropped to the single 24

digits in thousands of tons. 25Executive Court Reporters (301) 565

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MR. SCHOEN: In wound and annealed 1

distribution transformers, yes. 2

MR. POLINSKI: This is Ray Polinski, ATI 3

Allegheny. Just to, you know, echo what Jerry has 4

said. Before the new standard took effect on January 5

1, 2010, I think the number he gave was a wrong 6

number, 50 percent of the distribution transformers 7

were made from the M4 grade. But likewise, we’re in 8

the same boat now where it’s very rare to find the DOE 9

-- current DOE standard transformer that’s not 10

produced from M3 or some M2. But M3 is the workhorse 11

grade. There’s a proven grade that’s consistent, 12

consistent supply, consist ent quality, and likewise, 13

you know, the M2 is just

-- it’s a small cut of the 14

premium premium product that we make and so it’s not 15

like we can just shift all of our M3 capacity to M2. 16

So even in

-- right now, which we could argue, is the 17

worst housing cr isis in demand and resident 18

reconstruction

-- residential construction market 19

certain for the last 20 years or whatever, we are

-- 20

our equipment is capable of making M3, is pretty full 21

today, so I’m saying there’s not a lot of excess 22

capacity even for the M3 grade, and that’s why

-- you 23

know, AK worked on this independently of us, but we 24

certainly do agree that their analysis is accurate in 25Executive Court Reporters (301) 565

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the way they present, certainly our capabilities. And 1

the last comment it’s also

-- it’s good

-- I don’t 2

think we’ve mentioned this, but they did do a nice job 3

of showing the small X ’s for the domain refined ZDMH, 4

meaning limited capacity . In discussions with 5

Japanese trading companies and others, I think that 6

capacity is

-- may be 50,000 tons. It’s a very small 7

amount . And they’re sold out already. So you can say 8

it’s a grade, but it’s limited supply and it’s not 9

available today in worst of times, so hopefully, we 10

think by 2016, hopefully we’re back to building maybe 11

a million houses a year instead of 300,000 or 12

what ever. 13

MR. DeLASKI: To make sure I understand. So 14

then the lines

-- what you’re saying is that because 15

of these constraints on other types of steel, that the 16

lion share, according to the vast, vast majority of 17

transformers being sold

-- manufactured and sold in 18

the US today have an M3 core? 19

MR. SCHOEN: Jerry Schoen, AK Steel

- 20

MR. POLINSKI: For wound core distribution. 21

MR. PATTERSON: I sent all the committee 22

members this morning another pie chart that shows for 23

percent reduction in losses relati ve of DOE, how the 24

shift in grades take place. So you can see where 25Executive Court Reporters (301) 565

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we’re at with the current standard, and then if I go 1

up to more than 40 percent reduction in current 2

losses, I’m going to go over to 100 percent ... right? 3

And I have buckets there of zero to five, five to ten, 4

ten to 20, 20 to 30, 30 to 40, and you can see the 5

shift in the tonnage of the various grades of steel, 6

at least from the ABB perspective. 7

MR. SCHOEN: Jerry Schoen, AK Steel. 8

Andrew, to take a different spin on the way Ray was 9

ex plaining it. If you take away the market for M3 for 10

us, we’re out of the M2 business. We’re done. 11

Because if we don’t manufacture a large volume of M3, 12

we can’t cull out M2 out of that. 13

Now, the other issue is, in talking about 14

ZDMH, there are some peculiar

-- even more peculiar 15

than our transformer efficiency standards around the 16

world. 17

PARTICIPANT: Goodness. 18

MR. SCHOEN: Taiwan is a very curious one 19

where they have an efficiency requirement at both 20

design and overload. In other words, if you design 21

the transformer to operate at 16 KG, 1.6 tesla, 22

they’re going to have an efficiency mandate at 1.76 23

tesla as well as 1.6. That tilts it towards a high 24

permeability steel, and ZDMH is a very attractive 25Executive Court Reporters (301) 565

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product in a situation like that. 1

I’m not sur e how the Japanese do the top 2

runner exactly, because my Japanese is limited, but I 3

believe the Taiwanese

-- my son’s fluent in it, I wish 4

I could get him to understand an engineering book

-- 5

what can I say, he was a liberal arts major and it 6

didn’t go wel l for him. So he’s a teacher. But the 7

point was we tried looking at that standard and we 8

think the Taiwanese standard is kind of based on the 9

Japanese standard where they’re looking at two 10

induction points. So you build in a standard that 11

then favors a high permeability material like a ZDMH. 12

We are selling M2

- like carlide (ph) in the Taiwanese 13

market and doing very well with it, but we struggle 14

with that two point standard that they created. 15

MR. MILLURE: Dave Millure. Top runner has 16

efficiencies at 40 and 100 percent. 17

(discussion off mic) 18

MR. PATTERSON: Andrew, I know ABB somewhere 19

along the way gave to NAVCAN (ph) a white paper that 20

ABB had done on all the world efficiency standards on 21

distribution transformers. And how US standards fall 22

in th e comparison. I don’t know if it’s ever made it 23

to your

-- but NAVCAN (ph) has it, so they should be 24

able to provide it to you. It wasn’t under the MDA. 25Executive Court Reporters (301) 565

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MR. POLINSKI: Can you just send that out to 1

everyone, Wes? 2

MR. PATTERSON: Yeah, I can. I can s end it 3

to the committee. 4

MR. MEYERS: Aaron Meyers, Cooper. We would 5

support a market where M3 is allowed to be competitive 6

with the other available core steels, that’s the 7

desired outcome from our perspective. 8

MR. DeLASKI: Question, I guess, back to Wes 9

and to the chair here, would it be useful for Wes to 10

show

-- oh, you are? Great. 11

(discussion off mic) 12

MR. NADEL: I was wondering if I could get a 13

quick question in. I just looked at Wes’ thing. I’m 14

a little confused. Wes, you talk about SA, b ut that’s 15

not on the AK chart. How does that

-- 16

MR. PATTERSON: That’s the amorphous 17

material. 18

MR. NADEL: Okay. Thank you. 19

MR. PATTERSON: That’s a term for the 20

amorphous. 21

MR. NADEL: Okay. Thank you. Amorphous. 22

MR. MILLURE: Dave Millure, Metglas. While 23

we’ve got a little time here, the information that AK 24

distributed said that the Chinese amorphous was 25Executive Court Reporters (301) 565

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limited to 100 millimeters. That’s based on, I guess, 1

the printed literature. We make three widths of 2

amorphous metal, 5.6, and 6.7, an d 8.4. The Chinese 3

amorphous producer, Ontai (ph), is making quite a bit 4

of 5.6 and 6.7, and they’re honing in on the 8.4. So 5

there is no limitation in the Chinese amorphous 6

supplier as far as widths go. 7

MR. PETERSEN: Thank you. This is Eric 8

Petersen , AK Steel. Is that product seen here in the 9

states? Does anyone have experience with that around 10

the table that can confirm that? 11

MR. BECK: Scott Beck, Lakeview Metals. 12

Yes. I have seen it, we have used it. 13

MR. PETERSEN: Okay. So

-- 14

MR. BECK : It is available. 15

MR. PETERSEN: It’s just not listed in 16

there. 17

MR. BECK: Correct. 18

MR. PETERSEN: Okay. Thank you. 19

MR. PARKER: Wes, do you want to walk us 20

through this slide quickly. 21

MR. PATTERSON: So this slide is showing the 22

colors

-- the se colors are in this code here, and this 23

is pretty much

-- this chart is for the network and 24

substation businesses out of our South Boston factory. 25Executive Court Reporters (301) 565

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And I can say that about 50 percent of this volume was 1

network transformers. And to meet the current 2

stan dard, we’re having to use H0 and H1. That’s what 3

this shows. And this zero to five percent, when you 4

look real close, that says zero to five percent, in my 5

world, in order to meet the existing standard, if I’m 6

within five percent of the existing standard on the 7

south side, that was designed to meet the standard. 8

Because we have variations, you don’t just go exactly. 9

So if it’s within five percent of the standard, I 10

assume that it was designed to meet the intent of the 11

standard. Then I have

-- 12

MR. MI LLURE: Excuse me, Dave Millure, 13

Metglas. Are these stacked or wound cores? 14

MR. PATTERSON: These are stacked core. 15

MR. MILLURE: Thank you. 16

MR. PATTERSON: And these grades are stack 17

grades. 18

PARTICIPANT: (question off mic) 19

MR. PATTERSON: I t hink they are H0, I 20

think. I don’t think we’re using the domain refined 21

in South Boston. I could be wrong. I could get 22

confirmation on it. In any case, my point on this 23

slide is to show that to meet the current standard, we 24

have to use the high

- end gra de that’s available today 25Executive Court Reporters (301) 565

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in networks. And this is zero to five, and I think 1

that says five to ten, or ten to 20

-- what’s that say 2

up there? Five to ten. And then this is ten to 20, 3

and that’s 20 to 30. 4

So you can see that to get a 30 percent 5

reducti on off the existing losses

-- so to get to a 30 6

percent reduction, we’ve got to go to a very high 7

grade steel. Go to the next slide. 8

This is dry type, which is stacked core 9

also. So this color that you’re seeing here is H1, so 10

to meet this current stan dard, we’re looking at M4 and 11

H1 to meet the current standard, and you can see that 12

as we progress in efficiency, loss reduction, I get to 13

100 percent, H1, that’s what’s happening. 14

And so you know, this represents the 12 15

month production run on the facto ry, actual shipments, 16

and the pie is MVA shipped, so it’s percent of MVA 17

shipped in that range. 18

The next slide is the poles that I can see. 19

And this first line is single phase, and the next line 20

is three phase poles. And you can see in the pole 21

busines s, the factory is only using M2 and M3. 22

They’re not using amorphous material. And to meet the 23

current standard, the production is mainly M3. And as 24

I move across into lower and lower losses, I move from 25Executive Court Reporters (301) 565

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M3 more and more into M2. And you can see where i t 1

shifts. 2

MR. MILLURE: Dave Millure, Metglas. As far 3

as amorphous goes on this, this is one manufacturer’s 4

decision not to move into amorphous. It does not 5

necessarily imply amorphous is not competitive in this 6

market. 7

MR. PATTERSON: Okay. You’re defending your 8

position. When we go to the next slide, we’ll look at 9

amorphous because this is pad mount, which is also 10

wound core, and pretty much the engineering technology 11

of this applies directly to the pole market. The 12

impact on the pole market is t o change all weight and 13

mass and size. We don’t have that problem with the 14

pad market. So you can see that the pad market today 15

is dominated with M3, and as I progress on up into 16

higher and higher efficiencies, I get into the highest 17

efficiency, more tha n a 40 percent reduction, with 18

using nothing but amorphous. And this is actual 19

production data. And as I can go in and tell you how 20

many MVA I shipped of this, and you can see that

-- 21

one of the questions that comes up is, where do we get 22

a mix of grades of steel? And if you look at this 23

bucket here, I’ve got M3, I’ve got SA, and I’ve got 24

M2, all participating in a 20 to 30 percent reduction 25Executive Court Reporters (301) 565

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in losses. That’s product shipping out the door. And 1

that’s on single phase. 2

And where do I get that on three phase? 3

Shows up down here, same basic range. Twenty to 30 4

percent on three phase, all three products are taking 5

place. And once I get more than a 30 percent 6

reduction, I get into pure amorphous shipments. 7

So that’s the chart that I wanted to show 8

and I think I answered your questions. 9

PARTICIPANT: (question off mic) 10

MR. PATTERSON: Because this is not my firm. 11

This is a firm that we have an association with, we’re 12

with their channel of sale. But this is PPI, and PPI 13

is not owned by ABB. There’ s no stock ownership 14

whatsoever. No management oversight. All we are is a 15

channel of sales. Right, it’s a separate independent 16

company, but I did have access to their production 17

data. So I used their data with their permission for 18

this committee. They do not have amorphous 19

production, but what I do know is if they did have 20

amorphous production, it would look like the pad mount 21

charts. But I have the complication here that there’s 22

a weight change taking place. And that market is 23

impacted by the size a nd weight. So I cannot just 24

arbitrarily take a phenomena that I see on pads and 25Executive Court Reporters (301) 565

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apply it to the pole market. If we do this, we will 1

have many other complications. 2

MR. SCHOEN: Jerry Schoen, AK Steel. To pad 3

to Wes’ point, because we’re Power Partners’ steel 4

supplier, and I don’t know if Al Traut is on the call 5

in, but

-- I’m guessing he’s not

-- he was on vacation 6

-- Al had told me that one of the problems that they 7

had was when they went to amorphous, most of their 8

customers have a diameter specificat ion of a 36

- inch 9

max, and a weight specification, I think it was 900 10

pounds, or something like that, and they can’t get 11

there with amorphous units of any kind. So they just 12

stopped. That’s one of the reasons why you didn’t 13

have that data on it, because t hey couldn’t reach a 14

design solution that would work for their customer 15

base. 16

MR. FERNSTROM: Garn Fernstrom, PG&E. You 17

mentioned repeatedly that there’s this size and weight 18

concern with amorphous for pole mounts. Is there some 19

subset of the pole mount market, say below a certain 20

KVA rating, where this isn’t so much a concern? 21

MR. SCHOEN: Jerry Schoen, AK Steel. I 22

can’t answer that question. You’d need someone who is 23

in that segment. 24

MR. ANDERSON: Rick Anderson, PWC. Gary, I 25Executive Court Reporters (301) 565

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think what it is is an application issue. Some of the 1

poles are limited by the height of the pole, the grade 2

of the pole, you start loaded up, put a lot of weight 3

on it and it’ll break. The other thing we’ve got to 4

contend with is we’ve got Cablevision, we’ve got 5

fiber, we ’ve got telephone, we’ve got all those 6

attachments that go on the pole. So nothing against 7

amorphous, it’s just that the physical constraints of 8

the pole itself come into play. 9

MR. FERNSTROM: Yeah, so being in the 10

utility business too, I understand tha t, but I’d 11

speculate that say below 75 KVA, it’s, you know, 12

single transformers for single phase, it’s not going 13

to be a problem. 14

MR. PATTERSON: If I may? I have a habit of 15

always looking at the

-- Wes Patterson

-- looking at 16

the extremes of things, an d testing it with the 17

extremes. If I take a 5 KVA pole mount, can I build a 18

5 KVA pole mount with amorphous and hang it on the 19

pole and not implicate anything? And my instinct, no 20

facts, instinct is I can. Okay. Can I build an 833 21

KVA single phase amor phous unit and hang it on a pole, 22

and the answer is no. So we have these two extremes, 23

and there is possibilities on the low end, and we 24

could do a detailed analysis with the help of some 25Executive Court Reporters (301) 565

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utility folks, to say wait a minute. At this KVA, 1

when you increas e the weight 30 percent, you can’t be 2

on the pole. We could put together the dataset to do 3

this, and then draw the efficiency standard based on 4

that concept. 5

MR. FERNSTROM: And that’s precisely where 6

I’m going with my thinking and my suggestion. 7

MR. MILLURE: Dave Millure, Metglas. Do you 8

know how many amorphous transformers on the grid in 9

the United States today, and a lot of those are pole 10

mounts, so this anecdotal evidence from PPI, I think 11

needs to be tested. We’ve been talking to them and 12

mayb e the story’s a little different, depending on who 13

they’re talking to. So I wouldn’t say that that 14

precludes any discussion about amorphous for poles, 15

because it’s widely adopted. 16

MR. PARKER: Do we have data on amorphous 17

shipments of pole transformers? In amorphous versus 18

conventional? Not by material. 19

(discussion off mic) 20

MR. PARKER: I think they’re saying that’s 21

anecdotal and it’s one company, it’s not for the whole 22

industry. Do we have data on the size of the 23

transformers, the proportion, the KVA ratings by

-- so 24

we could get a breakdown of that. Do people have a 25Executive Court Reporters (301) 565

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sense of what is the KVA rating at which weight 1

becomes a major concern? Do people agree that five is 2

the threshold at which there is a weight issue, or is 3

there

-- is that an extre me. 4

MR. FERNSTROM: Gary Fernstrom, PG&E. So I 5

was speculating, and it’s just that, 75 might be the 6

place. 7

MR. ROSENSTOCK: Steve Rosenstock. 8

MR. PARKER: Can we have a reaction to that 9

from the other utility people? Steve, did you want to 10

speak t o that? 11

MR. ROSENSTOCK: Yeah, again. We provided 12

some data in terms of certain poles in certain areas, 13

you know, the number was either 800 or 900 pounds, 14

regardless of the KVA of the transformer. I also got 15

something from Mr. Rosetti of Memphis State Gas and 16

actually in their specification, the total weight of 17

finished transformer shall not exceed 2000 pounds for 18

167 KVA transformers and 4000 pounds for a 250 through 19

500 KVA transformers. So I don’t know how many

-- I 20

don’t know how widespread that is , but there’s 21

actually at least one utility that has specific weight 22

limits on specific KVA transformers in their 23

specifications that cannot be exceeded. So I don’t 24

know how widespread it is, but again, and there was 25Executive Court Reporters (301) 565

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the

-- the PEPCO did about

-- 1

MR. PARKER: Can you repeat those? 2

MR. ROSENSTOCK: Sure. Again, this is from 3

Memphis State Gas Water. He said it could be publicly 4

-- in their specifications, the total weight of the 5

finished transformer shall not exceed 2000 pounds for 6

167 KVA transforme rs

-- I’m sorry, it doesn’t say 7

whether it’s single or three phase

-- what? Single. 8

Single phase. Okay.

-- and 4000 pounds for a 250 9

through 500 KVA transformers. 10

And then there was also issues about 11

multiple transformers on the same pole, but that’s a 12

different issue. 13

MR. PARKER: So I guess

-- 14

MR. ANDERSON: I think what that is is that 15

John Rosetti is pointing out that up to 167 KVA you’re 16

probably going to bank the transformers on a pole, so 17

you have three 167’s, possibly. You better have a 18

strong pole. You start getting over that size, over 19

167 KVA, you’re going to be more inclined to go to a 20

platform type application. So that’s what I think 21

John is driving at. 22

MR. MILLURE: Dave Millure, Metglas. So if 23

our modeling shows for

-- back to this amorphous 24

thing, which I’d like to sort of try to resolve here, 25Executive Court Reporters (301) 565

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for 50 KVA, the weight of an amorphous transformer at 1

the current DOE standards is very close to the weight 2

of an M3 transformer. So this whole amorphous is 3

heavy thing, is no longer

- - it may be in a TP

- 1, 4

yeah, but at the current DOE standards, not 5

necessarily. 6

MR. MEYERS: Aaron Meyers, Cooper. Going 7

beyond single phase poles, some utilities do limit the 8

weights of three phase pad units based on their 9

ability to unload or install the units and the 10

equipment that they have. I think Rick, yesterday you 11

pointed out maybe having to bring in a crane once you 12

exceed a certain weight, so I would like to make that 13

point. 14

MR. PARKER: Well, I guess

-- I think it 15

might be helpful to have comment on Dave Millure’s 16

point that for the current standards, as I understand 17

it David, correct me if I’m misstating it, for the 18

current standard, not to mention the standard that one 19

might move to in the future, for up to 50 KVA at 20

least, amorphous is c omparable in weight to 21

conventional, is that what you said? 22

MR. MILLURE: That was just that one point, 23

50 KVA, and I can’t talk about above and below. 24

That’s the only point

-- only model we did, one single 25Executive Court Reporters (301) 565

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phase. 1

MR. PARKER: I see. Greg. 2

MR. COUL TER: Greg Coulter, Prolec GE. If 3

you noticed in the comments that Carlos made, we 4

plotted the weights right off the DOE modeling, or the 5

25 KVA pole type, for all the core steels

-- core 6

materials, and you can see what really happens is, it 7

varies all ov er the place. Sometimes one’s up because 8

of the way you have to meet an efficiency or sometimes 9

the other one is up. So, while I don’t want to agree 10

with everything Dave Millure says, what he is saying 11

is it can be all over the place and you’ve got to lo ok 12

at it by design. You can’t just automatically rule it 13

out. You can’t automatically rule it in either, but 14

it depends on what efficiency level you’re choosing. 15

MR. FERNSTROM: Gary Fernstrom, PG&E. Yes, 16

but the smaller the transformer gets, the less 17

significant an increase in weight is. 18

MR. COULTER: Absolutely. No argument. We 19

talked about 25 KVA which is a fairly small 20

transformer and you can see what the weights are. You 21

get above 50 KVA poles, the volume falls off so much 22

it’s a so what anyw ay, right? Wes? I mean your data 23

shows there isn’t much volume above 50 KVA on the 24

pole. 25Executive Court Reporters (301) 565

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MR. PATTERSON: (comment off mic) 1

MR. COULTER: Oh, I thought you were making 2

the argument, or somebody was, maybe this is going to 3

be different efficiency based on

-- 4

MR. PATTERSON: No, I agree, there could be 5

different efficiencies based on the KVA, taking into 6

Gary’s concept here. 7

MR. MILLURE: Dave Millure, Metglas. I 8

agree, absolutely with Greg. In fact, for this 25 KVA 9

example at EL

- 0, the weight of the amorphous was below 10

that of M3. Barely. 11

MR. SCHOEN: Jerry Schoen, AK Steel. At the 12

present standard, yeah, there’s no issue with

-- well, 13

there’s not great issues with weights. But as you 14

raise the standards, that’s where the weight issue 15

comes i n, just to be clear, the point I was trying to 16

make. 17

MR. DeLASKI: Well, I guess that was the 18

question, which way does it go? Right. So you’re 19

saying, Greg, what I hear you say is that you just 20

have to look at these designs, these are options, and 21

it m ay be that amorphous is actually lighter at a 22

given efficiency level. Maybe the steel is lighter. 23

MR. COULTER: (off mic) It could be, yeah. 24

MR. PARKER: So it’s now ten o’clock so we 25Executive Court Reporters (301) 565

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need to keep check of the time. Just a couple very 1

quick comments on this now because we have to wrap up. 2

MR. MEYERS: This is a comment. Aaron 3

Meyers from Cooper. I think, in the spirit of Wes’ 4

history lesson here, if you go back prior to the 2010 5

standard, amorphous core transformers were 6

significantly heavier tha n grain

- oriented because you 7

were unable to drive the flux density higher than 8

about 14 kilogauss. 13.5. Whereas, grain oriented 9

transformers were routinely driven at 16 to 17 10

kilogauss. And today, with the existing efficiency 11

standard in place, grain o riented silicon steels, you 12

can’t drive the flux density much higher than that and 13

still maintain the efficiency, so they’re about at 14

parity in today’s standards world. 15

PARTICIPANT: Would you agree, David? 16

MR. MEYERS: Therefore making the weights 17

c omparable. 18

MR. MILLURE: It’s wobbly, dependent on the 19

size of the transformer. 20

MR. PARKER: Steve, one last comment. 21

MR. ROSENSTOCK: Just real quick. On a 22

spreadsheets that were done by DOE, they do show 23

weights so maybe there’s a way to kind of s how 24

equipment weights by design line or by

-- it is 25Executive Court Reporters (301) 565

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probably possible. 1

MR. PARKER: They’re going to work that out, 2

yes. That’s one of the action items, I think, from 3

yesterday, that DOE and Navigant are going to provide 4

their data on weights, core and total weight 5

corresponding to each efficiency level for each design 6

line. We’ll be able to see that, so it might make 7

sense to wait for that table to come out. 8

I guess one thing that occurs to me is to 9

what degree is the issue of weight on poles taken i nto 10

account already by the life cycle cost analysis done 11

by LBL that factors in the existing weight data but, 12

you know, makes some assumptions about the cost of 13

pole replacement to accommodate higher weights. We 14

had a discussion about cost of pole replace ments and 15

we’ve got a working group on that, so I guess the 16

question is

-- is that

-- do we have an analytical 17

process to take that into account already? 18

MR. PATTERSON: We indicated yesterday there 19

was potentially an error in the way DOE applies their 20

algorithms. They looked at the 25 KVA design as 21

representative of the entire pole market. Then they 22

said in this 25 KVA, if there was a certain pan... 23

change

-- 24

MR. PARKER: Right, right. 25Executive Court Reporters (301) 565

- 0064 356

MR. PATTERSON:

-- then it was a pole. 1

Okay. But then they sai d, okay, so we only had zero 2

percent pole changes in the 25 KVA, which didn’t apply 3

at the 833 KVA. 4

MR. PARKER: Right. And I think, speaking 5

with them afterwards, I think there’s an understanding 6

around the table that that’s now to be corrected and 7

the y will be working on that. So what I would propose 8

is that we

-- that we

-- this is one of the action 9

items that we will discuss that we have a working 10

group to work on correcting that, and fold the weight 11

on poles issue into that analysis to make sure we get 12

that analysis right. And that life cycle cost 13

analysis should cover the issue. 14

MR. POLINSKI: Yeah, Ray Polinski. ATI 15

Allegheny. See, my understanding from that discussion 16

was that we were looking at two parts, one, was we 17

extrapolated zero acros s the whole and so the life 18

cycle cost analysis didn’t have pole replacement in 19

there because if you take zero across, it’s zero times 20

anything is zero. So there’s no cost at all for that. 21

And then, also I thought that we were going to get 22

some utility f eedback on the $2000 charge, which may 23

have been understated. So those were the action 24

items, yeah. 25Executive Court Reporters (301) 565

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MR. PARKER: It’s agreed. Okay. So what we 1

need to do then is to really try to zero in on an 2

analytical construct for coming up with

-- and I think 3

Wes ’ slides take us a long way down the road to that, 4

coming up with a way of defining what are the 5

potential TSLs that would correspond to the 6

competitive impacts that would be of concern, 7

particularly for the steel makers. 8

We also have concerns about tr ansformer 9

manufacturers and Rob Carmichael’s going to talk for a 10

few minutes about that in a separate segment. But I 11

wanted to just see if there’s an analytical construct. 12

What I will put out is just a

-- just a thing to get 13

the discussion going, no prid e of authorship, but 14

talking with the consultant staff last night, one 15

place to look might be the point at which, the 16

inflection point at which price of amorphous equals 17

price of conventional steels. Or some kind of

-- and 18

various grades of conventional s teel. And look and 19

see what, you know, define that as sort of an 20

efficiency level that

-- for which selling price can 21

be calculated, LCC will be calculated, and so forth. 22

You might go beyond that, I think Andrew’s 23

point was try to find that point at whi ch there will 24

be more than one supplier, look at that. Or at which 25Executive Court Reporters (301) 565

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they will stop

-- at which there won’t be more than 1

one supplier for this steel. But I just , you know, 2

what we need to do is see if we can come up with what 3

we tried to do in the previous meeting, which is some 4

kind of point of analysis that will be just a 5

benchmark for analysis, not necessarily commitment to 6

come out there, but just a relevant point to focus on 7

for calculating life cycle costs while also addressing 8

the impact on manufactu ring. So we will look at that 9

and then we can address the effect on manufacturing, 10

and the impact on steel supplies and so forth. 11

Any thoughts on that, just taking up our 12

conversation from the previous meeting. Eric, did you 13

want to comment? 14

MR. PETE RSEN: I just wanted to say we did 15

send something out in regards to that competitiveness 16

question. I don’t know if you wanted to have us go 17

through that this morning or not, but we can go 18

through the graph, but we provided in on the price 19

analysis. 20

MR. PARKER: Please do, yeah. 21

**Competitiveness** 22

MR. PETERSEN: So we’ll use that as a 23

segue. I have about 25 copies and Jeremiah’s

-- and 24

this is also on the PDF that I gave you, so all of you 25Executive Court Reporters (301) 565

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should have it on e

- mail. Again, our context in 1

regards to how we approached the competitiveness side 2

was an attempt to determine kind of where the tipping 3

point is of the different design lines against the 4

potential supply opportunities that a transformer 5

manufacturer would have available to him or her as 6

they take a look at suppliers out here and pricing. 7

So Jerry Schoen is going to review his model 8

work, please. 9

MR. SCHOEN: Jerry Schoen, AK Steel. That 10

is not the correct PDF. 11

JEREMIAH: This is the only one I have on 12

file. 13

MR. SCHOEN: It should say “Comme nts on 14

Competitiveness” on that thumb drive. There you go. 15

That’s the wireless thumb drive. 16

AK Steel research has a couple of 17

transformer models. One is a shell

- type, single 18

phase, this model that we use for price parity 19

analyses. What this model doe s, and it’s a very 20

simple model compared to what the transformer makers 21

use, we are purely looking at the cost, losses, and an 22

estimated manufacturing cost for the core and coil 23

assembly. We’re not capturing tanks. We’re not 24

looking at impedance. We’re not looking at oil. 25Executive Court Reporters (301) 565

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We’re looking at the idea of substituting various core 1

materials into an assembly. Our model then 2

reoptimizes the conductor windings and induction and 3

then basically spits out the relative costs of the

-- 4

what we call the relative wor th

-- but the relative 5

values of different core materials for a given 6

conductor. 7

What we did was we modeled the current 8

standards using the prices that were in the NOPR. So 9

the price that we used for amorphous metal was what 10

was in the NOPR. The prices we used for M3 and M2 11

were what was in the NOPR. We then took our model and 12

basically calculated, based on the efficiency 13

requirements at each point, what the worth of an M3, 14

and then there’s another slide showing an M2, would be 15

against SA1. And like I said, again, all of the cost 16

estimates were what were provided in the NOPR. 17

So if you look at the worth of the materials 18

-- and this is in dollars per ton on the Y axis versus 19

the A factor in dollars per watt. So the dashed line 20

to the leftmost is $4.0 0 a watt which we would say is 21

a conservative assumption of where we are today, based 22

on the current 2007 standard that was implemented in 23

2010. But it’s somewhere in that four to five dollar 24

a watt range. With amorphous metal being that solid, 25Executive Court Reporters (301) 565

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broad lin e at zero, you see that what happens is if 1

you go above $5.00, six, seven and $8.00 a watt, the 2

relative value of M3 drops very, very quickly, and 3

frankly amorphous or M2 or something better than M3 4

would be the material that you would specify for that 5

app lication. 6

At DEL

- 0, at four, you can see that M3 is a 7

little above, but again, that’s a fuzzy estimate on 8

our part of how that works out. When you get to DEL

9

1, very clearly, amorphous now has price leverage. 10

When you’re at DEL

- 2, when you look at the relative 11

value of M3, it is dropped by thousands of dollars a 12

ton. It’s not competitive in any application, 13

compared to amorphous. Amorphous has a significant 14

price leverage over any type of electrical steel out 15

there, whether it’s CDMH or M2. 16

You ju mp down to the next page, this shows 17

you how M2 fares in the same analysis. You see it’s a 18

little better at DEL

- 1. It just basically kisses the 19

amorphous line, but at DEL

- 2, it’s dropped

-- it’s 20

value has dropped by well over $1000 a ton. 21

When you look for a competitive market, that 22

puts us at a great, great competitive disadvantage to 23

go above DEL

- 0. 24

That’s really the long and short of all of 25Executive Court Reporters (301) 565

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it. I expect to be questioned heavily, but I am a 1

metallurgical engineer. My counterpart who is our 2

trans former engineer, Rick Light (ph), maybe he’s on 3

the call, if he is, he may be able to answer some of 4

the questions about how we have done this. Thank you. 5

MR. SAMPAT: Mahesh Sampat, EMS Consulting. 6

You are showing amorphous even winning almost all the 7

way down to zero on that chart? 8

MR. SCHOEN: This, based on our model, yes. 9

Oh, wait, Mr. Sampat. When you go down to zero, 10

though, you’re not DOE. 11

MR. SAMPAT: Mahesh Sampat, EMS Consulting. 12

Sorry, excuse me. No, that’s the confusing part is 13

with M2, you are showing amorphous going all the way 14

down to zero, but in M3, the previous chart, it 15

doesn’t start until $5.00, so that’s the confusing 16

part. I don’t understand why the model changed from 17

M3 to M2. 18

MR. SCHOEN: The price of M2 is higher. 19

MR. HOPKINSON: Phil Hopkinson, HVolt. I 20

don’t believe the chart. The pricing for the A factor 21

down at zero, if you’re really at a low first cost 22

design, then M3 and M2 will clearly beat the 23

amorphous, because of the induction that you can drive 24

it to. But at the higher valuations, I do believe it, 25Executive Court Reporters (301) 565

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so I don’t understand why it comes back down is my 1

only thought on that. 2

MR. SCHOEN: Again, what we did was we tied 3

it to an efficiency calculation, and that distorts it 4

-- that distorts our model. Our mo del was designed to 5

input A and B factors, and what we had to do, by 6

modifying the model to overlay efficiency, when you go 7

down into these very, very low A factor designs, it 8

doesn’t run right. I thought of cutting it off at 9

four, and I thought well

-- 10

MR. HOPKINSON: Yes, that’ s a good 11

clarification. 12

MR. MILLURE: This is Dave Millure, Metglas. 13

Jerry, I’m still trying to understand this. Each one 14

of these points

-- pick the EL

- 0. Each one of these 15

points meets the current DOE efficiency levels. 16

MR. SCHOEN: Plus. What you’re looking at 17

is

-- Jerry Schoen, AK Steel. What you’re looking at 18

are people who are evaluating at some dollars per watt 19

above the minimum. That’s the way our model 20

functions. It’s really an A, B input model as opposed 21

to an efficiency calculation model. 22

MR. MILLURE: So at an $8,00 A factor, the 23

actual efficiency of 50 percent load would be where? 24

MR. SCHOEN: What it shows is that if you’re 25Executive Court Reporters (301) 565

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at let’s say DEL

- 0, if you’re at $8.00 a watt, 1

amorphous metal would be priced over $1000 a ton over 2

M3 and be the material of choice. 3

MR. MILLURE: Oh, I understand that, but 4

$8.00 a watt will give you an efficiency above EL

- 0. 5

MR. SCHOEN: That’s the point is that this 6

model can treat those higher applications where 7

someone

-- the efficiency is the minimum point. Then 8

as you go up in loss evaluation, you drive that up 9

further and further. So yes, you’re right. It is a 10

more efficient transformer, but it does meet, the way 11

our model runs, it meets DEL

- 0. Then you go to the 12

ne xt one at DEL

- 1, then DEL

- 2. The efficiency 13

constraints alter the way our

-- in fact all 14

transformer design models run. And you end up picking 15

different optimums and you end up with different 16

things. These are questions for the transformer guys. 17

This i s a tool that we have used, and have used it for 18

decades, and it’s worked very well for us, and we use 19

it to basically determine what the value of M2 versus 20

M3 versus M4 is, based on open market loss 21

evaluations. 22

Now we’re applying efficiency and our mod el 23

isn’t quite up to that snuff. But it does show what 24

will happen in the pricing trends. 25Executive Court Reporters (301) 565

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MR. DeLASKI: Jerry, this is Andy DeLaski. 1

Just a question. I presume that this model is very 2

sensitive to the price assumptions that you made. 3

MR. SCHOEN: We used the price assumptions 4

from the NOPR. 5

MR. DeLASKI: Which had three scenarios, 6

2006, 2008, and 2010 prices. 7

MR. SCHOEN: We used the 2010 prices. 8

MR. DeLASKI: And are the 2010 prices 9

consistent with the prices that your company observed 10

in 2010 ? 11

MR. SCHOEN: They were consistent, yes. Now 12

the thing in here is what you see as you go forward 13

are the other market effects of the efficiency 14

standards on our ability to set prices. When I say 15

that, we basically are matching what the market will 16

bea r. Well, if you increase the standard to say DEL

17

0, we would have to pretty much take our price for M2 18

and lower it by about $1500 a ton to be competitive 19

with amorphous metal. And on M3 it’s worse than that, 20

I believe it’s closer

-- yeah, it’s about $20 00 a ton, 21

to be competitive. In other words, you’re looking at 22

reducing the price of M3 by over 50 percent. 23

(discussion off mic) 24

MR. COULTER: I’m sorry, this is Greg 25Executive Court Reporters (301) 565

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Coulter with Prolec. That chart can go either way. 1

He has to lower his price to be competitive with 2

amorphous steel or say it another way, the amorphous 3

guys could raise their price that much and still be 4

competitive with the silicon steel. And that’s why 5

we’re very concerned about sensitivity analysis 6

because there’s opportunity her e for major price 7

adjustments if you pick an efficiency that drives us 8

into heavy amorphous, because there’s no other product 9

to compete against it. You look at me like

-- you 10

understand what I’m saying right? 11

PARTICIPANT: Sure. 12

MR. SCHOEN: Jerry Sc hoen, AK Steel. Greg, 13

do I take it that this fits with what you

-- I mean, 14

I’m sure you guys have done a similar type of 15

analysis. Does it fit with this? I mean the reason 16

why we were actually encouraged to submit this was 17

when we engaged Phil and Carlo s, and we saw Carlos’ 18

report, after those two came together, we looked at 19

our work and we said, hey, we might actually know what 20

we’re doing more than we thought. Because again, 21

we’re steel makers, not transformer designers. And 22

this gets complicated. 23

MR. PARKER: Carlos are you

-- 24

MR. GAYTAN: Carlos Gaytan, Prolec GE. Our 25Executive Court Reporters (301) 565

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summary is that our data correlates well with AK 1

Steel’s report, both on the behavior of the different 2

ELs and the price differentials for the materials in 3

that analysis. 4

MR. P ARKER: Okay. What

-- I think that 5

what I would suggest that we

-- I would suggest that 6

we do is that we set up a process and a workgroup for 7

validating basically this model for comparing it to 8

what Navigant has done with their engineering analysis 9

and fo r, particularly, can you supply the model that 10

you used to generate this? 11

MR. SCHOEN: Yes, we can. 12

(discussion off mic) 13

MR. PARKER: And explain it in different 14

ways. 15

PARTICIPANT: (off mic) ... is the Navigant 16

model. 17

MR. PETERSEN: So is ours. O urs is the 18

Navigant data, just as you mentioned. It’s the 19

pricing that’s in the NOPR. 20

MR. PARKER: All right. So maybe what we 21

should

-- so the

-- 22

MR. PETERSEN: We actually had a 23

conversation with Brian about a week ago. We have 24

shown this to him already to kind of get a heads up of 25Executive Court Reporters (301) 565

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where we were going. 1

MR. NADEL: This is Steve Nadel. Something 2

is not quite adding up because this chart basically 3

shows that you should have some pretty

-- amorphous 4

should almost be competing now, but you don’t h ave 5

very much market share, that’s one. Two, the Navigant 6

analysis shows it’s not at least until design

-- TSL

- 3 7

that you start getting significant amorphous. And 8

this seems to imply that even at one you would. So 9

something is not lining up, and I don’t know if 10

Navigant has ha d a chance to look at this yet and 11

maybe comment on it, but it’s not quite computing. 12

MR. COULTER: This is Greg Coulter again. 13

Because I do want to comment to that. We agree that 14

amorphous does compete now, and at these lower 15

e fficiencies. But the problem with the Navigant model 16

is he just can’t look

-- the methodology he uses to 17

get there can’t quite look down there, so he doesn’t 18

quite come up to the same efficiency we would, or the 19

same cost data we would at EL

- 0. However, the problem 20

you have is, when it’s close to each other, all us 21

manufacturers are going to go with silicon steel. We 22

don’t have to make the investment it takes to get into 23

amorphous manufacture. There’s big investment for 24

transformer manufacturer, so if t hey’re close, we’re 25Executive Court Reporters (301) 565

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going to be a silicon steel guy. And the data proves 1

it. There’s very few people making amorphous for 2

efficiencies today, even though they will compete, 3

we’re not going to make that investment. 4

MR. PARKER: So what I understand you to be 5

saying then is that because of the capital investment 6

required for shifting manufacturing from conventional 7

steel to amorphous is a built

- in advantage for 8

conventional steel. Then the question is at what 9

price differential between amorphous and conv entional 10

is that inherent advantage nullified? 11

MR. COFFEY: (off mic response) 12

MR. PARKER: And are you able to supply that 13

-- would you like to comment. 14

MR. COFFEY: Brian Coffey. I think I missed 15

the first part of what you said, but I would sugges t 16

that our modeling shows that amorphous is competitive 17

at some of these lower CSLs, and I think that once you 18

get a click or two up from where we are today, we show 19

it as looking pretty good and it’s selected in the LCC 20

model with gusto. 21

MR. SCHOEN: Je rry Schoen, AK Steel. In the 22

submission that we sent in, we have a whole series of 23

pages from the Navigant engineering analysis in there. 24

We stripped it out just to M3 on a number of these, 25Executive Court Reporters (301) 565

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and it shows that when you go to three

- phase units, 1

amorphous me tal would be the metal of choice, even at 2

DSL

- 0 or DEL

- 0, excuse me. When you’re into the 3

single

- phase units, it’s close, but it is

-- but from 4

our view and the view, again, as Brian said, we’re 5

close to that crossover now and competitive. 6

To Greg’s poi nt, one of the issues that they 7

face as manufacturers is supply. If they can’t get 8

the steel from AK, they can get it from ATI. If they 9

can’t get it from ATI, Nippon and JFE can provi de a 10

comparable material, or Thy sse nKrupp Steel. The point 11

is, wide av ailability and abundant supply. And 12

attractive cost, because we are all competing with 13

each other all the time in this global market. 14

MR. MILLURE: Dave Millure, Metglas. I 15

would contend that we are also competing in the exact 16

same market in the exact same way that the silicon 17

steel people compete. 18

MR. PARKER: Steve Nadel. 19

MR. NADEL: Yes. Richard, one of your early 20

questions and I think what we’re trying to get to is 21

what type of option do we want to analyze so we can 22

get more data as opposed to trying to resolve it here 23

today. I think what this discussion has shown is if 24

you have an option where amorphous and silicon steel 25Executive Court Reporters (301) 565

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are the same price, everybody says they’re going to 1

use the silicon, so that’s not that balancing point. 2

PARTICIPANT: ( comment off mic) 3

MR. NADEL: Right. Off the top of my head, 4

looking at these graphs I would say you need to look 5

at a place where the silicon steel is two to three 6

dollars more per watt than the amorphous. And I throw 7

that out as a trial balloon for pe ople to react to in 8

terms of where is this, quote, “tipping point.” Where 9

the two can compete, it’s kind of protection against, 10

well, the amorphous guys want to run the price up, but 11

it’s enough that a lot of people will say, okay, we’re 12

really going to l ook at amorphous here. 13

MR. PARKER: Well, that’s helpful. Let me 14

posit at that one option. Another would be to 15

actually work with Navigant and look at the cost of

-- 16

look at the manufacturing impact and look at the cost 17

of retooling for amorphous produ ction, and analyze 18

that point at which the price differential offsets 19

that cost. If that data

-- if I understand that that 20

data has already been provided, that should be a 21

fairly easy point to determine, but maybe I 22

misunderstood. Does that make sense to people? 23

MR. HIRSCH: Bruce Hirsch, PG&E. To answer 24

one of Steve’s questions, as a user of these products 25Executive Court Reporters (301) 565

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of transformers, we also have other specifications 1

that may require the manufacturers to use the silicon 2

rather than the amorphous

-- weight, size

-- we talked 3

about all those issues. So we need to keep that in 4

mind. But I guess the thing I just want to say from 5

the utility industry, we don’t care which steel 6

supply, we leave that up to the transformer 7

manufacturers and they work the economics and give us 8

bids and we buy on competitive bids. So we really 9

don’t care along those lines. So I think it’s 10

important to understand, you know, the utility 11

industry isn’t really driving that part of it. 12

MR. SCHOEN: Jerry Schoen, AK Steel. If you 13

go back t o the charts that I was presenting, if a 14

specific utility wants to evaluate at six or $8.00 a 15

watt, or let’s say you have a solar station you want 16

to evaluate at $18, that’s the highest we’ve heard, 17

they’re going to want to use amorphous metal 18

transformers , and they should. If they’re on four, 19

six, $7.00 a watt, it’s very competitive, and that’s 20

where the body of the market is. It’s a very 21

competitive situation with amorphous metal, and a 22

whole variety of silicon steels from steel 23

manufacturers. 24

MR. P ARKER: Okay. We need to zero in 25Executive Court Reporters (301) 565

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though, because time is very short, we need to zero in 1

on the things we need to focus on. Ray. 2

MR. POLINSKI: Ray Polinski, ATI. Just to 3

echo that. I mean I think the task that was put out 4

there, and I give AK credit, they did a good job. It 5

was the

-- and Mr. Berman, is he not here today? I 6

kind of miss him, but what he said at the first 7

meeting was like, hey, steel prices can go up and down 8

as any price for any product can go up and down, but I 9

think the challenge was for some of these standards, 10

prices got to go down like 50 percent, and that’s just 11

not sustainable. I mean you can’t run a business if 12

you’re not profitable long term. So I think we’ve 13

kind of just

-- we put the challenge was here as where 14

do you wa nt to compete, number one, and so it’s like 15

in some of these liquid filled, it seems it’s like in 16

the no change or is it one click up from there or 17

whatever, and so I don’t know why we’re still debating 18

those issues. And that’s the competitive side of it. 19

And as far as pricing, Greg Coulter made some good 20

comments is in our prices go two ways. Prices

-- it’s 21

more likely the prices will go up than prices will go 22

down 50 percent, because you can’t sustain 23

profitability and reinvestment in your business. 24

And the next piece is just strategically, as 25Executive Court Reporters (301) 565

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a country, I mean we don’t want to have a standard 1

that requires only one material. I mean, and I would 2

just

-- maybe Dave can comment on just those areas

-- 3

availability of raw materials for amorphous, like 4

fe rroboron, is there enough ferroboron to

-- available 5

to increase your capacities to meet some of these 6

demands. 7

MR. HYLAND: I’ve been sitting here quite 8

quietly trying to get in, and I let you guys attack 9

each other. I just

-- befo re we came to the fir st 10

meeting, I did something that trade associations do 11

well, you know, I sent a note out to my T&D guys, 12

about 600 utilities, and I received a plethora of 13

replies back to questions. And this really goes

-- 14

Steve something you said got me all fired up. An d I 15

can’t remember what it is. I sat here so quiet and 16

Bob said you’ve got to jump in and start screaming. 17

But I asked the question, do you purchase 18

amorphous core transformers, and I would say about 50 19

percent of the utilities said they had at one poin t, 20

it had problems, or they evaluated them, and they 21

don’t. Now, I’m not going to say their names, but I 22

can tell you collectively, I can probably get a 23

percentage if you want to see it. They’ve had bad 24

reactions from the suppliers when they need to be 25Executive Court Reporters (301) 565

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f ixed. I have one right in front of me where core 1

failures on two 750 KVA units and two of their 2000 2

KVA pole mount units, pad mount units, and they got 3

bad reviews working with the vendors on it. It’s not 4

just about pricing, and it’s not just about what ’s the 5

most efficient, there’s an aversion from a lot of the 6

municipals of amorphous steel. To the point that some 7

even wrote it’s in their contract, they’re not buying 8

it because they had problems with it. Now those 9

problems may have been taken care of, and maybe it’s 10

the same as the way lighting used to be when you 11

turned it on it would take 35 seconds for the light to 12

come on on fluorescents. But it is just something, it 13

is true, it is out there. Has nothing to do with 14

price and efficiency. It’s usa bility. 15

MR. DeLASKI: Just a follow up question, 16

Mike. You said about 600 utilities you poled. 17

MR. HYLAND: I told Chris K... I was going to 18

work with Chris because he wanted some real data, and 19

I said, well, I don’t know exactly what questions he 20

want s me to ask. So we were going to sit down and ask 21

questions. I do questions like, you know, how often 22

do you visit your A and B factors? Have you 23

purchased amorphous core transformers? What 24

difficulties have you experienced with pole or pad 25Executive Court Reporters (301) 565

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mounts due to increased size? And I’ve got a lot of 1

utilities that have given me true information. Well, 2

hey, I bought this transformer, I had to change out a 3

pole. One guy laughed and said, well, the pole’s a 4

piece of shit anyway and needed to be changed out. 5

MR. DeLASKI: It’s nice to have that color, 6

and I

-- but I think the challenge for us as this 7

committee is how do we move from the anecdotal to 8

understanding

-- and I understand so if you got 100 9

responses, was this three, or was it 50? You know 10

what I me an? And that’s what I

-- 11

MR. HYLAND: And that’s what

-- I’m going to 12

work with Chris. I said if we get a list

-- one of 13

the niceties of being in APPA is I have a list of 14

pretty much about 1000 utility guys out there at my 15

fingertips. And I’ve been at other meetings

-- I’m 16

the chair of the National Industrial Safety Code. And 17

I remember having a discussion on FR clothing (ph). 18

And we discussed whether you treat your generating 19

stations with NEC or NESC. And I said hold on. And I 20

sent out an e

- mail, and it was about nine o’clock in 21

the morning, the beginning of the meeting. By noon I 22

had 250 responses from utilities, true responses from 23

utilities in the United States. So, as I said to 24

Chris, if we word the questions correctly on what he 25Executive Court Reporters (301) 565

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needs to kn ow to help him with his cases, I will 1

gladly send that out tonight to try to get 2

information. Now, I can’t promise it’s going to be 3

250, it may be 25, it may be 50, but it’s going to be 4

-- if it’s worded in a way that doesn’t lead them into 5

an answer, but gives a true answer, I think it would 6

be helpful. 7

MR. DeLASKI: I think if you go down that 8

path, it’s important to ask those questions, not just 9

focused on amorphous, but, you know, the question is, 10

what’s the relative incidents of these kinds of 11

probl ems and again, we have to be careful about 12

anecdotes, particularly with technologies that are new 13

technologies. As you said, your analogy to lighting 14

or other products. Utility T&D guys aren’t known as 15

sort of the

-- you’ve been doing ... in a certain way 16

for a long time, right, and new technologies do 17

create, I think, concerns. And I understand that. 18

MR. HOPKINSON: Phil Hopkinson, HVolt, Inc. 19

MR. PARKER: I’m sorry, we’re going to have 20

to close the discussion. We’re just going to have to 21

close the d iscussion. It’s 10:30. I’m sorry, we have 22

to close the discussion. 23

MR. HOPKINSON: I was going to comment on 24

the field failures that have occurred with

-- 25Executive Court Reporters (301) 565

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MR. PARKER: Phil. We have to close the 1

discussion. Sorry. What I suggest is we’re going to 2

reserve some time at the end for action items going 3

forward, and this is clearly an action item. We need 4

to validate, to make sure that the advocates are 5

comfortable with the model being applied, and we need 6

to come up with

-- I reiterate the charge that w as 7

made at the last meeting, which wasn’t accomplished. 8

We really have to accomplish it this time, we have to 9

come up with competitive price points. Obviously, not 10

price of amorphous equals price of silicon. Steve put 11

out a constructive proposal which i s choose a number 12

that gives people a good gut feel. We need to find 13

out if there’s a way to make that more rigorous. I’d 14

like to see if there’s a way to make that more 15

rigorous. But we need to

-- please, talk to me during 16

the break. I’m eager to have people step forward and 17

form a working group that will develop this on line 18

and will come up with recommendations very, very soon, 19

so that we can give LBL their marching orders. 20

They can go ahead and do the work for the 21

other TSLs, and I think they’re doing that, but this 22

is, I think all agree, this is an important data 23

point. It’s not anything that anybody’s going to 24

commit to as driving a decision, but it’s important 25Executive Court Reporters (301) 565

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information to have. 1

So we need to make sure that we have a 2

robust set, and I’m encouraged by the fact that you 3

guys are working off Navigant data so we don’t have 4

two competing datasets. So we should be able to 5

reconcile that and come up with a constructive way 6

forward very soon. 7

So again, we’re going to be setting up this 8

share p oint electronic interface so that we can have a 9

dialogue between this meeting and the next and we just 10

have to basically, I think, agree that we’re going to, 11

you know, make some decisions. Not some final 12

decisions, but some analytical decisions, process 13

d ecisions on line so that we can have the analysis in 14

time for the next meeting. 15

So let’s take a five minute break. I’ve 16

committed to giving Steve Nadel and Andrew and the 17

advocates a chance to throw out some concepts for big 18

picture for moving forward. I think, Steve, you had 19

some concepts you wanted to put forward as well

-- 20

MR. ROSENSTOCK: And just quick, they did 21

have certain recommendations in their paper here. 22

MR. PARKER: What’s that? 23

MR. ROSENSTOCK: These manufacturers had 24

some recommenda tions, Section four show 25Executive Court Reporters (301) 565

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recommendations. 1

MR. PARKER: TSL. The train’s moving, the 2

ball’s in the air, whatever it is. 3

(Whereupon, at 10:30 a.m., the meeting was 4

recessed for a 17 minute period.) 5

MR. HYLAND: Before we start, this is Mike 6

at APPA. A couple people asked if I would put the 7

answers that I did receive together and send it out. 8

I’ll try to do that this week. I’ll just pull it out, 9

because some of the interesting things that also I 10

didn’t mention is, you know, what is the size of your 11

a nnual transformer budget? I’ve got utilities that 12

are saying $30,000 a year, so you can see maybe their 13

difficulty is the fact that they buy so few 14

transformers that the supplier might not be showing 15

them the love when they do have a problem, versus a 16

nei ghbor who has a $5 million dollar a year 17

transformer budget. So it is an issue for us. 18

MR. PARKER: Okay. Thanks. Let’s go back 19

on the record here. One thing I heard was

-- I was 20

just asked speakers, remind everybody who’s speaking 21

to turn on the mic s when you speak and turn them off 22

when you stop. Some of the webinar attendees are 23

complaining about feedback, which is caused by leaving 24

mics on, so let’s try to be sensitive to that. 25Executive Court Reporters (301) 565

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Thanks. 1

Okay. A couple of things that we need to do 2

next. We hav e a short presentation by Rob Carmichael 3

about manufacturing impact that I think will shed 4

light on some of the analysis, some of the discussion 5

that we had before. And when we’re talking about 6

manufacturing impacts here, we’re talking about 7

distribution transformer manufacturers. So let me 8

turn it over to him to walk us through his analysis. 9

We’ll have a very short discussion of that and then 10

we’ll open the floor to discussion of concepts. 11

**Presentation** 12

**Distribution Transformer Manufacturing Impacts** 13

MR . CARMICHAEL: Thanks, Richard. Rob 14

Carmichael with Navigant. And it is good timing for 15

this, I think, after the last discussion. So I’m 16

going to take us right kind of the meat of the issue, 17

kind of out of respect for everyone’s time and we have 18

a lot o f things to cover. 19

So three things I want to cover today. 20

**•** First is to discuss the key issues that we 21

uncovered when you go through manufacturer 22

interviews. We do dozens of interviews of 23

manufacturer of distribution transformers, steel 24

suppliers, equ ipment suppliers. I want to just 25Executive Court Reporters (301) 565

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give an overview of those key issues. 1

**•** Then I want to explain our methodology for 2

calculating the conversion costs, and when I say 3

conversion costs, I’m talking about the capital 4

expenditures that distribution transformer 5

m anufacturers will incur as a result of any 6

standard, so it would obviously vary, given the 7

standard level. 8

**•** And then I want to get feedback on those 9

assumptions that we used. 10

So the purpose is to give a quick intro into 11

the MIA. Obviously the purpose is to assess the 12

impacts on manufacturers and really the core of that 13

is to estimate what the costs are. We also look at 14

certain manufacturer subgroups. Typically we’ll look 15

at small business manufacturers. Are there any that 16

are disproportionately impacte d by standards. And 17

we’ll also look at impacts on employment, and look at 18

impacts on manufacturing capacity, both critical 19

issues in this rulemaking. 20

What were the key issues? For liquid 21

immersed transformer manufacturers, you know, we’ve 22

heard them al l before: conversion costs, strain of 23

assets were a big issue, particularly when you go from 24

the step change from conventional steel manufacturing 25Executive Court Reporters (301) 565

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to amorphous core manufacturing. Core steel 1

availability, a lot of manufacturers are very 2

concerned about h aving a single source, so if you have 3

a single source, you’re dependent on them for 4

obviously the key cost driver of your equipment. And 5

then disproportionate impact on small business. 6

Similar issues for the medium voltage dry 7

type. There was a little more concern about moving 8

from stacked core to wound core. You have a slightly 9

different issue in terms of what drives your capital 10

costs. Instead of the switch to amorphous, you’re 11

looking at thinner steels, you’re looking at needing 12

more steel per tran sformer, both of those things lower 13

your throughput, require more capacity, or conversion 14

costs. And then small manufacturers

-- we heard more 15

concerns related to small manufacturers in this 16

superclass. Some small manufacturers said they 17

couldn’t even ge t price quotes for ZDMH and amorphous. 18

Some said they’d have to source

-- if they h ad to make 19

wound cores, so they thought they’d be at a 20

disadvantage relative to more vertically integrated 21

larger competitors. And some said they had limited 22

experience pr oducing stacked cores with higher grade 23

materials, so anything better than an M6, for 24

instance. 25Executive Court Reporters (301) 565

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So really, I mean, what the conversion costs 1

-- conversion costs are driven by what we’ve been 2

talking about, and that’s what’s the change in steel 3

quantity a nd steel mix? What type of steel are you 4

using in the base case, compared to the standards 5

case? And in

-- that is driven, we’ve seen LBL’s 6

analysis, so they put out an analysis estimating what 7

core steels were used and what quantities by TSL. So 8

that’s the basis for this analysis. 9

The manufacturer interviews, the equipment 10

supplier interviews, and some assumptions carried over 11

from the previous rulemaking drive our understanding 12

of the production process that distribution 13

transformers use, and the equ ipment capacities that 14

they have. So putting that

-- using that in 15

combination with the steel mix, the change in steel 16

mix, and then the equipment costs, we were able to 17

calculate the capital conversion costs. 18

And so for

-- this is a slide that basicall y 19

tells the story that people are looking to hear. For 20

the liquid immersed super class, really the change, if 21

conversion costs were incurred where you have to 22

produce amorphous cores. We found a wide range of 23

costs for the big hitters, we’re talking abou t core 24

cutting machines, annealing ovens, and then 25Executive Court Reporters (301) 565

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miscellaneous equipment. Depending on who the 1

equipment supplier is, the brand, the capacity, bells 2

and whistles associated with those, level of 3

automation, this is the range of costs we found. 4

Tried to normalize it to the best our ability to. A 5

line that’s doing about 1100 metric tons of core steel 6

per year. 7

MR. MILLURE: Rob, Dave Millure, Metglas. 8

We concur, those are pretty good numbers. We do this, 9

we work with customers all over the world buyin g 10

stuff, so that those look good to us. 11

MR. CARMICHAEL: This is really the take 12

away, so if there are any other comments, I think this 13

is what the conversion cost that we see manufacturers 14

incurring. Wes. 15

MR. PATTERSON: Wes Patterson. If I look at 16

the high end, I’ve got 600, 250, and 150, so that’s 17

like roughly a million bucks. And then on the lower 18

end you’ve got 200 plus 50 plus 50 is $300,000. My 19

experience has been there’s no way you’re going to get 20

into that kind of production at a $300,000 number. 21

MR. CARMICHAEL: Okay. 22

MR. PATTERSON: So in your analysis, what 23

did you use? Did you use like 300,000 or did you use 24

a million? 25Executive Court Reporters (301) 565

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MR. CARMICHAEL: We used the midpoint. 1

MR. PATTERSON: I don’t think the midpoint’s 2

very accurate either, be cause that’ s saying a $ 500,000 3

cap ex and a $500,000 cap ex has not been what we see. 4

MR. CARMICHAEL: So midpoint, I guess we 5

used $650,000. So you’re saying that sounds low? 6

MR. MILLURE: Dave Millure, Metglas. The 7

cutting machines are

-- they are sold today, a lot of 8

them are coming out of Taiwan are on the low end of 9

that and they’ re very good machines, and they’re 10

getting better and better each day. That high end is 11

potentially a Giorg (ph) machine. They’re just 12

getting into the business. And also I would like to 13

point out that floor space is not included, right, 14

Rob, at these numbers? 15

MR. CARMICHAEL: Floor space

-- this assumes 16

you have

-- 17

MR. MILLURE: If you’re going to build a 18

building, obviously your costs will go up. 19

MR. CARMICHAEL : This assumes that floor 20

space for conventional would be repurposed for 21

amorphous. 22

MR. ROSENSTOCK: Steve Rosenstock, EEI. And 23

in terms of this, what percentage of this equipment is 24

domestically produced versus having to be imported? 25Executive Court Reporters (301) 565

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MR. CARMICHAEL: The core cutting machines 1

that we got were all imported. A couple German, one 2

from Taiwan. The rest is a mix. 3

MR. ROSENSTOCK: Steve Rosenstock, EEI. 4

Thank you very much. Do you have an idea about the 5

percentage mix? 6

MR. CARMICHAEL: I couldn’t g ive you that. 7

It’s

-- no, I’d have to look into that. 8

MR. ROSENSTOCK: Okay. Do you think it’s

-- 9

are there, I’ll say significant number of overseas 10

suppliers for the other two types of equipment? 11

MR. CARMICHAEL: Well, yes, so there’s a lot 12

of small hitters in there, it’s not really an 13

applicable. 14

MR. ROSENSTOCK: But the core cutting 15

machines, which is the largest one, it’s all imported? 16

MR. CARMICHAEL: Yes. 17

MR. ROSENSTOCK: Thank you very much. 18

MR. POLINSKI: Ray Polinski, ATI Allegheny. 19

And maybe Wes or someone else can comment on how many 20

of these units will you need, like for

-- I mean is 21

this one unit would run all of Jeff’s city’s (ph) 22

needs or would you need to buy a number of these 23

units? 24

MR. PATTERSON: His numbers there, if I 25Executive Court Reporters (301) 565

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un derstand them correctly, is for conversion of 1000 1

metric tons of steel. 2

MR. CARMICHAEL: That’s right. 3

MR. PATTERSON: So that’s what he’s using. 4

So if you limit the conversation to that dimension, 5

then the only challenge I have is I think these 6

numb e rs are very low compared to reality. 7

MR. MILLURE: Dave Millure, Metglas. As far 8

as the import question, these kinds of issues are not 9

rocket science, and a number of our customers design 10

their own machines, which would actually probably 11

reduce those c osts significantly. This is not a 12

complicated thing, it’s just a different machine than 13

used for silicon steel. 14

MR. BECK: Scott Beck, Lakeview Metals. I 15

don’t know if they’re run of the mill, the cutting 16

lines, but I would concur with those numbers up there, 17

and we do produce amorphous cores. We supply both the 18

large OEMs and the small OEMs competitively, amorphous 19

cores, and I would agree with those numbers. 20

MR. CARMICHAEL: Yes, I just wanted to make 21

sure

-- Wes, you said these were low. Even the high 22

end looks low? Or just

-- or the midpoint that I 23

mentioned was low? 24

MR. PATTERSON: I believe the midpoint is 25Executive Court Reporters (301) 565

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what I was referring to at 650. I think it would be 1

closer to a million dollars for cap ex. 2

MR. CARMICHAEL: Okay. Okay. 3

MR. PARK ER: But it sounds to me, to cut to 4

the chase, that whatever the exact number, it’s going 5

to be

-- my take away from you talking at the break, 6

Rob, is that these are small compared to the big 7

picture, right? These are

-- they’re small numbers 8

compared to the overall

-- 9

MR. CARMICHAEL: Those aren’t the words I’d 10

use. I just

-- you’re asking us can that give us the 11

balance point? Can we almost amortize this over 12

costs, and I was saying that in the large scheme of 13

things when we’re talking about price fl uctuations of 14

50 percent, I don’t know as this adds that kind of 15

granularity. 16

MR. PARKER: That’s what I meant by the big 17

scheme of things. I guess the question would be does 18

that give you a different point if you’re talking 19

about this competitive TSL, is there a significant 20

difference between price parity as one TSL and price 21

parity plus conversion costs for amorphous as another 22

point? It doesn’t sound like that’s going to be a 23

very significant delta. 24

MR. COULTER: (off mic comment) ... a million 25Executive Court Reporters (301) 565

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dolla rs for 1000 metric tons, so you can

-- 1

MR. PARKER: Sorry, you need to speak into 2

the mic. 3

MR. COULTER: So a million dollars

-- if you 4

could round for a million dollars for 1000 metric 5

tons, just because you can do some quick math, we’re 6

going to do, if we go amorphous, we’re doing, for our 7

volume, probably 40,000 metric tons

-- help me out, 8

Carlos, am I right. 9

MR. GAYTAN: For distribution transformers, 10

25. 11

MR. COULTER: Twenty

- five, so you’re talking 12

two and a half million dollars worth of invest ment. 13

MR. CARMICHAEL: Twenty

- five million. 14

MR. COULTER: Twenty

- five million. 15

MR. GAYTAN: You need a calculator. 16

MR. COULTER: It’s not easy for me, that’s 17

why Carlos really does this. That’s not a small 18

number. That’s my count. 19

MR. PARKER: Right. And that was Rob’s 20

comment. And just to clarify, if you amortize that 21

over all the units produced in the new facility, would 22

that produce a major delta in the price per unit, that 23

is what I was trying to get at. I’m sorry if I wasn’t 24

very clear . And I’m not saying what the answer is, 25Executive Court Reporters (301) 565

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that was my take

- away, but I could be wrong. 1

MR. MEYERS: Aaron Meyers, Cooper Power. My 2

only point here is that the capital expenditure is not 3

the only cost that needs to be incurred to convert. I 4

mean these m achines show up, you can’t just 5

automatically start producing amorphous core 6

transformers. They’re very different, the material 7

behaves quite differently. There are processes that 8

are involved that are not involved in processing 9

silicon steel. There’s t raining, installation

-- 10

there are a ton of other costs that are involved. 11

It’s not like the equipment shows up and you instantly 12

know how to use it. 13

MR. MILLURE: Dave Millure, Metglas. We’d 14

be glad to get you up and running in a week. We do it 15

all t he time all over the world. And also, as far as 16

the amortization, we can’t compete on cost parity with 17

silicon steel. If we have a customer who does silicon 18

steel and all of our customers in the world except one 19

do both silicon steel and amorphous. We h ave to give 20

them a better deal, essentially, to talk them into 21

making this investment in amorphous because they’ve 22

got to make a return on their money. So you can do 23

all these modeling all day long, but we’ve got to 24

develop a new market. We’ve got to be below that 25Executive Court Reporters (301) 565

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parity point, otherwise no one, like Greg said, no 1

one’s going to invest. 2

MR. PARKER: Okay. Did you have anything 3

else to add on this, Rob? 4

MR. CARMICHAEL: Yes, just to address 5

Aaron’s point. In the MIA we calculate something 6

called prod uct conversion costs, so that deals with 7

the testing, the R&D, kind of some of the engineering 8

time that you would need to learn to bring that up to 9

speed. I haven’t put that there because we haven’t 10

completed that analysis, but that’s something that is 11

a ddressed. 12

MR. POLINSKI: Ray Polinski, ATI Allegheny. 13

This analysis, what’s the impact on employment? I 14

mean does it take more employees to run this 15

equipment? Less? So is there

-- cost

- wise are you 16

adding cost in labor or are you reducing costs and 17

eliminating jobs? Just curious. 18

MR. CARMICHAEL: I would answer that by 19

saying we’ve heard both in interviews. But really, I 20

think, it depends on whether or not you invest in the 21

United States or elsewhere, or if you source your 22

cores. So there are a number of different options 23

that a manufacturer could choose, could pursue, that 24

would lead to different employment outcomes. And it’s 25Executive Court Reporters (301) 565

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-- I don’t think I can characterize it in one way 1

based on the interviews. 2

MR. POLINSKI: So an assumption is new tool 3

then? I mean what’s the assumption if the labor cost 4

is the same or

-- 5

MR. CARMICHAEL: I think we’d have to get 6

back

-- we haven’t completed that analysis. I mean, 7

we don’t know

-- so we usually go by TSL, and where

-- 8

what happens to labor content b y TSL. So once we have 9

those situated, then we can get you a better answer on 10

that. 11

MR. ROSENSTOCK: Steve Rosenstock, EEI. And 12

you break that out domestic versus overseas? 13

MR. CARMICHAEL: No, we only do domestic. 14

MR. ROSENSTOCK: Thank you. 15

MR. PARKER: Okay. Thank you, Rob. That’s 16

very helpful. I think that’s a useful analysis to put 17

in. I think it underscores the need for people, if 18

they have concerns about these numbers, to get them to 19

Navigant absolutely as soon as possible so they can 20

t ake them on board. Because we’re not going to be 21

able to keep revisiting that kind of issue. So, 22

please, if you have concerns, take them on board and 23

this will factor into

-- we’ll fold that into the 24

discussion about what that competitiveness TSL should 25Executive Court Reporters (301) 565

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be. 1

Let me stop there and turn it over to Steve 2

Nadel, if you would

-- excuse me. 3

MR. CYMBALSKY: (comment off mic) 4

MR. CARMICHAEL: I’m sorry, could you use 5

the microphone? 6

MR. PARKER: Before we do that I think John 7

thought that it would be helpf ul for Katie from LBL to 8

just recap where we are in the TSL selection since 9

we’ve been talking about that. So I think that’s a 10

nice suggestion, thank you. 11

**T rial**  **S tandard**  **L evel**  **(T SL**  **) Selection**  12

MS. COUGHLIN: Jeremiah is going to bring up 13

a couple of slide s with some text, but basically this 14

is first of all just to remind you of the terminology. 15

**•** So we have the draft efficiency levels, which 16

are in the current documentation. Those are 17

defined for each design line. 18

**•** And then the trial standard levels are 19

com binations of efficiency levels for each 20

design line, so they can be selected 21

independently. 22

**•** And in the flow of information through the 23

analysis, the engineering price efficiency 24

curves don’t really depend on the efficiency 25Executive Court Reporters (301) 565

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levels. Those are just produced. 1

**•** And then the efficiency levels are those 2

vertical lines that are drawn onto those 3

engineering diagrams. 4

**•** The efficiency levels affect the LCC. 5

**•** But to move on to the National Impacts analysis 6

and the manufacturer impacts analysis, we also 7

need to have the trial standard levels, which 8

are the choices of particular efficiency levels 9

for each design line, and then combined into the 10

impact on the product market using market shares 11

and all that. 12

In general, for rulemakings, there are a 13

number of trial standar d levels that are now sort of 14

becoming routine to analyze, and one of those is 15

referred to as Maxtech. So we take the highest 16

efficiency that is technologically feasible and we 17

just go through the exercise of analyzing the 18

potential energy savings and nati onal and constant 19

benefits associated with that. 20

A second one is referred to as Maximum MPV, 21

it more or less translates into the same as Minimum 22

LCC, so it’s the maximum economic benefit essentially 23

associated with different efficiency levels for each 24

de sign line. 25Executive Court Reporters (301) 565

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A third one is the maximum energy savings 1

subject to no negative MPV. So it’s a sort of 2

economically neutral but maximum energy savings 3

associated with those set of choices. 4

During the first low voltage dry type 5

committee meeting, we were a sked to include a 6

standard level that‘s based on a reduction in annual 7

energy operating costs, because for buildings and 8

building energy managers, this is becoming a fairly 9

standard type of target for developing energy 10

management programs, so we agreed tha t we would put 11

in, it’s a nominal 30 percent

-- a standard level 12

associated with a 30 percent decrease in the 13

operating costs

-- energy

- only operating costs. 14

As has been discussed, we intend to create a 15

standard level associated with something to do with 16

the technology breakpoint, that is

-- the details of 17

that are still being sorted out. It can be core 18

materials and it can also be other constraints 19

associated with putting a new technology into the 20

market. So that’s something that we will include 21

when i t gets to the point where it’s sufficiently 22

well defined. 23

And then finally, once we’ve done all of 24

these, if there are gaps in the design space, you 25Executive Court Reporters (301) 565

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sort of have a big jump from one low level to a high 1

level, we will just put in something to fill in that 2

gap to kind of complete the information associated 3

with the analyses. 4

So, I guess

-- I mean we can e

- mail that to 5

everybody and you’ll have some notes on what I just 6

said. 7

PARTICIPANT: (comment off mic) 8

MS. COUGHLIN: Yes, so that’s essentially, 9

if you look at the operating cost savings

-- sure we 10

can do that. It’ll be part of the documentation. 11

MR. DeLASKI: So just one point of 12

clarification, if I may. In the first meeting there 13

was

-- we had a discussion that there was a 14

technology breakpoi nt, then there’s this economic 15

point that we’ve been talking about this morning. 16

One was strictly defined by, you know, are there 17

multiple technologies that can be used to comply with 18

the standard, setting aside question of are they 19

competitive. So is th at the technology breakpoint, 20

or ... the concept that we were discussing this 21

morning, which is where are they actually working, 22

are they competitive? 23

MS. COUGHLIN: That is actually something 24

for the committee to agree on. 25Executive Court Reporters (301) 565

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MR. DeLASKI: I thought we had agreed on 1

that in the first time, but I may

-- 2

MS. COUGHLIN: Well, I think it’s

- you 3

know, for the purposes of the trial standard level, 4

if you’re going to

-- you can create one that’s 5

purely technology, but it may not be that informative 6

in the sense of whether it represents a feasible

-- a 7

feasible option for an actual standard. So we could 8

create a second one that includes the economic 9

considerations. There’s no reason technically why we 10

can’t do both. We’re neutral on the number of trial 11

standar d levels. It’s just

-- it takes a certain 12

amount of time to process the information once 13

they’ve been selected. 14

MR. DeLASKI: I thought that we had decided. 15

This is the kind of conversation that Ray and I had

- 16

- interchange we had in the first meeting, I think

-- 17

MR. PETERSEN: If I may, Eric Petersen, AK 18

Steel , that’s entirely why we put together the 19

summary we just did with the intent to show that 20

there is an issue on the technical breakpoint which 21

is capability, but it doesn’t necessarily mean th at 22

the products are competitive. So the issue was, at 23

what point do you move from a competitiveness 24

associated with a grain

- oriented electrical steel 25Executive Court Reporters (301) 565

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suppliers, a range of suppliers, versus amorphous 1

metal supplier that can define the price at which one 2

w ould become favorable for transformer manufacturer. 3

That was the attempt of what we tried to do this 4

morning, and lay out a model which then could be used 5

by Navigant to do that type of calculation to help us 6

to see where is the breakpoint, if you will, o f 7

competitiveness. 8

MR. DeLASKI: And that depends on prices, 9

whereas this other thing I’m talking about wouldn’t 10

depend on prices. It just would be what the 11

engineering analysis shows, separate out the price 12

issues. I think that would be a helpful leve l for us 13

to have. And I thought we had agreed on that the 14

first time around. 15

MR. PARKER: I think we had agreed on the 16

technological breakpoint, and we had agreed in 17

concept on the competitiveness breakpoint. We just 18

hadn’t defined what we mean by comp etitiveness. We 19

hadn’t given it a rigorous definition. And that’s 20

what we’ve been working on all morning, right. 21

MR. ROSENSTOCK: Steve Rosenstock, EEI. I 22

appreciate Katie’s comments there and I think, I just 23

want to reiterate that I think, and I know we’re 24

going to have concepts later, but if people have 25Executive Court Reporters (301) 565

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other concepts for TSLs, I think they should be, in 1

the spirit of negotiation, that any TSL suggested by 2

this committee, whether as individual members or as a 3

group, should be analyzed, because I thin k, in my 4

mind, the more options the better. Thank you. 5

MR. PARKER: Good. That’s helpful. Okay. 6

Let’s move on then to the bigger picture before we 7

wrap up. Steve, it’s all yours. 8

**Concepts: The Bigger Picture** 9

MR. NADEL: Thanks. I wanted to pick u p on 10

what I briefly said yesterday, and I invite other 11

suggestions as well. We’ve been talking a lot about 12

the analysis. We’ve had a lot of good information 13

sharing. We’re going to get a revised analysis about 14

a week before our next meeting. 15

Next me eting is going to be where the rubber 16

hits the road. And I think we all, those efficiency 17

advocates of manufacturers, whether it’s steel or 18

transformer manufacturers, the utilities, everybody’s 19

going to be thinking creatively about what do they 20

think they can live with. What can’t they? And so 21

we wanted to put some concepts on the table so that 22

people could be thinking about those, so where they 23

think something is workable, they can start saying, 24

yeah, we think we can do this, and that will really 25Executive Court Reporters (301) 565

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advanc e the discussion. 1

Ultimately, if we’re going to reach 2

agreement, we’re all going to have to compromise. 3

We’re probably going to have to get creative as 4

opposed to

-- I heard one person say yesterday, well, 5

gee, we really want zero to two. We’re hearing you 6

say you want six to seven. I hope we’re talking zero 7

to two. You know, there are median points, and I 8

just say, I’m not trying to pick up OL as a zero, 9

two, six, whatever. We can’t be too far apart, we 10

have to find that meeting point. 11

I think als o we need to

-- effectively all 12

of use are going to be keeping a close eye on where 13

we think DOE is going to go. Effectively, what we’re 14

each trying to do is do as well or better from our 15

perspective, as what we think DOE will do on itself. 16

I don’t think anybody is gong to say, well, gee I 17

think DOE will do a level three, but I’m going to 18

hold out for a six. That’d be a lousy position on 19

our point of view, if these negotiations break down 20

and we lose. So we all need to keep our eye on what 21

we think DOE is going to do. 22

I think that having done quite a few of 23

these negotiations in the past, I think we have to be 24

realistic about that. Where negotiations have broken 25Executive Court Reporters (301) 565

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down in the past, I think one side or the other has 1

had unrealistic expectations of what D OE would do and 2

gee, they’ve been surprised when DOE came out with 3

the final rule. 4

That said, so what are some of these 5

creative compromises? I wanted to

-- actually, before 6

I do that, from the point of view of advocates, we’re 7

looking for significant e nergy savings. Significant 8

cost

- effective energy savings, obviously. In order to 9

get that we need something more than just, well, we’ve 10

done everything we can thank you very much. Frankly, 11

it’s going to mean getting something in volumes as 12

opposed to, g ee, we’re going to do this

-- we’re just 13

going to do 100 KVA pole mounted transformers

-- I 14

just pick up on that because people were talking about 15

how small the sales are. 16

I would say that we don’t necessarily have 17

to treat everything the same. There ma y be certain 18

product classes that are easier for us, collectively, 19

to work with, and some that are going to be much 20

harder to work with, and so we should think about 21

those. I’m going to mention some concepts and we 22

really would like your feedback on, yeah , we think we 23

can do this in this class, this class, and this class, 24

but actually not that class. So just recognize, you 25Executive Court Reporters (301) 565

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know, we have multiple moving parts. 1

We talked about different things with BIL 2

ratings, to separate certain classes. Earlier today, 3

the concept came up, for pol e mounted, maybe we treat 4

50 KVA and smaller differently from the ones above 5

that, because of weight, and I use that as indicative 6

as opposed to saying, well, 50 KVA is the line. That 7

was just an example. 8

So these are exampl es of the types of things 9

we all need to be thinking about. For us, as we look 10

at the present analysis, and yes, I understand it will 11

be revised, and we’ll all look at that, there’s a lot 12

of cost

- effective energy savings as you move beyond 13

the more conven tional type steels. We recognize the 14

challenges thereof. One to two suppliers, the Chinese 15

supplier now, limited capacity, et cetera. So, a 16

couple of ways to potentially get at those savings 17

that we just wanted to put out on the table: 18

**•** One, and we’ve ta lked a lot about this, there’s 19

that blended level, the level where you can do 20

amorphous, you can also do grain

- oriented silicon 21

steel. We’re discussing exactly where that is. 22

It’s not that they’re going to be the same cost, 23

the amorphous would have to ha ve some cost 24

advantage to justify all the investments and 25Executive Court Reporters (301) 565

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trying to figure out where that is, so that’s one 1

set of options, if you will, and there may be 2

some slight variations, not just a single level, 3

but it might be a band, depending on particular 4

data. Frankly, it may be each manufacturer. I 5

doubt everybody has the exact same point where 6

they might switch over or not in a given product 7

class. I call that blended, you call it the 8

balancing point, I think that’s something to give 9

serious consideration to. 10

**•** Another possibility, and this is what was done 11

with the DOE water heater standards, is they 12

broke off certain product classes where the 13

economics are pretty compelling to go higher, and 14

in that case it did heat pump water heaters in 15

certain classes and said for the other classes we 16

would not. In this case it might be, you know, 17

we go to the levels that it looks like you need 18

amorphous, I say looks like, because it could be 19

other types of steel. We’ve talked about 20

different types of steels. Just to il lustrate 21

that, we don’t care what the steel is, just like 22

we’ve gone from M3 to M2. Someone wants to 23

invent an M1, great, all power to you. I’m not, 24

you know, I’m not trying to get into a discussion 25Executive Court Reporters (301) 565

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on that, I’m just saying there may be different 1

ways to do that. But there may be some product 2

classes. I’ve heard some people say, you know, 3

pad mounted, or something, might be better. 4

**•** Another approach

-- it could be a combination. 5

We could, for one class do

-- we’re going to do 6

level four

-- I’m just illu strating. For another 7

we’re going to do level two, for another we’re 8

going to do blended. Let’s try to think 9

creatively about where different people are 10

coming from, and is there a sweet spot. 11

**•** I’d also say there’s a time dimension. I know 12

Gary and other s have referred to this. Normally 13

the standard goes into effect three years from 14

date of final rule, so it’ll be three years from 15

February, I guess of 2012. That’s the proposed 16

rule. Thank you, right, it’s the end of the 17

year. Anyway three years. At t imes we’ve varied 18

that. In particular at times we’ve also varied 19

it for different product classes or the one 20

example I could think of, in the case of clothes 21

washers a number of years ago, we had a two

22

tiered standard, where we agreed to relatively 23

quickl y upgrade, in that case it was to a high 24

efficiency vertical axis washer, and then we 25Executive Court Reporters (301) 565

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pushed back, I think it was three years later, in 1

that case, and I just use that as an 2

illustration, where we went to levels that at the 3

time it looked like people would have to go to a 4

horizontal axis washer. As it turned out, 5

manufacturers figured out ways to do vertical 6

axis at the higher levels, but the point was, we 7

had a two

- tiered, where we pushed back the bigger 8

redesigns, instead of three years, it was seven 9

year s. I know with ballasts we’ve done that also 10

where we pushed back certain classes, in that 11

case it was replacement ballast, actually went 12

all the way back to 2010. So just to throw in 13

the time dimension as well as we’re all trying to 14

think creatively. Y es. 15

MR. MEYERS: I hate to interrupt you, you’ve 16

got some good momentum here, but isn’t the date of 17

effectivity of the next standard, isn’t this supposed 18

to be January 1, 2016, three years from February. 19

Sorry, this was Aaron Meyers by the way. 20

MR. CO FFEY: Yes, so I

-- legal counsel is 21

still looking into the possibility of when the 22

compliance date could come into effect, so

--- 23

MR. DeLASKI: What we hear is that in other 24

rulemaking DOE has been flexible on implementation 25Executive Court Reporters (301) 565

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dates when there’s been a co nsensus recommendation 1

from stakeholders. We have had that experience and 2

it’s been accepted in every prior case where we’ve 3

recommended it. So I guess what we’re looking to hear 4

from DOE is can they in this case. 5

MR. MEYERS: All right. If technology 6

changes to the point where amorphous metal

-- or if 7

amorphous metal is going to increase significantly, 8

there may be more time required than what you’re 9

having in mind. 10

MR. NADEL: My point right now, I’m not 11

trying to put a very specific offer on the t able, I’m 12

just saying here’s another dimension that may help us 13

all get to yes. That’s the point here. So we’d like 14

your input. If you come back and say, fine, we’ll do 15

level six but it has to be 2022, I’m just saying, 16

we’ll consider it. So just recogn ize these are a few 17

dimensions of things that I can think of. 18

So those are the things I just wanted to 19

float out there. Again, I’m not trying to present 20

particular levels. Frankly, we

-- the advocate 21

community have to sit down and figure out a little bit 22

more concretely, particularly after we get the new 23

analysis, so what do we think is really realistic? 24

But these are some of the examples of types of 25Executive Court Reporters (301) 565

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creative approaches that I wanted everybody to think 1

about in advance so we increase our chances of 2

actually getting to yes as opposed to, gee, we all 3

helped the Washington economy by spending eight days 4

here in town. 5

If any of the other

-- Andrew, Tom, Robin, 6

Gary, anybody have something to add that I didn’t 7

quite capture from our discussions? 8

MR. P ARKER: Thank you , that’s helpful. I 9

think there is a lot to be said for taking this time 10

between now and the next meeting, not only to get the 11

analysis right, but to really think hard about not 12

only what you want, but also what you could live with, 13

what would be an acceptable outcome, because every 14

negotiation involves give and take, involves 15

compromise. And in the next session we’re really 16

going to have to get down to that. So be thinking 17

really hard on these things as we work on the analysis 18

and come to the next session ready to be creative and 19

constructive. Steve, or Bob, did you want to join in? 20

MR. SAINT: Before Steve

-- he has quite a 21

few notes there, but what I’d like to point out is 22

that one of the options definitely should be, and I 23

like opt ions should be, leave it the way it is. And 24

you mentioned cost effective, you want to increase 25Executive Court Reporters (301) 565

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efficiency that’s cost effective, and we believe that 1

we have gone a long ways and more than cost

- effective 2

already. The analysis from the last time showed tha t 3

at least for rural electrics, the standards are

-- 4

that took effect last year

-- are not cost

- effective. 5

They’re

-- the total owning cost is just out of the 6

ballpark, and so we’ve gone already farther than we 7

really should have gone. 8

**•** So one of the opt ions should be leave it where it 9

is and start from there, because we have gone a 10

long ways already, just a short time ago. 11

Another thing, all this analysis that we 12

talked about, I’m not sure we’ve really taken into 13

consideration the fact that in 2007 or 8 when we last 14

addressed this, there was a huge demand for steel for 15

transformers worldwide, and since then, we’ve

-- the 16

demand has gone down, so the costs have not reflected 17

what we expect to see in the future when the economy 18

picks up. So comparing 201 0 data with what we expect 19

to see in the future is fairly unrealistic, and I 20

think that reinforces the fact that we’ve gone a long 21

ways already, and we should take a hard look at not 22

being unrealistic like, apparently, like frankly I 23

think we were last tim e in having an efficiency level 24

higher than is cost effective. So I think that should 25Executive Court Reporters (301) 565

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be one of the options that we consider, we strongly 1

consider. 2

MR. PARKER: Thanks, Bob. I think as a 3

matter of law and policy in any cost benefit analysis 4

in any asse ssment, one of the alternatives is always 5

the status quo, right, that’s one of the things you 6

have to consider in the statutory framework for this 7

is whether there should be a change or not. So I 8

think it

-- I think that is absolutely a fair point, 9

that t here has to be an option, whether or not we end 10

up there for any particular DL or any subclass of a DL 11

is another story, but certainly it’s an option that 12

will have to be considered. 13

That said, markets do change and the idea of 14

the statute is that with time, technology improves and 15

the marketplace improves and so the question is, can 16

there be some movement, and that’s what we have to 17

really look hard at cost. We do have an action item 18

on material prices. It’s a critical issue that we 19

will address when we talk about the action items at 20

the very end of this meeting. So this is the time to 21

start plugging in your thoughts on that. 22

PARTICIPANT: (off mic) 23

MR. PARKER: Before

-- we let Steve, because 24

I think Steve had a number of points to make. Yes, 25Executive Court Reporters (301) 565

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Bob. 1

MR. SMITH: Bob Smith, Federal Pacific. 2

Steve, I hate to show my naiveté, on the motivations 3

for the advocates, but would you be kind enough to 4

list, from the advocates point of view, what you see 5

the benefits are in our increasing the efficiencie s of 6

the transformers a fraction or two of a percentage 7

point? 8

MR. NADEL: Yes, this is Steve Nadel. We 9

see, based on the last DOE analysis, and I don’t have 10

the numbers right in front of me, substantial cost

11

effective energy savings from going to highe r levels. 12

And that’s what we’re looking to maximize, the level 13

of cost

- effective energy savings. So the current 14

analysis shows, I can’t remember, is more than a quad, 15

if I recall correctly, of energy savings that are 16

cost

- effective. So that’s what we’re looking for. 17

I also wanted to briefly address Bob’s 18

suggestion. I think we need to start moving beyond 19

positions to what would take us to get to a yes and an 20

agreement. The chances

-- I mean, we will look at the 21

new analysis, and if it is a slam dunk, or absolutely 22

no change is justified, you got lucky last time, maybe 23

we’ll think about that. But, based on any analysis 24

I’ve seen and what I expect to be changes, it’d be 25Executive Court Reporters (301) 565

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nothing for us to gain, for no change, because the 1

odds are very strong that we cou ld do much better and 2

just say, okay, let DOE decide. So I would encourage 3

you to think about what could you live with as opposed 4

to just saying, well no change is all I can support 5

and therefore it goes back to DOE. 6

MR. SAINT: I never said no change i s the 7

only thing we’d support. 8

MR. PARKER: Do we have

-- yes, quick. 9

MR. PETERSEN: Just a quick comment. Eric 10

Petersen, AK Steel. I think part of the change we 11

have to ask ourselves is whether or not we’re 12

considering the standard currently as the change is 13

ground zero, or the work that was already done to 14

bring this standard into place. I think there is 15

already change that has been established, emphasizing 16

Mr. Saint’s point. 17

MR. PARKER: Aaron. 18

MR. MEYERS: Aaron Meyers, Cooper Power. I 19

think everyone realizes that the economy isn’t very 20

healthy right now, and I think that by raising the 21

efficiency and thus the cost, the first cost of 22

distribution transformers is disincentivizing 23

customers from replacing transformers. And it’s been 24

suggested before that the government endorse sort of a 25Executive Court Reporters (301) 565

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cash for clunkers for older transformers, where 1

customers would then be incentivized to replace the 2

older, non grain

- oriented transformers on their 3

system, thus improving the energy security, the 4

reliability of the systems and so forth. But by 5

making the first cost of distribution transformers 6

much, much higher, you’re disincentivizing customers. 7

And I think Gary made the point yesterday that they’re 8

only replacing transformers now when they blow up, so 9

there’s an increased safety concern, there’s an energy 10

security concern, and I think we’re working in the 11

wrong direction. So thank you. 12

MR. FERNSTROM: Gary Fernstrom, PG&E. I’d 13

like to comment on that. I didn’t say when they blow 14

up, I said when they fail. There’s a big difference. 15

MR. MEYERS: Point well taken. Thank you 16

for the clarification. 17

MR. PARKER: Okay. Steve, you’ve been 18

waiting patiently. 19

MR. NADEL: A brief response to that last 20

thing, or do you want me to

-- 21

MR. PARKER: Okay. Ver y quickly. 22

MR. NADEL: Thank you. You actually brought 23

up another possibility in terms of another moving 24

part. 25Executive Court Reporters (301) 565

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**•** In some of our agreements, we’ve agreed to 1

jointly support incentives. You know, go to 2

utility commissions, work with utilities and if 3

we n eed to, encourage more replacement of old 4

transformers, that could be one part of it. 5

So, you know, sometimes we’ve done stuff 6

with EnergyStar, we’ve done stuff with tax incentives, 7

we’ve done stuff jointly going utility commissions, so 8

more moving parts

. 9

MR. PARKER: Thank you. Steve. 10

MR. ROSENSTOCK: Steve Rosenstock, EEI. I’m 11

going to give a little summary of concepts that are 12

based on our conversation with utilities last night, 13

IOUs, municipals and cooperatives. There are some 14

areas of agreeme nt. Steve talked about one of the 15

gaps, I’ll say that blended level that Andrew DeLaski 16

talked about that kind of area that might be in 17

between certain design line where you know there would 18

be good competition among multiple suppliers providing 19

different metals, and, you know what, we like more 20

options, we’re fine with that. Add that to the 21

analysis if there’s a way

-- there was that discussion 22

yesterday and today, we’re fine with that. Show that 23

in there in the analysis, because that can be a very 24

big issue. 25Executive Court Reporters (301) 565

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In terms of gap analysis, I’ve said it 1

before, and we’ve kind of got agreement that we would 2

like analysis of a TSL based on

-- in between design 3

line zero and design line one, to see if we can try to 4

minimize incremental cost to both manufacturer s and 5

end users. We think it’s important because as we’ve 6

see with higher cost and higher investments, and I 7

hate to sound like a broken record, a lot of those 8

investments are going overseas. And we all know what 9

the state of the economy is these days, a nd if we’re 10

doing that, I’d like to try to minimize it because I’m 11

from this area and Bruce is from Baltimore . We saw 12

what happened with Bethlehem Steel over the last 30 13

years, okay. Can we try to reduce that a little bit 14

if we can? Thank you. 15

Also, i n terms of

-- so we really do want 16

the more options because we think that would be very 17

helpful in terms of our discussions and negotiations. 18

In terms of breaking out products, Steve, 19

there is still a little bitterness about the heat pump 20

water heater sc enario, but

-- (laughter)

-- in terms 21

of breaking out products, based on yesterday, we’re 22

okay with breaking out by BIL. Again, we talked about 23

the ranges, zero to less than or equal to 95, greater 24

than 95 to less than or equal to 150, greater than 25Executive Court Reporters (301) 565

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150. We’re okay with that approach, if that’s 1

amenable to other parties around the table. 2

We’re also okay with breaking out by it’s 3

either application or location, pole mount versus pad 4

mount, versus network/vault, versus substation. I 5

know that Phil Hopkins on sent around some of the 6

definitions to everybody yesterday, I believe, again, 7

hopefully that they would meet the DOE criteria in 8

terms of defining new product categories. I know that 9

Andrew talked about built in refrigerators that 10

somehow there was def inition needed to be added to the 11

rule somehow, so maybe we can use those IEEE 12

definitions as the basis of the definitions for 13

breakout of categories. 14

There’s agreement, although I do have to say 15

I did do the numbers out. Right now there’s 27 16

efficien cy levels for single phase and 3

- phase units. 17

We break it out by BILs and application, 27 times 12 18

is 324 numbers to look at. So I think we’re okay with 19

it, I just want to give everybody that there could be 20

a lot more numbers that we’re talking about her e, but 21

again, we think that in terms of negotiation and 22

trying to come to consensus is that we think that that 23

sort of

-- we are definitely okay with that concept, 24

because that way it really gets to some of the issues 25Executive Court Reporters (301) 565

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in terms of investments, costs, et cet era. 1

I also wanted to touch base with Steve about 2

the time dimension. We appreciate the flexibility. I 3

would note for the record that the standards

-- for 4

the record, for this standard that took effect in 5

2010, the final rule was announced in November 2007. 6

For this new standard, manufacturer s had less than 7

three years to get up to speed with the new standard. 8

Now of course, we agreed to, like 2009, 2013, but 9

there are other efficiency standards where the lead 10

time is five years, and in fact, there’s other 11

products, like gas furnaces, where the lead time has 12

been eight years. So in terms of applying efficiency 13

standards, a three year lead time has been basically, 14

aside from Congressional legislation, or federal 15

legislation, three years is a minimum, w here other 16

products get five years or eight years lead time. And 17

some of the other products that get more lead time 18

have much lower end user cost and possibly lower 19

manufacturing upgrade costs. But we do agree with, in 20

terms of time dimension, we do thin k there could be 21

some flexibility in terms of when the standards would 22

be effective. 23

So those are our general concepts that we 24

got kind of general agreement on for the committee to 25Executive Court Reporters (301) 565

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think about. Thank you very much. 1

MR. PARKER: Thank you, Steve. Very 2

helpful. Jerry, Steve. Very helpful. Jerry. 3

MR. SCHOEN: Jerry Schoen, AK Steel. I’m 4

picking up a point that Steve made and I want to build 5

on a little bit. You’re talking about these 6

transformers like they’re appliances, like they’re a 7

stand alon e device not hooked into anything else. 8

They are part of a network system . They are much more 9

complicated than any of the appliances that I’ve heard 10

talked about. Those are all stand alone, disconnect, 11

isolated. There’s no interaction with a larger wor ld 12

with a gas furnace, a washer, or a dryer. 13

With electrical transformers there are. 14

We’ve heard testimony from several folks in this 15

meeting that they can’t even buy replacement units now 16

because of the complexity of matching them into their 17

systems. 18

The new rules have only been in place for a 19

year, and that’s one thing I had question about, and 20

the market is still seemingly sorting out what to do 21

with particular specific designs that we’ve heard 22

about. But if you pass a standard, and that can 23

Be very disruptive to the market as a whole, because 24

it would require manufacturers to adjust and users to 25Executive Court Reporters (301) 565

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adjust. The electrical utility system is the largest 1

and most complex machine on the planet. 2

MR. PARKER: Thanks. Andrew. 3

MR. DeLASKI: Thanks Jerry, I appreciate 4

that. I think you’re right. I also think that you’d 5

be surprised at the complexity in the gas furnace 6

docket. But we’ll leave that aside. And Steve, it 7

might be a bitter point for you as well, the eight 8

year lead time on gas furnace s. Another point of 9

concern. 10

One point I want to emphasize or want to 11

come back to that Steve emphasized in his remarks, 12

that what we’re interested in are large cost

- effective 13

energy savings. And when we talk about cost

14

effective, we look to the DOE an alysis, and it goes 15

back to Steve’s point is well, what we’re looking at 16

is what’s going to

-- just lay our cards on the table. 17

As we think about this, we’re looking at what’s our 18

analysis of where the rulemaking’s likely to land, 19

given lack of agreement, if there is, if this 20

committee doesn’t come to an agreement. So DOE’s 21

going to base their decision on their own analysis. 22

So what we’re going to be seeing going into our next 23

meeting, not on someone else’s TOC or some other 24

private analysis. It’s going to be

-- so I think if 25Executive Court Reporters (301) 565

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you look at cost

- effectiveness, as we’ve discussed in 1

our first two meetings, there are numerous ways to 2

calculate cost

- effectiveness. This is not a

-- this 3

is a science and some art. But the way that matters 4

in this discussion is what we’re going to see in the 5

analysis published by

-- released to us by DOE. 6

So I urge us to focus on that calculation of 7

cost

- effectiveness as opposed to other calculations of 8

cost

- effectiveness. 9

MR. PARKER: Steve. 10

MR. ROSENSTOCK: May I follo w up on that? 11

Andrew, I appreciate that but again, for the record, 12

laying the cards on the table, from my observations, 13

DOE’s changed the way they’ve done cost

- effectiveness 14

over the last few years, and as a stakeholder, and I 15

think other stakeholders, th ey’re very concerned about 16

how DOE is doing its cost

- effectiveness by the new

-- 17

I’ll say the new variables and the new calculations or 18

new estimates that it’s doing, and we’re

-- we’ve been 19

concerned and we’ve filed testimony with other 20

appliances where w e’re very concerned that some of the 21

benefits that DOE is showing in the analysis are not 22

going to be seen by consumers or the American society 23

as a whole. 24

The one thing I’ll talk about in particular, 25Executive Court Reporters (301) 565

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adding in the, quote, “social cost of carbon,” as a 1

b enefit is

-- it might be a nice exercise, but to 2

count it as a monetary benefit, we’ve had many 3

problems with it, and it has had a significant impact 4

on some of the decisions that have been recently made 5

by the Department of Energy. So I understand how th e 6

Department of Energy, they’ve decided on their course 7

of analysis, but we have a lot of concerns with how 8

DOE’s been doing their analysis recently. I’ll just 9

lay that on the table. Thank you. 10

MR. DeLASKI: I understand, Steve, and 11

that’s helpful to l ay that out, and I guess my 12

understanding, my reading of the rules is that, on 13

your specific example, social cost of carbon, it’s 14

calculated separately, it’s not part of the LCC 15

analysis. It’s not part of the MPB calculation. It 16

is a separate line item i n their analysis. I don’t 17

think we’re going to see that even at this stage. Are 18

we even going to see that? 19

PARTICIPANT: (off mic) 20

MR. DeLASKI: I don’t think that’s going to 21

be part of anything we’re going to see. You may have 22

other points of criti que. My suggestion is that as we 23

look at cost

- effectiveness, we’re going to be leaning 24

very hard on the analysis as published. We can’t

-- I 25Executive Court Reporters (301) 565

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understand that people

-- we may want to adjust it in 1

certain ways as we go forward, and that’s totally 2

legitima te for discussion. I’m not suggesting

-- I’m 3

not trying to cut off the discussion on the cost

4

effectiveness analysis, but I’m suggesting that if we 5

keep coming forward with new cost

- effectiveness 6

analysis, it’s going to be hard for this conversation 7

to go forward if we can’t at least work off of one 8

central analysis with adjustment. 9

I agree with you on the need for

-- I’m not 10

trying to cut off the need for adjustment as we go 11

forward. 12

MR. PARKER: Well, I think that’s a perfect 13

segue into our last it em on the agenda, which is the 14

take

- away action items for further work on the 15

analysis. We have 20 minutes to do that, and I 16

apologize to Steve for the distraction during his 17

presentation as we got the slides mounted on the 18

computer so that our next prese nters can speak. 19

But basically, what I’ve asked Navigant and 20

LBL to do is just put together a short summary, worked 21

late in the hours last night to basically put together 22

a short summary of their takeaway on what we’ve agreed 23

to do with respect to the analysis going forward, both 24

with regard to the engineering analysis and with 25Executive Court Reporters (301) 565

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regard to the LCC analysis. 1

So let’s turn to that. The one thing that 2

I’m going to push for a little bit on the slides, 3

that’s not on the slides is some agreement on 4

timetab les for getting back, reporting back. We are 5

at the stage where we need to think about deadlines. 6

So without further ado, let me turn it over to

-- were 7

we going to start with the LBL or with engineering 8

analysis. 9

MR. COFFEY: Start with the engineerin g 10

analysis. 11

MR. PARKER: Why don’t we start with the 12

engineering, since that’s upstream of the LBL, of the 13

manufacturing. Jeremiah, can you get the engineering 14

analysis up there? The take

- aways. Brian, why don’t 15

you start, we’ll have it up there in a second. 16

**Take**

**- Away Action Items**  17

MR. COFFEY: I’m sure we sent out

-- 18

MR. PARKER: Brian, excuse me. You should 19

have this sheet in front of you also, we passed it 20

around for the people who were at the meeting, you 21

should have this sheet with you. If yo u don’t have 22

it, let me know. 23

MR. COFFEY: I’m sure after lunch yesterday 24

we circulated a sheet with some of the take

- aways that 25Executive Court Reporters (301) 565

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we had heard requested from the morning session, and 1

so I’ll walk through those just one more time with 2

everyone. 3

**•** F or data re quests, we had core weight and total 4

weight, both against efficiency, to look at the 5

effects of higher standards on the weights of the 6

transformers. 7

(Discussion re: handout) 8

MR. PARKER: That sheet is subsumed in this 9

sheet anyway, so this sheet contai ns that sheet, it 10

just amplifies a little bit, provides a little more 11

description. So there shouldn’t be any gap. 12

MR. COFFEY: The second point is to 13

**•** Supply some engineering data for a few designs at 14

different efficiencies on a template, and also 15

solic it input on those same points from 16

manufacturers, just so everyone can reach a 17

comfort level with the representative units that 18

we’ll be looking at. 19

**•** The third point is to show, instead of cost 20

versus efficiency, cost versus loss. It’s a 21

different way of l ooking at the exact same data, 22

but some have suggested that it can tell a 23

different story or lead to some conclusions that 24

maybe are less obvious from the efficiency plot. 25Executive Court Reporters (301) 565

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**•** And then finally, Carlos had sent out an idea for 1

how we might simplify the cost

- eff iciency charts 2

by portraying only what we’re calling the optimum 3

southeast frontier of each steel type’s ... so 4

we’ll be delivering those as well. 5

**•** As far as changes to the analysis, we talked 6

about a couple of new product classes. I think 7

we agreed that we’ d like to look at liquid 8

immersed standards by BIL, and we outlined three 9

different ranges that we’d like to use. 10

**•** My take

- away from the discussion of whether we 11

wanted to set standards by different 12

applications, pads, poles, substations, networks, 13

vaults , was that it really wasn’t necessary 14

because those applications had separate cost 15

curves, but that we would need to pay attention 16

to the size and weight limitations that were 17

present for each of those. 18

So that was my take

- away, but if anyone had 19

a dif ferent understanding, now would be the time to 20

speak up. 21

MR. ROSENSTOCK: Quick one. Steve 22

Rosenstock, EEI. Your take

- away is based on what? 23

Because the committee never actually made a vote on it 24

or anything like that. I don’t see where you were 25Executive Court Reporters (301) 565

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gett ing that, quote, “take

- away.” 1

MR. COFFEY: So I had proposed in my 2

presentation a way to look at this, and the response 3

that I heard from the committee members was that it 4

wasn’t necessary. I didn’t hear anybody insist on 5

that. 6

MR. ECKMAN: I don’t th ink that’s the case. 7

I think we all said that we wanted to at least see 8

analysis by

-- 9

MR. RIVEST: Actually, I recall because I 10

was caught up in that conversation Someone asked for 11

analysis, and then I think where we ended up is that 12

we would not be d oing any analysis right now, but kept 13

it as an open issue whether there should be separate 14

product classes for these products. 15

MR. ECKMAN: Because the analysis that 16

wouldn’t be required was a separate engineering 17

analysis. 18

MR. RIVEST: That’s right. No engineering 19

analysis, but we would look at it from the life cycle 20

cost perspective to see whether they ended up 21

differently because installed costs were different. 22

MR. ECKMAN: Right. 23

MR. RIVEST: So from the perspective of the 24

engineering, which is what he’s talking from. 25Executive Court Reporters (301) 565

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MR. ECKMAN: Okay. 1

MR. COFFEY: Thank you. That was helpful to 2

clarify. 3

MR. PATTERSON: Wes Patterson. I’m coming 4

back to Steve Nadel’s comments. He says we’re looking 5

for maximum efficiency that’s cost

- effective. One of 6

the challenges that we face is that if we constrain 7

the standard by certain product groups, we go to the 8

lowest common denominator. It is technically obvious 9

that we will be constrained with both the networks and 10

the poles, to the deference of 30 perc ent of the 11

market that is pads. If that’s the position we want 12

to take, by ignoring them, so be it. But I really 13

believe it would behoove us to consider their impact 14

as separate product classes with their own analysis. 15

MR. PARKER: As I recall, the way we left 16

this was that you would supply data to the group on 17

volume sales in this category, your data that 18

indicates that it’s a higher volume than they were 19

using in the past. 20

MR. PATTERSON: Yes, and I think I have 21

already given that to Matt ... in the p ast, but I will 22

resend it. 23

MR. PARKER: And then as I recall there was 24

going to be a network/vault work group convened, 25Executive Court Reporters (301) 565

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right, that would work on this issue, and people 1

stepped forward to do that. 2

And as I recall, it was basically, there was 3

going to b e a determination made on a few things. 4

First, whether this category would require special 5

treatment in the analysis. You made your case that it 6

does. 7

The other issue that was discussed in that 8

context was whether the increments for efficiency for 9

ne twork and vault are sufficiently different from the 10

increments for pad mount, that they require special 11

treatment. So I think that was left as somewhat of an 12

open issue that this working group would explore, 13

rather than a firm conclusion. 14

The other issu e that the working group is 15

going to explore was whether it’s possible to define 16

this category by special physical characteristics that 17

are unique to the category that distinguish them in 18

manufacture level from other units. I think that 19

there was an insti nct that there was, and Phil 20

Hopkinson sent around the IEEE specification for pole 21

and pad mount as suggestive, but that was another work 22

item for this working group. 23

And the third would be, assuming conditions 24

-- the first two conditions are met, you ca n define it 25Executive Court Reporters (301) 565

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physically and it requires special treatment, what 1

should that treatment be? How do you break it out and 2

what should be the TSLs for that? 3

DOE was independently going to provide legal 4

guidance and policy guidance on whether subdivision of 5

eq uipment classes is feasible . I don’t think there’s 6

a huge reason to believe that there’s a problem, but 7

we need to just confirm that. 8

So I think that’s the way we left it. Does 9

that square with people’s recollections around the 10

table? 11

MR. DeLASKI: Yeah, I think I’m on the 12

committee with Wes and I think Tim volunteered later, 13

and someone else was on that subcommittee too to work 14

on this. But I think Wes’ point

-- there’s two 15

different things going on here. One is, what are the 16

analysts doing? And then, I think what you’ve heard 17

is an openness

-- I haven’t heard anybody

-- we ... 18

yesterday, right, and I haven’t heard anybody object 19

to the notion that we would need to look at the 20

products separately and consider a different standard 21

because of the ver y reason that Wes is describing. I 22

haven’t heard anyone contest that. So that I think is 23

a settled question that we need to look at them 24

separately and consider, as Steve said, you know, 25Executive Court Reporters (301) 565

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we’re interested in large energy savings and if that 1

means somethin g different for the treatment of these 2

products, that’s something that we’re, at least I 3

think I speak for our

-- the folks I work with, that 4

we’re very open to that. 5

Then there’s the analytic question, we’ve 6

got to get a little separate, which is, can t he 7

analysts at this point separate them out, or is that 8

something that you guys just can’t do yet because you 9

don’t have the inputs that you need. I think that’s a 10

question for you guys to answer

-- maybe you can do it 11

between now and the meeting, maybe y ou can’t. I think 12

what we said yesterday

-- I used the word “punt”

-- 13

they punt on the analysis for now, based on whether 14

it’s something that can be delivered in the short 15

term. 16

MS. COUGHLIN: Yeah, I mean, I’d like to 17

clarify that for the purpose of se gregating certain 18

types of products for different efficiency levels it 19

doesn’t have to be a product class. So since we 20

already have design lines that separate a pole mounted 21

from pad mounted, we can certainly consider different 22

efficiency levels for those types of products. 23

The product class distinction is far more 24

severe and would be far harder to implement, but we’re 25Executive Court Reporters (301) 565

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able to do different efficiency levels by application 1

effectively. So we can do that. And we have

-- Chris 2

is going to go over our acti on items, and we have this 3

issue of dealing with pole weight constrains. We’re 4

going to approach that in a lot more detail. So I 5

think we’ll be able to determine whether or not that 6

is going to be an effective constraint on the standard 7

level for that ca tegory. 8

MR. PARKER: But for network and vault, 9

which I understand is a subset of pads, do you have 10

that data? 11

MS. COUGHLIN: DOE has to come back on that 12

one. 13

MR. DeLASKI: What do you mean DOE

-- on 14

what? 15

MS. COUGHLIN: On the legal niceties of 16

s eparating that out as a product class. Because I 17

think we agreed on that one it would make sense to be 18

a separate product class, but there’s a certain 19

functional differences between the product types that 20

have to be met in order for it to be a separate 21

pr oduct class. 22

MR. PARKER: Well the legal question depends 23

upon the physical issue of can you specify a physical 24

design that’s distinct, and that’s what

-- 25Executive Court Reporters (301) 565

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PARTICIPANT: I believe I heard .. exploring 1

this and then, more than exploring, but something th at 2

we think is necessary, it sounds like, to be able to 3

achieve the kinds of objectives at least some of us 4

are interested in. 5

MR. NADEL: Right. I believe I heard 6

Michael Rivest say that while we wouldn’t do the 7

engineering analysis separately, we can do the life 8

cycle cost analysis for the different things, and 9

that’s what we’re asking for, to look at these 10

different things, and where there’s no difference, 11

there’s no need for a product class, but that may be 12

the type of data that helps us get to yes. 13

MR. PARKER: Absolutely. 14

MR. PATTERSON: The networks are not a 15

subclass of the pads, which is a statement that you 16

just made. 17

MR. PARKER: I stand corrected. 18

MR. PATTERSON: In the design lines. When 19

these things were created, there was one desig n line 20

that specifically was a pole. There was another that 21

was specifically a pad. And the others were a 22

rectangular box, or a round box. If we’re going to 23

say that it’s a subclass of something, then the 24

network folds in to being a subclass of design l ine 25Executive Court Reporters (301) 565

- 0064 433

three, which is pads are also a subclass of it, and 1

substations are also a subclass of it, and any other 2

fool thing that’s rectangular is a subclass of it. 3

MR. RIVEST: Mike Rivest. What my take

- away 4

yesterday was that the incremental cost of

-- the 5

incremental cost of all of those was similar, so from 6

an engineering point of view, there wouldn’t be a need 7

to develop a separate cost efficiency relationship for 8

each of them. But they had different physical 9

constraints which could be handled in the li fe cycle 10

cost analysis . Is that what

-- 11

MR. PATTERSON: Wes Patterson. I fully 12

agree with what Mike just presented. 13

MR. RIVEST: Okay. And it has been in the 14

previous analysis as a subgroup analysis, and it still 15

is, so the question is how you then morph a subgroup 16

into a class, I guess, if you were to set a separate 17

standard. 18

MR. DeLASKI: Well, for all our purposes, we 19

need now just the analysis. 20

MR. RIVEST: Right. 21

MR. DeLASKI: And if we have a ... analysis, 22

then we have it. 23

MR. RIVEST: R ight. 24

MR. PARKER: Great. Good. Let’s move on. 25Executive Court Reporters (301) 565

- 0064 434

We have a charge. I think we’re in agreement. And 1

one issue that someone will look at is whether there 2

are differences in the increments, such that 3

separating might be indicated. Brian, go ahead. 4

MR. COFFEY: So I think we have an action 5

item there, and I think it sounds like the committee 6

is interested in leaving the door open to continue 7

looking at this

. 8

Just looking at this list here, I think the 9

final thing that we took as a deliverable was to 10

provide this steel price changer so that people could 11

play with the cost efficiency clouds under different 12

steel price scenarios, and come to the conclusion that 13

they thought was accurate and constructive in 14

arguments. So, we’ll be sending that out also. 15

MR. PARKER: Let me say also, though, that 16

there needs to be a base case material price scenario, 17

and there needs to be a sensitivity material price 18

scenario for LBL to do their work and for engineering 19

to do its work more accurately. So we need to, i f you 20

have issues with the current framework, we need to 21

hear from you. My sense is that there hasn’t been, 22

recognizing that everything is unpredictable and what 23

we’re in the business of doing is predicting, the 24

question is, do these represent reasonable central 25Executive Court Reporters (301) 565

- 0064 435

tendencies and reasonable upper and lower bounds for 1

price forecasting. Any dissent from doing that? If 2

so, you need to let Navigant know, and if not, I think 3

that’s the way they will proceed. And I think it’s 4

very helpful for them to provide th e tool that people 5

can use to do their own calculations. Greg. 6

MR. COULTER: We have that and will be 7

giving ours to Navigant. We think it’s not a broad 8

enough range. But we’ll give it to Brian. 9

MR. PARKER: Okay. Material prices are 10

really importa nt factor, and so it’s important people 11

feel comfortable with that, and if we need to form a 12

working group on that, we will, because of all the 13

working groups we’re forming, that would be one of the 14

more material ones, so to speak. 15

Great. We have to w rap up very quickly now. 16

Brian you want to just

-- anything else on this chart 17

we need to cover? 18

MR. COFFEY: No, only that some of these 19

items required input from different committee members 20

and helping us look at what are the right ranges of 21

certain p arameters. What’s the

-- a conversation 22

about what physical characteristics we could use to 23

define product classes if we were to do it, and I 24

think everybody has expressed willingness to work with 25Executive Court Reporters (301) 565

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us on that, so we’ll be in touch on those matters. 1

MR. P ARKER: Great. Yes, and we’ll get up 2

on the share points slide that we’re creating a space 3

between those committees to correspond to work 4

together so they can

-- it’ll be available to 5

everybody who wants to see it, but the committee 6

members will have a si ngle space where they can 7

communicate in an organized and consolidated way to 8

pursue the work between now and the next meeting. 9

Okay, thank you, Brian. Turn it over to 10

Chris very quickly. 11

MR. BOLDUC: Chris Bolduc, LBL. Just want 12

to go over quickly t o get people out of there, the 13

take

- away points from yesterday regarding the LCC 14

analysis . The first one

-- is that five points

-- 15

**•** evaluation rates, 16

**•** pole replacements, 17

**•** changes to the LCC subgroups, 18

**•** hourly load model validation, and 19

**•** distribution tran sformer price trends. 20

The first one, evaluation rates is

-- we’re 21

going to change the evaluation rates for liquid 22

immersed transformers from 50 to ten percent. We’re 23

expecting some support from committee members and 24

we’ve received some data already. Li kewise for the 25Executive Court Reporters (301) 565

- 0064 437

medium voltage dry type, drop it down to two so it’s 1

in the same ball park as the low voltage dry. If 2

anybody else would like to volunteer any data on this 3

subject, if you could please raise your hand, I’d 4

appreciate it. 5

Pole replacemen t. We will correct the pole 6

replacement algorithm. Some members said they were 7

going to supply data on pole replacement costs and 8

procedures, if you could please just shout your name 9

out so we can get it down. 10

MR. SIMMONS: Chuck Simmons. 11

MR. BOLDUC: Thank you. Next? 12

MR. ANDERSON: Rick Anderson, Fayetteville. 13

Fayetteville PWC. 14

MR. BOLDUC: Thank you very much. 15

MR. HIRSCH: Bruce Hirsch, Baltimore Gas and 16

Electric. 17

MR. BOLDUC: Thank you very much. Anybody 18

else? Next slide please. Change s to the LCC 19

subgroups. It was discussed yesterday that we should 20

segregate the transformer purchase market according to 21

line density of customers. This will be something, if 22

we can get this data from members, we will roll it 23

into the LCC and ideally we will be able to remove the 24

rural subgroups and municipal utilities from the 25Executive Court Reporters (301) 565

- 0064 438

specific LCC subgroups. Again, this is wholly 1

dependent on receiving data on your customer accounts 2

per line mile, and so for participating members who 3

are willing to submit data I have Kenneth Winder, Rich 4

Anderson, Tom Eckman, is there anybody else or are 5

there any errors in this member list? Okay, thank you 6

very much. 7

H ourly load model validation. Some members 8

yesterday said they could provide us with hourly load 9

data for tr ansformers. Given the situation of your 10

loading, your load diversity, doesn’t matter, we’d 11

like to see the data. We’d like it to validate our 12

model. Again if you could just shout your name out if 13

you agreed to provide data. 14

MR. SIMMONS: I agree. Chu ck Simmons. 15

MR. ANDERSON: (off mic) Rick Anderson. 16

MR. PARKER: Richard Anderson has agreed, 17

for the court reporter. 18

MR. BOLDUC: And Ken I have your name up 19

there, is that okay? Thank you. 20

MR. WINDER: (comment off mic) 21

MR. PARKER: We need the analysis completed, 22

which means we need your data within the next few 23

days. 24

MR. BOLDUC: Yeah, we’re going to be on you 25Executive Court Reporters (301) 565

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on Monday. 1

MR. PARKER: Besides the slides will be 2

sent around to people

-- 3

MR. BOLDUC: Yes, we can send them. 4

MR. PARKER: We’ll get the website set up 5

and that’ll be put on the website. 6

MR. BOLDUC: Yeah, we’ll put your names in 7

there. Share the pain a bit. 8

And last, I will circulate the draft 9

methodology we used to project transformer prices into 10

the future. And that ’s the last slide. Thank you all 11

very much. 12

MR. PARKER: We have one minute for 13

discussion. Steve. 14

MR. ROSENSTOCK: And Chris, you’re going to 15

send out some more information on the sensitivity 16

analysis results, right? 17

MR. BOLDUC: Sorry. Chris Bol duc, LBL. In 18

that appendices, the sensitivities

-- results are 19

imbedded in there. 20

MR. ROSENSTOCK: Perfect. Thank you. 21

MR. PARKER: Great, we are at the end of our 22

time and we are at the end of our agenda. I think 23

we’ve got a roadmap for going forwa rd. 24

MR. POLINSKI: Just one comment. Anytime 25Executive Court Reporters (301) 565

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something is updated, until we have this share thing 1

working, could we make sure it’s e

- mailed to everyone 2

until we

-- because sometimes we’re looking for stuff 3

in different places

-- 4

MR. PARKER: Yes. Unt il we have sharepoint 5

up, we will e

- mail

-- 6

MR. POLINSKI: Any updates. 7

MR. PARKER:

-- anything to everybody. Then 8

we will try to lighten your load by putting stuff on 9

the sharepoint and letting you choose what your e

- mail 10

preferences are for notific ations. 11

MR. ROSENSTOCK: Steve Rosenstock, EEI

. 12

Just also, it might also help the people to keep their 13

files under five megabytes for certain e

- mail systems. 14

A couple e

- mails were like 12 megs, and

-- 15

MR. PARKER: Use reduce file size feature. 16

(laug hter) Thank you guys, have a good trip back. 17

We’ll see you next time. 18

(Whereupon, at 12:06 p.m., the meet ing in 19

the above captioned matter was adjourned .) 20

21

22

23

24

25Executive Court Reporters (301) 565

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**REPORTER'S CERTIFICATE**

This is to certify that the attached proceedings

befo re:

**U.S. DEPARTMENT OF ENERGY**

**VOLUME I**

In the Matter of:

**MEETING OF THE MV WORKING GROUP**

Were held as herein appears and that this is the

original transcript thereof for the file of the

Department, Commission, Board, Administrative Law Judge

or the Ag ency.

Further, I am neither counsel for or related to any

party to the above proceedings.

Official Reporter 

### Wendy Greene

Dated: October 18, 2011