Aging Power Infrastructure in the US:

Towards a Solution

Executive Summary
“More than 14,000 residents lose power Tuesday morning…”

“The industry has yet to live down the massive summer blackout, when power outages
struck from southern New England to Michigan…”

Headlines like these were once few and very far between. But the United States’ aging power
infrastructure, plagued with multiple problems, may soon cause such stories to become commonplace.

In desperate need of retrieval, the US power grid is anywhere from half a century to a century old. Power
outages are still relatively uncommon, but if the situation is not addressed soon, energy shortages can
take a staggering toll on the economy. The Energy Bill introduced in the wake of Hurricane Katrina
established provisions to encourage approximately $50 billion of investment into the power grid; but
the pundits believe that even this would be inadequate, especially in an economy built on information
technology and in perpetual need of reliable energy. According to Red Herring Inc., a media company
that covers innovation, technology financing and entrepreneurial activity, energy demand in the US is
likely to surge 32% by 2015 – and 75%of the country’s power grid will have to be replaced.

This whitepaper begins by taking a deeper look at this issue, and also the reforms being instituted to
tackle the impending crisis. Transformers are vital components of any power distribution network, and
this paper goes on to discuss the advantages of using energy-efficient designs manufactured in
environment-friendly production facilities. The first steps towards a solution are then discussed, laying
emphasis on emerging trends such as privatization, venture capitalist investment, high-technology
alternatives, and more.

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 The whitepaper concludes with a detailed look at Pacific Crest Transformers, a pioneer in the
transformer industry, building technologically efficient, customized transformers for over 90 years.

Introduction

According to the United States Energy Department, the demand for electricity in the US is growing at
the rate of about 1% a year, with that pace likely to increase over the next few years. Other estimates put
the increase at 6% or more per year, thanks to the population growth rate and the burgeoning numbers
of electric/electronic devices now considered essential to people’s lifestyles. Weather you use the
Red Herring forecast, the more conservative DOE predictions, or something in between, meeting this
demand inevitably focuses on power generation, and the vast transmission networks that carry power
to end-users. That zooms us in directly to the crux: the aging installed equipment base and high-voltage
lines installed mostly in the 1950s which have reached their load carrying capacity

At approximately 800,000 MWe of installed capacity

and growing, the electric power system in the US is According to the DOE, the
the largest in the world. According to the Department
of Energy (DOE) 40% of all energy used in the US (oil,
current power structure
gas, wind, solar) is converted into electricity. Soaring suffers from power
fuel prices at coal and natural gas-fired power plants outages and interruptions
are pushing electricity prices sharply higher. To make that cost the economy
matters worse, the DOE estimates that distribution $150 billion per outage.
transformers which are 30 years old or more, waste
disproportionately high kWhs annually. It is this grid
that is expected to transmit the additional gigawatts necessary, and link up with wind and solar power
harvested from far-flung areas of the country.

Fig 1: The North American Power Grid

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 Figure 1 above shows the North American Power Grid, serving over 335 million Americans and
Canadians. Comprising three independent systems with over 200,000 miles of high-voltage lines, any
disruptions can cascade across the entire system in a matter of seconds. Surges or drops in power flows
can trip circuit breakers, shutting down power (to safeguard expensive equipment); but restoring
power can be a painstaking, time-consuming effort.

Power outages are now increasingly common in the US. They still tend to be rather brief and specific
in terms of geographic scope – but not for long. One of the key reasons for the power outages, beside
the aging, outdated power grid, is distribution investment. The deregulation wave saw the construction
of many power plants, but a sharp drop in grid investments, with the inevitable overloaded lines and
reliability issues cropping up.

Distribution investment as a percentage of revenue has actually been decreasing from 5.7% in the
1980s and early 1990s to 3.5% in the last decade. As a result, the number of blackouts in the U.S.
impacting more than 10,000 customers steadily increased over the past 20 years, reaching a peak in
2004 at close to 100 events. According to the DOE, the power outages and interruptions cost the
economy $150 billion annually, much more today than, say, 20 years ago, when digital equipment and
appliances had not really proliferated. The research firm Primen, on the other hand, estimates the costs
of outages and fluctuation in the US to be anywhere from $119 billion to $188 billion per year.

Transmission investments by publicly-traded utilities have shown an increase recently, going up to a

high of $7.8 billion (up from a measly $2 billion in 1997), but that still doesn’t put the grid in a better
position. So the question then, is what will? How can this aging unreliable power grid be improved
and scaled for efficient operation into the 21st century? Large-scale overhauling is clearly necessary;
and thankfully, that seems to be a very real possibility in the immediate future.

How the Country Plans to Address the Power Crisis

Recently, energy reforms have been identified as critical to the economic future of the country and
specific and time-bound targets for the expansion of clean energy in the US have been set. In the
process of overhauling the currently outdated power grid, there is an aim to increase the investment
in green energy resources like renewable energy. The target is to double the production of electricity
from renewable sources in three years and lay thousands of miles of power lines to carry clean energy
to different parts of the nation.

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 Some Suggestions to Fix the Electricity Grid in the US

In his article in Wired Magazine, titled, “Power to the People: 7 Ways to Fix the Grid, Now”, Brendan I.
Koerner offers some interesting suggestions to address the problem of the failing electricity grid in the US:

Establish local-scale solar power generation near end users. Those implementing this can expect
to receive a reimbursement of up to 30% of the cost of the solar energy system.

Treat electricity like a commodity - something for which demand can be gauged and prices
set in advance.

Pay big users to cut consumption when the need arises.

The resource allocation towards renewable energy has an impressive $2 billion in grants for
battery development. This can be used to develop infrastructure that allows solar and wind
energy to be banked when abundant and released later when needed. This way, consumers
have access to a more reliable and environmentally sound power grid.

Lay power cable underground and underwater for speeding up the process.

Phasing Out the Old, Bring in the New

One of the crucial aspects that need to be addressed in the aging power infrastructure is that of
transformers. In the process of introducing new technology, there will have to be a conscious and
speedy switch over to energy efficient transformers.

In a typical grid, transformer loss contributes to a sizable amount of the total transmission and
distribution loss. Despite a high average efficiency of 95 to 97.5%, transformers have a significant
environmental impact as they continuously consume power (often referred to as 2nd standby loss).

Factors that Cause Accelerated Transformer Aging

The main factors responsible for transformer aging are:

Temperature
Oxygen
Moisture
Extreme operational conditions
Adverse conditions in the transformer’s surroundings, for example, high
temperature and humidity index
Faults and electrical surges
Degraded Insulation

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 The large number of distribution transformers in use today and the fact that all electricity generated
world-wide constantly passes through them implies that even a small improvement in transformer
efficiency can result in a substantial savings of energy.

Electricity distribution transformers have a relatively long life (estimates range from around 30 years to
as much as 50 years for lightly loaded or refurbished transformers), and individual transformers
accumulate substantial losses over their working life.

An energy efficient transformer is therefore an important means to reduce transmission and

distribution losses. Energy saving transformers can save 100 - 150 TWh/year, equivalent to more than
70 million tons of CO2 emissions. According to the DoE, phasing out transformers and upgrading old
ones with new technology could result in annual energy savings worth billions of dollars.

Addressing the aging power infrastructure in the US is imperative for the economy. If a transformer is
over 30 years old, or there is a pressing need to consider an upgrade, switching to an energy-efficient
transformer is absolutely the right thing to do.

First Steps to a Solution

When one observes the power situation carefully, one will notice that the situation in the US has been
deteriorating for some decades now. This has led various States in the US to deregulate and restructure
the industry and rope in private players. The competitive generation of electricity had 4 aspects:

1. Private ownership of electricity industry facilities

2. Open access for generators to transmission facilities

3. A minimum of three independently owned generating stations that could potentially

compete for consumers within each regional electricity market or service area

4. Separation of generation from transmission and distribution

During the late 1990s, energy companies borrowed about $500 billion to expand their businesses
and build natural gas-fired power plants.

By 2003 however, the US power sector was loaded with a mountain of debt after a massive building
spree during the previous five years. The power generation industry was now struggling with an
oversupply of generation such that it had depressed wholesale power prices and further weakened
the finances of merchant generators.

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 One such initiative from the corporate sector is from Google, who in late 2008 unveiled its plan to
increase the power efficiency of their Data Centers. This would be done in two ways:

Minimize electricity used by servers

Reduce the energy used by the Data Center facilities

For some time now, industries in the US have begun to look at renewable energy as a more stable and
cheaper source of energy. Additionally, with stringent laws and regulators breathing down their necks,
most see they have little choice. Some of the options they have been trying to explore for their viability
are wind and solar energy. Numerous companies, for example, have chosen to cover their roofs with
solar panels thus making their buildings partly if not wholly energy self-sufficient. Two companies
heading this initiative are United Technologies Corp. and The Lafarge Group, who are in the business
of constructing ‘green buildings’.

Companies are also beginning to realize that there is much investment potential in alternate energy,
and venture capitalists are identifying companies (like Michigan's non-profit alternative energy
company, NextEnergy) which have tremendous potential for growth. A report from 2005 reveals that
in the first three quarters, US venture-capital firms funneled $67.7 million into the solar-energy sector,
up from $31.4 million for all of 2004. While a recent report by Greentech Media Inc., released the recent
quarterly data showing that venture capital investment in green technologies exceeded $2.5 billion in
the fourth quarter of 2008. Solar technology attracted the highest investment at $1.3 billion.

Pacific Crest Transformers: Role in Modernizing Aging Power

Infrastructure in the US

Pacific Crest Transformers (PCT) has over 90 years of experience in transformer manufacture.
Additionally, it has been manufacturing energy-efficient, environmentally friendly transformers since
the 1980s, much before ‘going green’ became necessary, or even fashionable. PCT’s years of deep
domain experience and R&D in innovative design allows it to manufacture high-quality custom built,
robust transformers for a wide variety of applications.

PCT has addressed the issues where liquid-filled transformers that use mineral oil for insulation have
affected the environment and heightened fire risks. PCT’s standard design is far more robust and safer.
PCT transformers are also well positioned to play a crucial role in the alternative power markets as
their energy-efficient custom-built options can help step up or step down voltage to sub-transmission
and transmission voltage levels.

PCT also provides custom-built grounding transformers for wind farms. These transformers are located
at the 34,500 volt ‘collector’ from the turbine-based transformers. These grounding transformers are
custom built by PCT.

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 Additionally, when given the harmonic content for an installation, PCT designs transformers to
effectively handle harmonic distortion. PCT’s transformers are designed to eliminate hot spots in the
insulation system thereby increasing the life of the product.

PCT’s standard design incorporates round coil, cruciform core construction which is far superior to
rectangular coil, formed core construction. PCT can produce transformers with environmentally friendly
vegetable based insulating fluid which has a much higher flash point and is totally biodegradable.
PCT transformers are designed and tested to operate well below the maximum thermal limit for which
the paper insulation is rated.

Conclusion

The aging power infrastructure in the US has been neglected for way too long, resulting in this crisis
situation where the country is plagued by unreliable power supply and frequent outages. In a sluggish
economy that is desperately trying to increase its pace, this only slows the process and makes growth
targets so much harder to achieve.

Thankfully things are changing rapidly in the energy sector, and recognition has dawned that not only
is it important to replace the aging infrastructure of the country, it is also important to identify and
promote reliable renewable energy options.

With the impressive targets the US energy market has set for itself, one can only expect a rapid and
paradigm shift in the way electricity is generated. Aiding in this process will be PCT, with its decades of
understanding energy-efficient and environmentally friendly transformers.

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