Facility Assets: What is the Value of Owning your Transformer?

Are you the energy manager or decision maker of a large industrial facility? If so, transformer ownership might be worth considering. In most cases, owning the service transformer reduces your service voltage rate, which should then reduce the monthly demand charge on your utility bill. You also benefit by having the opportunity to determine the type of equipment you want to use based upon business needs for reliability, safety, and functionality.

Transformers are essential for ensuring that power is reliably converted to a usable service voltage for your day-to-day operations. Typically, the utility owns the transformer as the final point to distribute power to your business. This puts your service meter on the secondary, low-voltage side of the transformer. To recover the costs of the distribution assets and transformer ownership, the utility charges you a higher demand rate in its tariff. Alternately, you could own the distribution equipment and transformers yourself, move your service meter to the primary, high-voltage side, and save money for your business.

Who should consider transformer ownership?

  • Long-Term Business Timeline: Your business should have a long-term plan to stay at its current location. Many transformers used in these applications are expected to have a life of 25 years or longer when operating at full load within their expected environmental conditions.
  • Distribution Tariff: Your distribution charge is based on your demand rate as identified by your local utility. For transformer ownership to be cost effective, your local utility tariff should provide a sufficient difference between the demand rates at each service voltage.
  • High Transformer Utilization: Transformer utilization is the percent of transformer capacity you use for your business. A utilization rate of 50% means your peak load only measures 50% of the transformer’s rated capacity. In this case, the transformer feeding electricity to your business is over sized for your current operations. Higher utilization rates result in better economics for transformer ownership.

What are the major cost components?

  • Capital Cost: You will need to purchase the existing transformer from the utility or install new equipment yourself. The utility can provide a cost estimate to purchase the transformer based on factors including size, age, and condition. If the utility does not make the transformer available, or you want to install a new system, you may request quotes directly from vendors.
  • Operations & Maintenance Costs: Once the utility no longer owns the transformer, it will not provide the periodic operations and maintenance (O&M) activities required to ensure safe and reliable operation. Typical O&M costs include alarm monitoring, testing, and corrective maintenance visits. These items can be performed by you or purchased through third-party providers.

Recently, we estimated that a flour mill in the Midwest would save $30,000 per year on its utility bill simply by taking over its transformer ownership. Even with future O&M costs included, this calculated to less than a 2-year payback on the cost of purchasing the utility’s equipment. In addition, this flour mill now has improved reliability, control over O&M procedures, and flexibility to determine the future of its own electrical infrastructure.

Jaron Vande Hoef, Senior Project Manager