SIC 3612
POWER, DISTRIBUTION, AND SPECIALTY TRANSFORMERS



This category covers establishments primarily engaged in manufacturing power, distribution, instrument, and specialty transformers. Radio frequency or voice frequency electronic transformers, coils, and chokes are classified in SIC 3677: Electronic Coils, Transformers, and Other Inductors , and resistance welder transformers are part of SIC 3548: Electric and Gas Welding and Soldering Equipment.

NAICS Code(s)

335311 (Power, Distribution, and Specialty Transformer Manufacturing)

A transformer is used to reduce or increase the voltage, or electromotive force, of electricity traveling through a wire. It accomplishes this by transferring electric energy from one coil or winding to another coil through electromagnetic induction. Electric-generating plants use generator transformers to "step-up," or increase, voltage that is transferred through power lines. When the high voltage electricity reaches a community, a "step-down" transformer reduces its power. A distribution transformer makes a final step-down in voltage by diminishing the force of the electricity to a level usable in homes and businesses. Some electrical devices, such as doorbells and small appliances, use additional step-down transformers to decrease voltage.

A typical transformer has two windings, or coils of wire, that are insulated from each other. The two coils are wound on a common magnetic circuit of laminated sheet metal, called the core. Each end of the primary coil is connected to the incoming alternating current (AC) power source. Each end of the secondary coil, which receives the energy, is connected to the outgoing power line. The ratio between the number of windings in each coil determines whether the voltage will be boosted or diminished.

There are two types of transformers: core and shell. In core-type equipment the windings surround the laminated metal core. In shell-type transformers the metal surrounds the windings. Distribution transformers are usually core-type, while more advanced high-voltage devices are often shell-type. Transformers can also be classified according to the type of cooling system they use; smaller transformers are usually cooled by air and larger equipment is liquid-cooled. Finally, transformers are either single-phase or polyphase. Polyphase devices typically have a three-legged core that can produce at least three different voltages.

The majority of apparatus manufactured in this industry are power and distribution transformers purchased by electric utilities. These devices accounted for about 50 percent of industry shipments in the late 1990s. Because most transformers are simple and rugged, they often last as long as 40 years. Therefore, producers are largely dependent on purchases by utilities that are expanding service. Shipments of distribution transformers, for instance, are closely linked to new housing starts. Demand is also influenced by conversion to more efficient or aesthetically pleasing transformers.

The other 51 percent of the transformer market was primarily comprised of step-down equipment integrated into individual electrical devices. Fluorescent lamp ballasts, for instance, represented approximately 18 percent of production in the late 1990s. Various specialty transformers, such as machine tool and high-intensity light transformers, accounted for 12 percent of sales. Other popular industry offerings include transformers for electric furnaces, rectifiers, ignition systems, consumer electronics, and toys.

Background and Development

Transformer operation is based on a principle discovered in 1830 by Joseph Henry that electrical energy can be moved efficiently from one coil to another through electromagnetic induction. Michael Faraday and Henry independently observed in 1831 that a magnet moved through a closed coil of wire induces a current. When Faraday replaced the magnet with a charged electromagnet, he had built the first transformer. The value of the transformer was not fully understood until later in the nineteenth century, when devices that used alternating current became popular.

As the demand for electricity swelled during the late 1800s and early twentieth century, the need for electrical transforming devices emerged. As the United States built its massive electrical distribution infrastructure during the early part of the century, transformer sales ballooned. During the post-World War II economic expansion, moreover, the industry benefited from aggressive government attempts to bring electricity to every American home. The Rural Electrification Administration, established in 1935, was charged with distributing power to even the most remote regions and communities of the nation. In addition, electricity demand swelled during the mid-1900s as new applications for electricity, such as airconditioning, became popular.

By the early 1980s the transformer industry was shipping about $3 billion worth of equipment annually and employing a work force of 40,000. Growth slowed throughout the 1980s as the demand for new infrastructure equipment leveled. Total U.S. electric utility capacity rose roughly 20 percent between 1978 and 1991—tepid growth in comparison to the increases of the 1950s and 1960s. However, manufacturers were aided by healthy housing starts during the mid-1980s and the development of more efficient transformers that boosted replacement demand. Industry revenues climbed at an average annual rate of six percent between 1983 and 1990, to about $4.2 billion.

Low housing starts and a general U.S. recession stalled transformer demand in the early 1990s. Sales slipped to about $4.1 billion in 1991 and $3.9 billion in 1993, then rose to $4.5 billion in 1994. While demand for the largest transformers increased, shipments of most industry offerings declined.

Demand for transformers in the mid-1990s remained relatively stable. Of the high-voltage and distribution transformers already in service, many were scheduled for replacement during the 1990s and early 2000s. In addition, many utilities were replacing good units with newer, more efficient designs. Almost all transformer manufacturers focused on products that integrated advanced silicon low-loss steel or amorphous metal cores and offered greater serviceability. Likewise, the market for overhead transformers, which are typically mounted on poles, was being displaced by newer ground units.

U.S. producers also faced an influx of transformer imports from Mexico. International competition traditionally had made a minimal impact on this industry because of the high weight-to-value ratio of larger transformers and the propensity of some utilities to purchase American products. However, in the mid-1990s the North American Free Trade Agreement (NAFTA) boosted imports from nearby Mexico, which was already the largest industry importer. In 1994, $325 million worth of transformers were imported from Mexico. U.S. manufacturers in this industry exported $384 million worth of goods in 1995, mostly to Mexico and Canada.

Deregulation. As a result of the 1992 Federal Energy Policy Act (FEP), electric utilities, which had traditionally been regulated at the state and national level, began converting to open market competition and adopting market-based pricing instead of regulatory rate structures. Companies that owned high-voltage transmission lines were required to make them available to distribution companies wanting to rent their capacity to "wheel" energy over them. As a result, it had been predicted that the industry would undergo massive restructuring and be affected at many levels, including the manufacturing sector. In the mid-1990s electric utility deregulation was still only beginning to take effect, but as of 1996, legislation in four states required deregulation by 1997-98. Similar legislation was being drafted in 43 other states. Deregulation caused widespread mergers and a downsized work force. Opponents of deregulation predicted that mergers would create monopolies in many regions, and that the consistency and quality of electric service would suffer. Proponents said deregulation would lower rates for consumers and increase quality through competition.

Current Conditions

The U.S. Census Bureau reported that in the late 1990s a total of 318 establishments manufactured products in this classification. They shipped $5.2 billion worth of goods and spent $2.5 billion on materials. About 47 percent of those establishments employed at least 20 people.

The largest concentrations of operations in this industry were in California, Texas, Illinois, New Jersey, Florida, and New York. There were 56 establishments that primarily made power and distribution transformers, except parts. The largest value of product shipments in this segment originated in Mississippi, followed by Wisconsin and Virginia. There were 15 establishments that primarily made fluorescent lamp ballasts. The largest value of product shipments in this segment originated in Illinois.

Industry Leaders

Of companies whose primary products were in this classification, Cooper Industries Inc. (Houston, Texas) was one of the largest with 28,100 employees and sales of $3.7 billion in 1998. Siemens Energy and Automation Inc. (a subsidiary of Siemens AG based in Alpharetta, Georgia) had 9,500 employees and sales of $1.8 billion.

Other diversified companies that also competed in this category included General Electric Company PLC (London, United Kingdom) with 71,963 employees and sales of $18.6 billion; Eaton Corp. (Cleveland, Ohio) with 49,500 employees and sales of $6.6 billion; and MagneTek Inc. (Nashville, Tennessee) with 14,900 employees and sales of $1.2 billion.

Workforce

The long-term employment outlook for manufacturers of transformers and related equipment is poor. The work force had already shriveled 25 percent during the 1980s, to about 30,000 by 1992, and it dropped to 26,300 by 2000. Increased productivity, through automation and management restructuring, were responsible for work force reductions. The U.S. Bureau of Labor Statistics estimated that jobs in this sector for assemblers and fabricators, which accounted for roughly 20 percent of the electric distribution equipment work force, would plummet by nearly 50 percent between 1990 and 2005. Other labor positions were expected to decline similarly. However, opportunities for sales professionals, engineers, and industrial production managers were anticipated to expand about 15 percent by the year 2005.

In 2000 the industry's 19,416 production workers earned an average hourly wage of $13.29. In the late 1990s, those employed by companies that primarily made power and distribution transformers earned an average hourly wage of $14.30. The average wage was $8.83 at companies that mostly made fluorescent lamp ballasts and $9.72 at companies whose main products were other specialty transformers.

Research and Technology

Technical innovations in the early 1990s included new transformer test equipment that allowed operators to select and apply test voltage to any leg of a transformer winding, thereby eliminating the need to disconnect the leads. Also, new insulating materials allowed companies to refurbish old transformers and boost their efficiency, a development that was anticipated to reduce demand for new, more efficient replacement units. Another threat to industry growth was inventions such as semiconductors and microprocessors, which can increase the capacity of existing transmission lines, reducing demand for new distribution equipment.

In the mid-1990s the consequence of controversial electromagnetic fields (EMFs) was still undetermined. The EPA's 1990 finding that EMFs are a "probable" cause of cancer had not yet had a tangible impact on the transformer industry. However, as an environmental protection measure, the EPA had restricted the use of polychlorinated biphenyls (PCBs) as a cooling medium for liquid-filled transformers, due to the flammability and toxicity of the fluid. Less flammable replacements such as polydimethyl siloxane and fire-resistant hydrocarbon fluids were phasing out the use of PCBs.

Further Reading

Darnay, Arsen J., ed. Manufacturing USA. 5th ed. Farmington Hills, MI: Gale Group, 1996.

"Executive Summary, U.S. Transformers." MarketLine U.S. Snapshots On Disc. London: MarketLine International, 1996.

Hillesiand, Glen. "Effects of Electric Utility Deregulation on Manufacturers." CIRAS News vol. 30, no. 2 (winter 1996).

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .

U.S. Department of Commerce. Bureau of the Census. 1995 Annual Survey of Manufactures. Washington: GPO, 1997. Available from http://www.census.gov .

U.S. Department of Commerce. U.S. Census Bureau. 1997 Economic Census. Washington, DC: GPO, 1999. Available from http://www.census.gov .



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