Thanks Guys for the input. This was my first post. I know there are sub panels every where that only have a three wire feed (two insulated conductors and a bare ground).
I also know that code now requires a forth wire or seperate ground. I was asked for the most economical way to use this existing conductor. The transformer idea was the only way I could think of to create a neutral and still have the seperate grounding conductor. Just wanted to see how this post thing works.
Reno: Not all people are handymen tring for the cheap way out. Some are people trying to think out of the box, keep the price down, make money and do it safe.
The inspector also called back and said he had no problem using the transformer as long as article 682 guidelines where followed. I am still concerned that the feeder grounding wire is bare and not insulated and by this wire being in uf cable does this make it insulated?