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In this paper a new voltage sag compensator for powering critical loads in electric distribution systems is discussed. The proposed scheme employs a PWM AC-AC converter (4 IGBTs per-phase) along with an autotransformer. During a disturbance such as voltage sag, the proposed scheme supplies the missing voltage and helps in maintaining rated voltage at the terminals of the critical load. The approach does not employ any energy storage components such as bulk capacitors/inductors and provides fast response at low cost. Under normal conditions the approach works in by-pass mode, delivering utility power directly to the load, this method of control allows the transformer to be rated only for transient conditions, thus reducing its required size. A four-step switching technique to drive AC-AC converter is employed to realize snubber less operation. A design example is presented, simulation results are shown for a three-phase, 230 V, 5 kVA system. Experimental results on a single phase unit are discussed. The proposed approach can be easily integrated into a distribution transformer supplying critical loads.