Hello Everyone:

I have an O-gauge layout where I have inserted an insulated track section which automatically operates a crossing gate, flashing signal, gateman and whistling freight shed.  The insulated section is just after an O-22 switch.  I have the accessories connected to the #2 wire position on a lock-on (nothing is connected to #1) in the insulated section, and to the "D" terminal on a KW transformer.  It's operating fine in terms of switching the accessories on and off.  However, when the Berkshire engine enters the insulated track sparks appear around the wheels when it rolls over the lock-on and there is a slight reduction in power.  There are also sparks present at the wheels for all of the other connected cars as they pass through the insulated section.  I examined the track in the insulated section and the fiber pins and paper insulators all seem to be in place.  Don't see any stray screws or other metal touching the rails, and the track and train wheels are clean.  The track (with cork trackbed underneath) is screwed down to a plywood platform and there is ballast around the track.  I'm out of ideas for things to check and hope someone here can help!  Thanks in advance.

A modification to this post:  Testing this with a lighted caboose, the sparking is occurring in the insulated track section, as soon as the train enters.  When it exits the insulated section, the sparking stops.