Submitted By: Chad Lynch
Department: Electric Utility
FORMAL TITLE:
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Dearmin Substation Transformer Cost Escalation Informational Update
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OCALA’S RELEVANT STRATEGIC GOALS:
Fiscally Sustainable, Operational Excellence
PROOF OF PUBLICATION:
N/A
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BACKGROUND:
On August 15, 2023, the City Council approved the purchase of two 105 MVA auto-transformers from PTI Transformers, Inc. for the Dearmin Substation at a total cost of $8,070,340. At that time it was agreed upon that any escalation in cost would be based on the Producer Price Index (PPI) over the transformers’ three-year lead time. City Council requested PPI updates at each payment milestone.
In line with the payment schedule outlined in the first amendment to the agreement for the delivery, installation, and testing of autotransformers, the second payment milestone, representing 35 percent of the total cost, is scheduled for November 2025.
The transformer manufacturing portion of the contract totals $7,270,000, based initially on the May 2023 PPI of 415.858. The most recent PPI for Power, Distribution, and Specialty Transformer Manufacturing (PCU335311335311), released on September 10, 2025, reflects the August 2025 value of 440.550.
Applying the escalation formula:
Adjusted Cost = Original Price × (Current PPI ÷ May 2023 PPI)
$3,635,000 × (440.550 ÷ 415.858) = $3,850,831.89 per transformer
This represents an increase of $215,831.89 per transformer, or a total increase of $431,663.78 for both units from the May 2023 baseline.
The PPI is expected to be locked approximately six months prior to delivery, which is projected for July 2026. Currently, OEU remains on pace for a PPI lock-in around January 2026, pending any changes to the manufacturer’s production schedule.
Additionally, Ocala Electric Utility (OEU) continues to monitor potential cost increases on related contract line items, though the exact escalation remains uncertain at this time:
• Estimated Transformer Oil & Freight: $296,000
• Estimated Offloading: $186,000
• Estimated Field Assembly, Oil Filling, and Site Testing: $190,000
OEU will continue monitoring cost escalations and provide updates to the City Council as requested. The next payment milestone is scheduled for May 2026.
<https://fred.stlouisfed.org/series/PCU335311335311/>