Submitted By: Marie Brooks
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Presentation By: Doug Peebles
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Department: Electric Utility
STAFF RECOMMENDATION (Motion Ready):
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Approve additional expenditures on a three-year contract for the purchase and stock of ester oil-filled single and three-phase transformers with Gresco Utility, Inc. for an increased total estimated expenditure of $7,600,000
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OCALA’S RELEVANT STRATEGIC GOALS:
Operational Excellence
PROOF OF PUBLICATION:
N/A
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BACKGROUND:
Transformers are used daily by the Electric Department for the repair, maintenance, and expansion of our electric system. This contract ensures that adequate inventory levels are maintained to support daily operations and increase development projects within Ocala Electric Utility (OEU) territory.
On March 17, 2020, Council approved the Agreement for Transformer Supply and Delivery Services between the City of Ocala and Gresco Supply, Inc. (Contract#: ELE/190961) with an estimated aggregate expenditure amount of $2,462,671 for the initial contract term. Current market conditions, including an average 50% pricing increase and increase in demand for transformers, has resulted in this request for an increase in contract expenditure. With current transformer shortages, long lead times and increased storm activity, warehouse staff has worked proactively in an attempt to secure excess inventory necessary to maintain adequate stock levels and anticipates $2.2 million for transformer stock through the end of the initial contract term. The City has also seen an increase in large-scale development projects. Anticipated construction work orders requiring transformers are estimated at $3 million.
Since contract inception, transformer expenditures have totaled $7,425,525.99. Staff anticipates that the City will expend an additional $200,000 to cover current and anticipated transformer purchases through the end of the initial contract term. Transformer manufacturers and suppliers will only issue transformers to those customers who have active contracts.
Contract ELE/190961 will expire on March 31, 2023 and includes the option for two (2) additional one-year (1-year) periods by written consent between the City and Vendor. Maintaining adequate inventory levels supports Council's strategic goals of quality of place and operational excellence by ensuring system reliability.
FINDINGS AND CONCLUSIONS:
OEU is experiencing an increase in demand for transformers due to a combination of new large development projects and the replacement of aging equipment on the system. Simultaneously, the electric industry has dramatically increased the overall demand for underground transformers. Many large utilities have initiated multi-year plans to underground most of their distribution infrastructure to mitigate against wildfires and significant storms. Combined with manufacturing capacity limits, labor, and raw material shortages, we face unprecedented supply chain challenges that show minimal signs of improvement.
As a result, the current industry supply chain problems have severely slowed the delivery of transformers and other critical materials to OEU, resulting in projects being delayed. Delays can ultimately impact electric service connections for commercial and residential customers.
The average lead time on transformers is estimated at 62 weeks and often extends to 104 weeks. The delays have caused significant work stoppages in the planning and implementation of major development projects. Due to the current extended lead times from supply chain bottlenecks, staff has been directed to order additional transformers to aid in maintaining adequate inventory stock levels.
FISCAL IMPACT:
These items are inventory stock and are charged to 457-141-000-000-41-14100.
PROCUREMENT REVIEW:
The Procurement and Contracting Department will review additional purchases to ensure compliance with the City's Procurement Policy.
LEGAL REVIEW:
The underlying contract was reviewed and approved as to form and legality by City Attorney, Robert W. Batsel, Jr.
ALTERNATIVE:
Table for further discussion and guidance.