Submitted By: Chad Lynch
Department: Electric Utility 
STAFF REPORT:
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Informational Update: Dearmin Substation Transformer Purchase and Cost Escalation
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BACKGROUND:
On August 15, 2023, the City Council approved the purchase of two 105 MVA transformers for the Dearmin Substation at a total cost of $8,070,340. During discussions, concerns were raised regarding potential price increases due to fluctuations in the Producer Price Index (PPI) over the transformers' three-year lead time. Consequently, the Council requested PPI updates at each payment milestone.
The first payment milestone, which represents 25% of the total cost, is scheduled for May 2025. The Producer Price Index (PPI) applicable to the transformer manufacturing cost, totaling $7,270,000, was initially based on the May 2023 PPI of 415.858. However, the most recent PPI, released on March 13, 2025, is now at 433.246. Using the escalation formula (Original Price × (Current PPI / May 2023 PPI)), the adjusted cost is calculated to be $7,573,975.78. This reflects an increase of $151,987.89 per unit, leading to a total increase of $303,975.78 for the two transformers.
The PPI will be secured six months prior to delivery, currently scheduled for July 2026. Therefore, the final PPI lock-in is anticipated in January 2026.
Additionally, Ocala Electric Utility (OEU) anticipates potential cost increases on the following 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 November 2025.
<https://fred.stlouisfed.org/series/PCU335311335311/>