Submitted By: Doug Peebles
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:
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 that any cost escalation during the transformers' three-year lead time would be based on the Producer Price Index (PPI). The City Council requested PPI updates at each payment milestone.
In accordance 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, was made in December 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 March 18, 2026, reflects the January and February 2026 value of 458.462.
Adjusted Cost = Original Price ? (Current PPI ? May 2023 PPI)
$3,635,000 ? (458.462 ? 415.858) = $4,007,400 per transformer
This represents an increase of $372,400 per transformer, or a total increase of $744,800 for both units from the May 2023 baseline.
The Producer Price Index (PPI) was subsequently locked in February 2026 in accordance with the contract terms, establishing the final escalated cost for the transformer manufacturing portion of the agreement. Based on the locked PPI, the final adjusted cost per transformer is $4,007,400, resulting in a total manufacturing cost of $8,014,800 for both units. No further cost escalation related to PPI is anticipated.
The next payment milestone is scheduled for May 2026.
https://fred.stlouisfed.org/series/PCU335311335311/
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