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Home My WebLink About4 Transformer Price Increase Agenda Item # 4 w W w Vy 1 i Public Utility IR� n istrict Memorandum To: Board of Directors ` From: Joe Horvath, District Electrical Engineer Date: December 19, 2005 Date of Board Meeting: December 21,2005 Subject: Transformer Price Increases to Existing Contracts 1. WHY THIS MATTER IS BEFORE THE BOARD Only the Board can approve changes to existing Material Purchase Contracts. 2. HISTORY The Board approved the award of transformer purchase contracts at its May 7, 2003 meeting (copy attached). These contracts were to three separate vendors, each one being the low bidder, for the different types of transformers that that District purchases to meet our customer obligations. These contracts are good for a 3 year period which ends on May 6, 2006. Because we are frequently faced with the need to use transformers in quantities we do not have in stock, and because bidding smaller amounts for which we have to guess at quantities is so problematic, the District requested and received pricing for a three year period. This has resulted in a very efficient and cost effective process, because transformers can be ordered on an as-needed basis as soon as the District receives payment from the developer for a project. 3. NEW INFORMATION Since the beginning of 2005, the prices for raw materials used in transformer manufacturing, including steel, copper, aluminum, and oil have risen dramatically, along with transportation costs. These steep increases (30 to 100 percent increase from 2004 to 2005) for commodity materials are universal and beyond the control of all transformer manufacturers, including those with which the District has contracts. In fact, each of the three vendors have told the District that they will be passing along increases for all transformers ordered under the existing contracts. They have told us that they cannot stay in business without adjusting prices. Normally the District would go out to bid in March to have sufficient time to secure new contracts for transformers in anticipation of the expiration of our existing contracts on May 6, 2006. Because of the cost increases and contract problems previously mentioned, we will go out to bid as soon as possible (early January) for the purchase of transformers. We will be asking for a one year contract, as the industry will no longer bid on 3 year contracts. In addition, our contract documents must contain a metals escalation/de-escalation clause for copper, aluminum, steel and possibly oil. This clause allows prices to be adjusted for changes in the price of metals (copper, aluminum, and steel), which may occur between the contract date and the date when we order transformers. Transformer vendors have told us that they will not respond to any bid that does not contain a metals clause in the contract. We have several projects, where the developers have already paid the District, for which we now need to order transformers. Because of the above mentioned cost increases, we propose that the Board authorize staff to negotiate with the existing contract vendors for the lowest possible transformer price increase and allow the general manager to sign contract amendments for the new price. This will allow the District to bridge the gap between our present contract and such time as we have awarded bids and entered into new contracts for 2006, without loss of timely service to our customers. As a reminder, please note that project developers pay the entire purchase cost of the transformers for their projects. The overall price increase due to the steep increase in raw material costs is between 15 and 30 percent of the original contract price per transformer. Attached for your information is a table depicting the original contract price and a 30 percent price increase for each type of transformer. 4. RECOMMENDATION I recommend that the Board authorize staff to negotiate with the existing vendors for the lowest possible price increase to the contract amounts for transformers, and authorize the general manager to sign contract amendments for the new price until the District has awarded new contracts for the purchase of transformers. I TRANSFORMER PRICES Truckee Donner PUD Contract Period: May 1, 2003 to May 1, 2006 Contract Size Voltage Contract Price plus Type/Vendor Schad kVA Pri. Sec. Price 30% Polemount - 1 ph. Al 25 7200/12470 GrdY 120/240 $541 $703 A2 37.5 7200/12470 GrdY 120/240 $555 $722 GE Supply A3 50 7200/12470 GrdY 120/240 $789 $1,026 A4 25 14.4/24.9kV GrdY 120/240 $567 $737 A5 37.5 14.4/24.9kV GrdY 120/240 $711 $924 A6 50 14.4/24.9kV GrdY 120/240 $960 $1,248 Padmount, I ph. 81 25 12470 GrdY/7200 240/120 $870 $1,131 B2 50 12470 GrdY/7200 240/120 $1,109 $1,442 Howard Industries B3 75 12470 GrdY/7200 240/120 $1,349 $1,754 Agent: B4 100 12470 GrdY/7200 240/120 $1,719 $2,235 Wrathali&Krusi, Inc. B5 25 14.4kV Delta 240/120 $1,208 $1,570 B6 50 14.4kV Delta 240/120 $1,479 $1,923 Padmount, 3 ph. C1 45 12470 GrdY/7206' 208Y/120 $2,998 $3,897 C2 75 12470 GrdY/7200 208Y/120 $3,234 $4,204 ERMCO C3 112.5 12470 GrdY/7200 208Y/120 $3,347 $4,351 Agent: C4 150 12470 GrdY/7200 208Y/120 $3,644 $4,737 HEES Enterprises C5 225 12470 GrdY/7200 208Y/120 $4,497 $5,846 C6 300 12470 GrdY/7200 208Y/120 $4,987 $6,483 C7 500 12470 GrdY/7200 208Y/120 $6,491 1 $8,438 C8 750 12470 GrdY/7200 208Y/120 $8,123 $10,560 D1 45 12470 GrdY/7200 480Y/277 $3,060 $3,978 D2 75 12470 GrdY/7200 480Y/277 $3,184 $4,139 ERMCO D3 112.5 12470 GrdY/7200 480Y/277 $3,314 $4,308 Agent: D4 150 12470 GrdY/7200 480Y/277 $3,664 $4,763 HEES Enterprises D5 225 12470 GrdY/7200 480Y/277 $4,371 $5,682 D6 300 12470 GrdY/7200 480Y/277 $4,683 $6,088 D7 500 12470 GrdY/7200 480Y/2771 $6,342 1 $8,245 D8 750 12470 GrdY/7200 480Y/277F-$-7,-91-5-T $10,290 D9 1000 12470 GrdY/7200 480Y/277 $9,220 $11,986 Page I of 2 Sue Camara From: Jeanne Ward Uward@cooperpower.comj Sent: Thursday, October 20, 2005 3:17 PM To: • Jeanne Ward Subject: ABB , Howard and Ermco announcements FYI if you hadn't seen these yet. ABB Announces Price Increase Resulting from Cost Inflation and Constrained Supply Raleigh, September 15, 2005 -- ABB, the leading power and automation technology group, said today that it will increase prices on transformers by as much as 12 - 18% based on specific material and transportation cost impacts. The increase will be implemented utilizing a combination of price adjustments and transportation cost surcharges. The adjustments apply to product from ABB plants as well as Power Partners, Inc in Athens, GA. The adjustments are the result of significant cost inflation in materials utilized in the manufacture of transformers including carbon steel, electrical steel, copper, aluminum, oil, insulation and transportation. Most notable are the extreme increases in costs for electrical steel and transportation. 2004 marked the return of material cost inflation and it has continued through 2005 and into 2006, While previous material cost increases were primarily driven by production & logistics costs of our suppliers, these increases are compounded by the limited global supply of key commodities such as electrical or core steel, stated Gerry Schepers, Senior Vice President of ABB Inc. Customers will be notified separately of the specific impact to them. The price increases are effective for shipments as of January 1, 2006. ABB continues to minimize the impact of increased costs to customers, but with the accelerated inflation, the costs must be passed through to insure ABBs ability to serve our customers, said Schepers. ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 103,000 people. For more information please contact: Mary Flielier ABB Inc. Tel: 919-856-3806 E-Mail: mary.g.flieller@us.abb.com Howard Industries Announces Price Increase October 7, 2005 Howard Industries announces that it is increasing prices for its transformer and voltage regulator products due to continued material and transportation cost increases. Of particular concern is the drastic increase in the cost associated with the manufacture of transformer and regulator cores. AK Steel and Allegheny Ludlum-the only domestic suppliers of silicon core steel-recently announced extremely large price increases for their products beginning with shipments on August 1, 2005*, 1 012 512 005 ................ Page 2 of 2 Transformer and voltage regulator price increases will apply immediately for all new quotations as listed below. New Quotations Distribution transformers 15 % Substation transformers 15 Voltage regulators 10 % Current blanket contract pricing will also be reviewed, and each blanket contract customer will be contacted by a Howard Industries representative to discuss the magnitude of the resulting price increase which will become effective for shipments beginning January 1, 2006. Howard Industries will continue its best efforts to mitigate cost increases affecting our business, so that we can minimize the impact on our valued customers. What's Up? News Release ERMCO Increase in Material Surcharge Index Effective October 1, 2005, the material surcharge index used for price adjustments increased 3.0% from the previous quarter. Prices quoted in prior quarters will be adjusted upward by 3.0% in order to offset the increases in raw materials. This increase will be implemented on invoices beginning October 1. Contact your regional sales representative for further information. Tony Hartfield, VP Marketing Jeanne Ward - Sr. Sales Engineer, Cooper Power Systems Phone: (775) 588-4193 Cell: (775) 843-4231 E { z 1 012 51200 5