TO THE HONORABLE CHAIRMAN AND TRUSTEES

REPORT TO: STILLWATER UTILITIES AUTHORITY

No.

SUA-08-16

ISSUED BY THE CITY MANAGER - STILLWATER, OKLAHOMA

Date of Meeting: Subject:

May 19, 2008 Bid Recommendation SUA Bid # 11-07/08 Substation Power Transformer

Purpose of Report: To request Trustee action on a bid for purchase of a 12/16/20/22.4 MVA, 138kV 12.47kV power transformer for Stillwater Electric Utilitys 19TH Ave. substation. Background: On October 15, 200,7 the Trustees approved an expenditure of $1.3 million from the utility rate stabilization fund for an in-house project to upgrade the electric substation at 4200 W. 19th Avenue. Part of the project includes the purchase of the subject power transformer. Please refer to report numbers SUA-07-21 and SUA- 07-25. Specifications and contract documents were prepared by Stillwater Electric Utility staff. A solicitation for bids was advertised and bid specifications were mailed to 25 perspective bidders on March 19, 2008. Discussion: Nine bids were received and opened on April 28, 2008. Please refer to the attached bid tabulation. (Note that the base bid quoted from Waukesha did include the price of recommended parts, although shown as no bid listed on the bid tab). The bid amounts ranged from the highest bid of $987,360 from ABB Inc. to the lowest bid of $648,000 from JSHP Transformer. Kuhlman Electric provided the second low bid at $711,636. The bid evaluation procedures used are those outlined and approved in the current City of Stillwater Purchasing Manual. The bid evaluation procedures indicate both the JSHP and the Kuhlman transformers are favorable in both price and value over the other bids. All the bidders quote firm prices with progressive payment schedules except one which cites an escalation clause in the payment terms and conditions. There are no remarkable departures or exceptions to the technical specifications and standards among the various bidders. All bidders except one have the necessary qualifications in terms of their ability to meet the provisions of the contract, complete the project, and provide warranty repairs as needed. Bid Evaluation Factors: 1) Initial Price and Cost of Ownership Power transformers convert some electrical energy to waste heat in the electric power transformation process. The waste heat, called loss, is used to evaluate the operational efficiency of the transformer and is a large part of the cost of ownership to the utility. Well designed and manufactured transformers are highly efficient and the losses are relatively small in comparison to the transformer power rating. However, the electric energy cost to supply these losses equate to a considerable sum of money when subjected to a present worth analysis over the expected life of the transformer. All bidders were required as part of their bid to include the losses, expressed in kilowatts, of the transformer being quoted. All bid prices were subjected to a cost of loss adder to the base price. The actual losses of the transformers are measured at the factory acceptance test. If actual losses are greater than the losses quoted in the bid, the bidder must lower his price based on a formulation similar to that used to determine the adder. This mechanism assists the owner in their endeavor to find the lowest responsible bidder by assuring that important differences in value as well as price of the product have been accounted for.

The total quoted price differential between JSHP Transformer and Kuhlman Electric was $63,636. Upon completion of the present worth cost of loss analysis, the evaluated cost differential was $37,491. 2) Warranty Period and Manufacturer Location The exposure of the owner to costly repairs associated with early life failures is reduced by longer product warranty periods. Where some valid mechanism for attaching value to the reduction in exposure is available, that value should be a consideration in comparing the bids. The location of the manufacturing facility plays a critical role in identifying warranty value in this particular transformer purchase. A serious in-warranty failure can mean return of the transformer to the manufacturing facility. The manufacturing facility for JHSP is in China. The Kuhlman facility is in Kentucky. There is a minimum of three months longer transportation time for the JHSP unit. (JSHP states in their bid that the over-the-ocean shipping time one-way for the transformer is 50 days.) During the three months time differential, the avoided demand charges from GRDA would return to the City because 100% of the stations load, as opposed to 50%, would be back on the GRDA-owned transformer. Present demand charges indicate that the cost to the City would amount to $5,500 per month, or a total cost of $16,500. This results in a further reduction in the evaluated cost differential, which now stands at $20,991. The Kuhlman warranty is five years. The JSHP warranty is two years. The evaluated cost differential based on manufacture location applies to in-warranty failures within the first two years of ownership. For the following three years the Kuhlman unit is still in warranty. A worst case failure of the JHSP unit in that three-year period would require the City to prepare and evaluate bids for a repair shop to rewind and/or restack the core of the transformer. Based on the cost of such a repair in 2001/2002 for the rewind and core repairs to the Kinzie Substation transformer, the cost of such repairs would be roughly $250,000. Accurate failure probabilities require calculations based on exhaustive research of archival data. Such efforts are beyond the scope and time limits imposed by the bids received. The decrease in exposure to costly repairs during the first five years of ownership, based on quantifiable cost differences and past experience, clearly indicates an advantage favoring the Kuhlman transformer. As part of the specifications, the SUA reserved the right to provide a witness during the factory testing process. If a staff member or a hired representative of the utility were to witness the factory test, it is estimated that travel to the location of manufacture of the JSHP transformer in China would add a minimum of $2,000 to the evaluated cost as compared to travel to the Kuhlman plant in Kentucky. 3) Delivery Both JSHP and Kuhlman quoted delivery in 2008 and are acceptable. All other bidders quoted longer deliveries into 2009. Summary of Evaluation

Base Bid Evaluated Costs Losses Warranty, Years 0-2 Warranty, Years 3-5 Manufacturer Location Total Evaluated Cost

JSHP Transformer $648,000 +$26,145 +$16,500 +$15,000** +2,000 $707,645

Kuhlman Electric $711,686 +0 +0 +0 +0 $711,686

** Note The evaluated cost of warranty during years 3-5 is based on an estimated insurance premium of $5,000/yr. for transformer replacement. Since the City of Stillwater is self-insured, a worse case failure occurring during years 3-5 could actually cost $250,000. The cost evaluation indicates that JSHP is approximately 1/2-percent lower than Kuhlman. With both low bids being responsible and the nominal cost separation between the two bids, the final bid evaluation factor contained within the Citys purchasing manual should be considered as the deciding factor. The transformer from JSHP will be manufactured in China and the transformer from Kuhlman will be manufactured in Kentucky. Since the Kuhlman manufacturing location is significantly closer in proximity to Stillwater, the difference in location of the bidder outweighs the nominal cost difference. Budget Impact: The amount originally approved from the utility rate stabilization fund for the 19th Avenue Substation Upgrade is $1.3 million. Approximately $1 million of this budget was for the purchase of the power transformer. Both of the evaluated bids are within the project budget. Alternatives: 1. Award the bid to JSHP Transformer in the amount of $648,000 and authorize the City Manager to purchase the power transformer. 2. Award the bid to Kuhlman Electric in the amount of $711,686 and authorize the City Manager to purchase the power transformer. Recommendation: Based on an evaluated cost including losses, warranty, and manufacturer location, staff recommends Alternative #2, accepting the bid of $711,636 from Kuhlman Electric and authorizing the City Manager to purchase the power transformer for the 19th Avenue Substation Upgrade. Prepared by: Reviewed by Department Director: Reviewed by City Managers Office: Date of Preparation: Recommended by: Jim Shelton, Electric System Engineer Jeff Tullis, Director Electric Utility Dan Blankenship, Deputy City Manager May 13, 2009

___________________________ Dan Galloway City Manager

Attachments: Related Reports:

Bid Tabulation for SUA Bid# 11-07/08 SUA-07-21 and SUA-07-25

CITY OF STILLWATER
DEPARTMENT: DESCRIPTION: SUA - ELECTRIC SUBSTATION POWER TRANSFORMERS 12/16/20/22.4 MVA; 138/12.47 Kv TRANSFORMER BASE BID RECOMMENDED PARTS BID AMOUNT TO SET UNIT ON FOUNDATION INCLUDED DATE & TIME: BID NUMBER: 4/28/08 3:00 p.m. SUA-11-07/08

BIDDER:

TECHNICAL SERVICES FOR 5 DAYS INCLUDED $

TOTAL BID AMOUNT

KUHLMAN ELECTRIC VERSAILES, KY JSHP TRANSFORMER SUNNYVALE, CA DELTA STAR, INC. SAN CARLOS, CA HD SUPPLY UTILITIES STREETSBORO, OH HOWARD INDUSTRIES LAUREL, MS ABB, INC ABB INC. SOUTH BOSTON, VA WAUKESHA GOLDSBORO, NC PAN AMERICA SUPPLY HOUSTON, TX

702,926.00

8,720.00

711,636.00

648,000.00

INCLUDED

INCLUDED

INCLUDED

648,000.00

874,090.00

INCLUDED

9,500.00

17,500.00

901,090.00

896,700.00

15,000.00

19,000.00

49,000.00

979,700.00

847,750.00

11,925.00

1,200.00

9,500.00

875,175.00

936,960.00 936 960 00

8 8,400.00 400 00

24 24,600.00 600 00

17 17,400.00 400 00

987 987,360.00 360 00

892,699.00

NO BID LISTED

14,706.00

24,000.00

931,405.00

800,468.00

23,353.00

5,000.00

4,000.00

832,821.00

OBERLENDER & ASSOCIATES FOR PAUWELS TRANSFORMERS SUBMITTED A "NO BID"

STAFF PRESENT AT BID OPENING:

JIM SHELTON, DIXIE TERRILL, CLARA WELCH

THE SEALED BIDS AS LISTED WERE OPENED AND READ ALOUD AT THE ABOVE LISTED TIME AND DATE: CLARA WELCH, FINANCE DEPARTMENT