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TO THE HONORABLE CHAIRMAN AND TRUSTEES

REPORT TO:

STILLWATER UTILITIES AUTHORITY No. SUA-08-16

ISSUED BY THE CITY MANAGER - STILLWATER, OKLAHOMA

1

Date of Meeting: May 19, 2008

Subject: 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 utilityrate 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 reportnumbers 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 bidtabulation. (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 J SHP Transformer. Kuhlman Electric providedthe second low bid at $711,636. The bid evaluation procedures used are those outlined and approved inthe current City of Stillwater Purchasing Manual.

The bid evaluation procedures indicate both the J SHP and the Kuhlman transformers are favorable inboth price and value over the other bids. All the bidders quote firm prices with progressive paymentschedules 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 thevarious bidders. All bidders except one have the necessary qualifications in terms of their ability tomeet 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 transformationprocess. The waste heat, called loss, is used to evaluate the operational efficiency of thetransformer and is a large part of the cost of ownership to the utility. Well designed and manufacturedtransformers are highly efficient and the losses are relatively small in comparison to the transformerpower rating. However, the electric energy cost to supply these losses equate to a considerable sumof 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 thetransformer 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 lossesare greater than the losses quoted in the bid, the bidder must lower his price based on a formulationsimilar to that used to determine the adder. This mechanism assists the owner in their endeavor tofind the lowest responsible bidder by assuring that important differences in value as well as price ofthe product have been accounted for.

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The total quoted price differential between J SHP 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 inexposure is available, that value should be a consideration in comparing the bids. The location of themanufacturing facility plays a critical role in identifying warranty value in this particular transformerpurchase. A serious in-warranty failure can mean return of the transformer to the manufacturingfacility. The manufacturing facility for J HSP is in China. The Kuhlman facility is in Kentucky. Thereis a minimum of three months longer transportation time for the J HSP unit. (J SHP states in their bidthat the over-the-ocean shipping time one-way for the transformer is 50 days.) During the threemonths time differential, the avoided demand charges from GRDA would return to the City because100% 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 atotal cost of $16,500. This results in a further reduction in the evaluated cost differential, which nowstands at $20,991.

The Kuhlman warranty is five years. The J SHP warranty is two years. The evaluated cost differentialbased 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 J HSPunit in that three-year period would require the City to prepare and evaluate bids for a repair shop torewind and/or restack the core of the transformer. Based on the cost of such a repair in 2001/2002for the rewind and core repairs to the Kinzie Substation transformer, the cost of such repairs would beroughly $250,000.

Accurate failure probabilities require calculations based on exhaustive research of archival data. Suchefforts are beyond the scope and time limits imposed by the bids received. The decrease in exposureto costly repairs during the first five years of ownership, based on quantifiable cost differences andpast 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 testingprocess. If a staff member or a hired representative of the utility were to witness the factory test, it isestimated that travel to the location of manufacture of the J SHP transformer in China would add aminimum of $2,000 to the evaluated cost as compared to travel to the Kuhlman plant in Kentucky.

3) Delivery

Both J SHP and Kuhlman quoted delivery in 2008 and are acceptable. All other bidders quoted longerdeliveries into 2009.

Summary of Evaluation

JSHP Transformer Kuhlman Electric

Base Bid $648,000 $711,686

Evaluated CostsLosses +$26,145 +0Warranty, Years 0-2 +$16,500 +0Warranty, Years 3-5 +$15,000** +0Manufacturer Location +2,000 +0

Total Evaluated Cost $707,645 $711,686

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** Note The evaluated cost of warranty during years 3-5 is based on anestimated insurance premium of $5,000/yr. for transformer replacement.Since the City of Stillwater is self-insured, a worse case failure occurringduring years 3-5 could actually cost $250,000.

The cost evaluation indicates that J SHP is approximately 1/2-percent lower than Kuhlman. With bothlow 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 decidingfactor. The transformer from J SHP will be manufactured in China and the transformer from Kuhlmanwill be manufactured in Kentucky. Since the Kuhlman manufacturing location is significantly closer inproximity 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 19thAvenue Substation Upgrade is $1.3 million. Approximately $1 million of this budget was for thepurchase of the power transformer. Both of the evaluated bids are within the project budget.

Alternatives:1. Award the bid to J SHP 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 topurchase 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 authorizingthe City Manager to purchase the power transformer for the 19th Avenue Substation Upgrade.

Prepared by: J im Shelton, Electric System EngineerReviewed by Department Director: J eff Tullis, Director Electric UtilityReviewed by City Managers Office: Dan Blankenship, Deputy City ManagerDate of Preparation: May 13, 2009

Recommended by:

___________________________Dan GallowayCity Manager

Attachments: Bid Tabulation for SUA Bid#11-07/08Related Reports: SUA-07-21 and SUA-07-25

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CITY OF STILLWATER

DEPARTMENT: SUA - ELECTRIC DATE & TIME: 4/28/08 3:00 p.m.

DESCRIPTION: SUBSTATION POWER TRANSFORMERS BID NUMBER: SUA-11-07/08

12/16/20/22.4 MVA; 138/12.47 Kv

BIDDER: TRANSFORMER RECOMMENDED BID AMOUNT TECHNICAL TOTAL BID

BASE BID PARTS TO SET UNIT ON SERVICES FOR AMOUNT FOUNDATION 5 DAYS

KUHLMAN ELECTRIC 702,926.00 $ 8,720.00$ INCLUDED INCLUDED 711,636.00$

VERSAILES, KY

JSHP TRANSFORMER 648,000.00 $ INCLUDED INCLUDED INCLUDED 648,000.00$

SUNNYVALE, CA

DELTA STAR, INC. 874,090.00 $ INCLUDED 9,500.00 $ 17,500.00$ 901,090.00$

SAN CARLOS, CA

HD SUPPLY UTILITIES 896,700.00 $ 15,000.00$ 19,000.00$ 49,000.00$ 979,700.00$

STREETSBORO, OH

HOWARD INDUSTRIES 847,750.00 $ 11,925.00$ 1,200.00$ 9,500.00$ 875,175.00$

LAUREL, MS

ABB, INC. 936,960.00$ 8,400.00$ 24,600.00$ 17,400.00$ 987,360.00$

SOUTH BOSTON, VA

WAUKESHA 892,699.00$ NO BID LISTED 14,706.00 $ 24,000.00$ 931,405.00$

GOLDSBORO, NC

PAN AMERICA SUPPLY 800,468.00 $ 23,353.00$ 5,000.00$ 4,000.00$ 832,821.00$

HOUSTON, TX

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