Item Number: {{item.number}}
City Council / Board of Directors
Written Communications
Meeting of: September 17, 2024
Submitted By:
Brenda Hampton, Director of Electric Utility Services
Subject:
Purchase of One (1) Liquid Filled Padmounted Transformer Recommendation:
That the Honorable City Council:
(1) Find that Hitachi Energy USA, Inc., through its distributor NEXUS Power, is the sole distributor of Hitachi transformers, and that the sole source for standardizing the forementioned component of the electric utility distribution system is approved in accordance with Section 2.28.100(b)(2) of the Victorville Municipal Code; and (2) Approve the purchase of one (1) Liquid Filled Padmounted Transformer from Hitachi Energy USA, Inc. in the amount not to exceed $139,180.00.
Fiscal Impact:
This purchase will have a fiscal impact of $139,180.00. All costs to be incurred for electric services at 19100 Gateway Dr. have been prepaid by the customer, Prologis, Inc. (“Prologis”). Victorville Municipal Utility Services (“VMUS”) will then pay all associated expenditures from the prepaid funds. The lead time for this transformer is approximately forty (40) weeks, however a purchase order is currently required to place the order. The funds will be encumbered and not expensed until the transformers are received. There are sufficient funds available to cover the expense for this transformer purchase, and prepaid amount was deposited in account 4202076C-23130-31024 (LOT 45 PRJ TIRE- DEPOSIT-TRUST).
Account Amount
4202076C-23130-31024
(LOT 45 PRJ TIRE-DEPOSIT-TRUST)
$139,180.00
Strategic Plan Goal:
Goal E: Invest in Infrastructure. The contemplated purchase will replenish inventory to ensure the proper flow of electricity can be transferred through the VMUS distribution 3 7
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system. The requested transformer is a standard transformer that is used to simplify inventory and for ease of change out when necessary.
Background:
Electrical utilities, such as VMUS, are expected to operate a reliable power system with limited outages at a reasonable cost to its customers. Power system reliability is maintained and enhanced when that system has components that are dependable, substitutable, and easily replaceable if they fail. Interoperability is the ability of the system equipment and devices to work together easily and effectively by design. This reliability, efficiency, and interoperability is achieved through standardization of equipment used on the system.
Standard equipment used on the VMUS system includes transformers manufactured by Hitachi. NEXUS Power is the direct sales/marketing arm of Hitachi, and their quotes come directly from the factory, which eliminates potential mark up in cost of such transformers.
Since 2020, supply chain issues have been exasperated in the United States.
Transformer supply from any manufacturer has been impacted significantly. Lead times have grown from three months in 2020 to almost one year in 2024. The cost of the transformers will not be expensed until the equipment arrives on-site and any transformers used for customer sites will ultimately be paid for by the customer.
Discussion:
VMUS maintains an inventory of spare transformers and other select parts to prevent extended down time in the event of equipment failures in the system. We have one replacement transformer for each size of transformer used in the VMUS system.
When new projects are under development, the engineering design for those projects will specify the appropriate size of transformer for each required service connection. The timeline for these projects to be developed and construction completed is approximately 44-60 weeks. The approximated lead time for the purchase of this transformer is currently forty (40) weeks. This purchase will replace the transformer that was lent from VMUS inventory to Prologis to avoid any downtime.
As noted in the quote (Attachment A) provided by Hitachi, the total price for the transformer listed above is $139,180.00. Due to the long lead times, Hitachi has a Price Adjustment Policy (“PAC”) included on the quote, which states that prices may be adjusted three (3) months prior to shipment. Should the price increase over the City Manager’s purchasing authority, as stated in VMC 2.28.060, VMUS staff will come forth and request additional approval to purchase the transformers from the Victorville City Council.
Pursuant to VMC 2.28.100(b)(2) this purchase is being recommended through a sole- source process (Attachment B) with Hitachi. A sole source purchase is defined under VMC 2.28.050(17) as, unique services, and/or supplies and equipment that can be obtained from only one vendor, or one distributor authorized to sell in this area, with 3 7
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singular characteristics or performance capabilities or which have specific compatibility components with existing city products, rendering bidding or quotation requirements futile or meaningless. The standardization for transformers reduces maintenance and training costs, creates efficiencies regarding a part's interchangeability and reduces outage downtime for customers in the event of a transformer failing. Additionally, NEXUS Power is contracted distributor for the manufacturer, which minimizes the markup costs for the units.
Staff remains available for any questions you may have.
Attachments: A. Hitachi Energy USA, Inc. Quote
B. Sole Source Form