HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 05/17/2022 - FIRST READING OF ORDINANCE NO. 058, 2022, APPROPRI Agenda Item 6
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AGENDA ITEM SUMMARY May 17, 2022
City Council
STAFF
Adam Bromley, Director of Operations & Technology
Kendall Minor, Utilities Executive Director
Lance Smith, Utilities Strategic Finance Director
Cyril Vidergar, Legal
SUBJECT
First Reading of Ordinance No. 058, 2022, Appropriating Prior Year Reserves in the Light & Power Fund for
Purchase of Distribution and Substation Transformers.
EXECUTIVE SUMMARY
The purpose of this item is to bring forward an off-cycle supplemental appropriation of Light & Power reserves
to fund a capital project consisting of the purchase of distribution and substation transformers. Information from
transformer vendors indicates that prices and lead times are rising significantly, due to supply chain and
inflationary challenges. With respect to distribution transformers, it will be necessary to either scale back the
number of distribution transformers the City planned to purchase this year or request an additional
appropriation to permit purchase of the expected number of transformers necessary to accommodate new
customers and prudent asset replacement. A reduction in the number of transformers purchased could
negatively impact new development and system reliability. The proposed supplemental appropriation includes
$1,432,000 to allow more distribution transformers to be ordered in 2022 so that sufficient stock can be
delivered as soon as available, likely in late 2023 at the earliest.
In addition, a new substation will be necessary to adequately serve the northeast areas of the City as those
areas develop. The proposed supplemental appropriation also includes $2,234,000 for the two substation
transformers needed to serve this load growth. Again, this supplemental appropriation is recommended to
avoid waiting to place these orders when additional funds would otherwise become available in early 2023 and
should allow these transformers to be delivered within the next three years given current lead-times.
The total supplemental appropriation being proposed f or Council consideration is for $3,666,000.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
Distribution Transformers
Light & Power (L&P) staff has engaged with the distribution transformer man ufacturer industry to better
understand the significant price increases to the transformers that are typically purchased. The main drivers of
the price increases are related to supply chain issues mainly related to shortages and/or significant inflationary
pressures for almost all raw materials used to construct a distribution transformer , including transformer core
steel and aluminum secondary winding supplies. While some manufacturers are better off than others due to
their buying power and existing contracts in these markets, these supply chain issues have far-reaching
impacts to prices, lead times, labor and transportation costs, and production capacity. Recent industry
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communications related to supply chain issues suggest that these price increases and extended lead times will
endure the short term (i.e., through 2023) and will likely continue longer term or become permanent.
L&P typically purchases a year’s worth of transformers in advance. L&P uses the economic order quantity
estimating methodology, which considers historical usage data for each stock number along with known future
work order needs, to arrive at the number of transformers to be purchased each year. This methodology
works well when lead times are reasonable (i.e., 10 -20 weeks) or if lead time increases gradually. Depending
on the specific transformer design needed, lead times can be approximately three to five times longer than
seen in 2021, which does not provide enough time to react adequately. New developments and capital projects
are on the horizon and L&P anticipates that new construction needs will not go away soon. L&P projects its
current stock of distribution transformers may last until the summer or fall of 2023 with intention and judicious
use of the units. Due to the great ly increased lead times on these transformers and to avoid running out of
current transformer stock, L&P needs to order transformers now.
Based on historical usage and projected needs, L&P staff has identified three transformer models (specific size
and type) that are most likely to be needed prior to the end of 2023. Staff intends to use existing appropriated
funds to order the single most used transformer type and size (single phase submersible). The requested
supplemental appropriation will fund an additional quantity of that same transformer type and size, as well as
necessary quantities of the other two high-use transformer models (three phase pad mounted, 75 kVA and 150
kVA). Because L&P relies on existing stock in the other transformer models and wil l need to stay ahead of the
long lead times moving into the future, orders for all transformer models will need to be placed at the beginning
of 2023 and 2024 to receive those transformers in 2024 and 2025. This will change the estimated budget for
transformers that was originally planned in the Capital Improvement Plan (CIP) and 2023/24 BFO offer. All
changes are shown in the table below.
2022
2022 Transformer Order Total Cost $2.225 M
2022 Transformer Budget $0.793 M
Supplemental Appropriation Request to fulfill Total Cost $1.432 M
2023 2024
Transformer Budget Planned in CIP $1.132 M $1.260 M
Updated BFO Offer for Transformer Budget $4.123 M $3.749 M
Staff has researched and feels confident that these orders, along with the proposed supplementa l
appropriation for the identified additional orders, will supplement existing stock levels such that L&P can
continue to serve existing and new development. Staff also has contingency plans in place to ensure delivery
of electric service to new and existing customers due to unexpected circumstances.
Substation Transformers
Anticipated annexations and growth in northeast Fort Collins will require a new substation to supply electric
capacity to new customer loads to avoid overburdening existing substations in surrounding areas. A new
substation will allow L&P to continue operating the system at current substation and feeder design standards,
which guarantee high reliability and stability. Typically, each substation includes two substation power
transformers and substation switchgear. This new substation is a planned in the Capital Improvement Plan
(CIP) and scheduled for the 2023/24 budget cycle.
Staff also reached out to the manufacturer that historically provided substation transformers to L&P and
consulted other industry sources and discovered there are similar supply chain issues affecting substation
transformer manufacturers. While lead times for these transformers are longer than 3 years at this point, prices
do not appear to be increasing in the same manner. To avoid these longer delays for substation transformers,
the proposed supplemental appropriation will facilitate immediate commencement of the procurement process.
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The lead times for substation transformers does change the trajectory of the s ubstation construction schedule
and associated purchases of other high dollar materials (i.e., switchgear). The same amount of capital dollars
is proposed to complete construction of the new substation; however, it will be allocated differently than what
was planned for in the CIP. The table below shows plan reflected in the CIP and the changes to that plan if the
proposed supplemental appropriation and BFO offer are approved.
2022 2023 2024
2021 Capital Improvement Plan $6.649 M $3.761 M
Supplemental Appropriation/Updated BFO offer $2.234 M $0.300 M $7.876 M
CITY FINANCIAL IMPACTS
Staff does not anticipate any negative financial impacts related to the appropriation from L&P reserves, which
will maintain a healthy positive balance after the proposed appropriation. Knowing that future budget cycles will
be impacted by supply chain constraints and significant price increases, Utilities’ leadership will continue to
refine anticipated capital investment needs and escalating operating costs, and balance th ose needs with
future rate adjustments and debt issuances.
The following table shows the approximate impacts to L&P reserves after the proposed appropriation:
Description Total $
Year-End 2020 Total Reserves $48.7 M
Minimum Required ($8.0 M)
Currently Appropriated ($17.1 M)
Year-End 2020 Reserves Available $23.4 M
2021 Preliminary Additions ~$19 M
Year-End 2021 Reserves Available ~$42 M
Connexion Funding ($20 M)
Distribution & Substation Transformers ($3.7 M)
Remaining Reserves ~$18.3 M
BOARD / COMMISSION RECOMMENDATION
Staff presented this request to Council Finance Committee on May 5, 2022.
Staff also presented the proposed supplemental appropriation to the Energy Board at its regular meeting on
April 14, 2022. The Board voted unanimously to support the supplemental appropriation of L&P reserves.
(Attachment 1) Adoption of these minutes is anticipated at the regular Board meeting on May 12, 2022.
ATTACHMENTS
1. Energy Board (excerpt) (PDF)
DRAFT Minutes from Energy Board – April 14, 2022
TRANSFORMER PURCHASES: OFF-CYCLE APPROPRIATION REQUEST
Adam Bromley, Interim Deputy Director, Utilities Light & Power
(Attachments available upon request)
Distribution transformers are the units that step voltage down and serve utility customers.
Approximately 99%+ underground, historically transformers are in underground vaults. Stainless
steel tanks reduce corrosion in vault environment. Reduces risk and increases reliability.
Stainless steel supply is very constrained, staff looked into other grades , but it is still very difficult
to source. There is a >130% price increase in stainless steel, with lead times over 1.5 years.
Above ground - padmounted mild steel, has less of a chance of corrosion above ground. There
are fewer supply issues and lower cost issues but are still significant (35-45%). Lead times are also
long. Three (3)-phase padmounts needs are harder to predict because they are depending on
Commercial and Industrial (C&I) development.
Budget is increasing to get ahead in lead time and cost increases.
BM Braslau commented it is critical to support this as the City and Council continue to push for
electrification as well as more housing.
Substation transformers - lead times are 3+ years.
BM Braslau are we adjusting capacity fees to reflect these costs? Mr. Smith said staff is considering
for 2023, regardless of where we are at in that cycle.
VC Becker there must be implication to rates in general, these are just a piece of the larger puzzle?
Mr. Bromley we are at the front end of understanding these material cost changes, this off cycle is
a short-term solution. Debt issuance and rate increases would be a long -term solution, we don’t
have all the data to know what those rate increase changes would be.
Vice Chairperson moved to support an off-cycle appropriation of Light and Power (L&P) reserves
to procure enough distribution transformers so that L&P can support new construction and
necessary replacements through 2024, as well as an off -cycle appropriation of L&P reserves to
begin the procurement process for two (2) substation transformers that will be used to complete
the construction of a new substation that serves Northeast Fort Collins.
Board member Braslau seconded the motion.
Discussion:
None.
Vote on the motion: It passed unanimously, 7-0
ATTACHMENT 1
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ORDINANCE NO. 058, 2022
OF THE COUNCIL OF THE CITY OF FORT COLLINS
APPROPRIATING PRIOR YEAR RESERVES IN THE LIGHT & POWER FUND FOR
PURCHASE OF DISTRIBUTION AND SUBSTATION TRANSFORMERS
WHEREAS, the budget needs for Electric Utility Distribution System infrastructure
replacement projects requested in the 2022 Budgeting for Outcomes (BFO) process included all
known capital projects at that time; and
WHEREAS, recent changes in supply markets and increased load growth create a need
for the Electric Utility to accelerate orders for replacement distribution and substation
infrastructure; and
WHEREAS, the current funding shortfall between the approved Electric Distribution
System infrastructure replacement projects requested in the 2022 BFO process and currently
identified needs is due to unanticipated load growth-related projects, escalating materials and
construction costs, and significantly longer manufacturer order fulfillment lead times; and
WHEREAS, this Ordinance appropriates $3,666,000 from the (Electric Utility
Enterprise) Light & Power Fund reserves to be spent in the Electric Distribution System
Replacement project to accelerate ordering of planned replacement distribution and substation
transformers to address current and emerging market conditions that may compromise
replacement schedules or delay planned expansion projects; and
WHEREAS, this supplemental appropriation benefits the public health, safety and
welfare of the residents of Fort Collins and benefits Electric Utility ratepayers by proact ively
ordering stock for use in completing scheduled and emerging replacement of high-use
infrastructure and installation of new substation facilities in growth areas in order to maintain
reliability and reduce outage frequency; and
WHEREAS, Utilities staff believes proactively placing orders for such equipment earlier
than initially planned will capture currently lower supply and construction costs than those
anticipated in coming budget cycles and accommodate longer market order lead times, allowing
Utility Services to receive such equipment by planned replacement or installation dates and
maintain its high service standards; and
WHEREAS, in 1995, the City Council adopted Article XII of City Code Chapter 23 to
establish a program to acquire, exhibit and maintain art in public places to be funded by
including in the Council’s appropriations for certain capital projects an amount equal to 1% of
the construction costs for those projects, but this contribution amount for the City’s utilities is
limited to a total annual contribution amount of 0.5% of each utility’s “budgeted operating
revenue” (the “APP Ordinance”); and
WHEREAS, contributions to art in public places for each utility are kept and spent in
such utility’s own enterprise fund, with the exception of maintenance, administration, repair and
display costs pursuant to City Code Section 23-303; and
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WHEREAS, this supplemental appropriation does not require a contribution for art in
public places under the APP Ordinance, as distribution and substation transformers are
traditionally capitalized at the time of purchase as “operation and maintenance” expenses for
Utility facilities, rather than when they are placed into service, even if they become components
of capital projects; therefore, purchase of such equipment is exempt from the contribution
requirements of the APP Ordinance; and
WHEREAS, Article V, Section 9 of the City Charter permits the City Council, upon the
recommendation of the City Manager, to make supplemental appropriations by ordinance at any
time during the fiscal year such funds for expenditure as may be available from reserves
accumulated in prior years, notwithstanding that such reserves were not previously appropriated;
and
WHEREAS, the Interim City Manager has recommended the appropriation described
herein and determined that this appropriation is available and previously unappropriated from the
Light & Power Fund and will not cause the total amount appropriated in the Light & Power Fund
to exceed the current estimate of actual and anticipated revenues and all other funds to be
received in this Fund during this fiscal year; and
WHEREAS, Article V, Section 11 of the City Charter authorizes the City Council to
designate in the ordinance when appropriating funds for a capital project, that such appropriation
shall not lapse at the end of the fiscal year in which the appropriation is made, but continue until
the completion of the capital project; and
WHEREAS, the City Council wishes to designate the appropriation herein for the capital
project consisting of the purchase of distribution and substation transformers as an appropriation
that shall not lapse until the completion of the project.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2. That there is hereby appropriated from prior year reserves in the Light &
Power Fund the sum of THREE MILLION SIX HUNDRED S IXTY-SIX THOUSAND
DOLLARS ($3,666,000) to be expended in the Light & Power Fund for the capital project
consisting of the purchase of distribution and substation transformers.
Section 3. That the appropriation herein for the capital project consisting of the
purchase of distribution and substation transformers is hereby designated, as authorized in
Article V, Section 11 of the City Charter, as an appropriation that shall not lapse at the end of
this fiscal year but continue until the completion of the project.
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Introduced, considered favorably on first reading, and ordered published this 17th day of
May, A.D. 2022, and to be presented for final passage on the 7th day of June, A.D. 2022.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk
Passed and adopted on final reading on the 7th day of June, A.D. 2022.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk