CHAPTER7.

MARKUPSFOREQUIPMENTPRICEDETERMINATION
TABLEOFCONTENTS
7.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-1
7.2 OVERVIEWOFMARKUPEQUATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-1
7.3 ESTIMATIONOFINSTALLEDPRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-2
7.3.1 EstimationofTransformerWeightsandPoleCosts . . . . . . . . . . . . . . . 7-3
7.3.2 OverheadandProfitforInstallationExpenses . . . . . . . . . . . . . . . . . . . 7-5
7.3.3 Dry-TypeTransformerInstalledPriceEquation . . . . . . . . . . . . . . . . . . 7-5
7.3.4 Liquid-ImmersedTransformerInstalledPriceEquation . . . . . . . . . . . . 7-6
7.3.5 Liquid-ImmersedTransformerSpace-ConstraintCostEquation . . . . . 7-6
7-i
CHAPTER7. MARKUPSFOREQUIPMENTPRICEDETERMINATION
7.1 INTRODUCTION
Thischapterofthetechnicalsupportdocument(TSD)presentsDOE'smethodfor
derivingtransformerprices.Theobjectiveoftheequipmentpricedeterminationistoestimate
thepricepaidbythecustomer/purchaserforaninstalledtransformer.Purchasepriceand
installationcostarenecessaryinputstothelife-cyclecost(LCC)andpaybackperiod(PBP)
analyses. Chapter8presentstheLCCcalculations;section8.2.1describeshowtheLCCuses
purchasepriceandinstallationcostasinputs.
Purchasepricesfordistributiontransformersarenotgenerallyknown.Transformersare
specialtyitems,oftencustom-builtwithunlistedprices. Theengineeringanalysis(Chapter5)
providedthemanufacturersellingpricesfortheunitsanalyzedbytheLCC.DOEderivedaset
ofpricesforeachtransformerdesignproducedbytheengineeringanalysisbyapplyingmarkups
tothemanufacturersellingpriceintheformofmarkupequations.Thesemarkupsrepresentall
thecostsassociatedwithbringingamanufacturedtransformerintoserviceasaninstalledpiece
ofelectricalequipmentatacustomerssite.
Withrespecttoinstallationcosts,DOEalsodevelopedcostequationsforspecific
situationsofparticularconcerntostakeholders. Duringthenoticeofproposedrulemaking
(NOPR),stakeholderexpressedaconcernregardingtheimpactsofminimumefficiency
standardsonspace-constrainedvaulttransformerinstallations.Vaulttransformersare
distributiontransformersthatareusedinundergrounddistributionnetworkswerethe
transformersareinstalledinsideaconcretevaultthatisopenatthetop,whichcanbevery
expensivetoreplaceorexpand. Thischapterpresentstheequationdescribingvaulttransformer
replacementexpensesinsection7.3.5.
7.2 OVERVIEWOFMARKUPEQUATIONS
Dependingonthepurchasingenvironment,DOEuseddifferentmarkupequationsto
capturethevariousmarkupsinthesupplychainbetweenthemanufacturerandthecustomer.For
example,electricutilities(exceptfortheruralelectriccooperatives)typicallypurchaseliquid-
immersedtransformersthroughmanufacturerrepresentativesordistributors.Themanufacturer
sellingpriceplusthesmalldistributormarkupisgenerallytheutilitiespricefortransformers.
Dry-typetransformersgothroughseveraladditionalmarketingand/orhandlingstepsbeforethey
areinstalledbytheend-usepurchaser.
DOEadjustedtheadvancenoticeofproposedrulemaking(ANOPR)distributormarkup
assumptionsbasedonstakeholderfeedback.Liquid-typedistributiontransformershaveaseven
percentmarkup,accountingfordistributormarkup.Themanufacturersellingpricesfordry-type
transformersincludetwopricemarkups:adistributormarkupof15percentandacontractor
7-1
materialsmarkupof10percent. DOEbasedthesemarkups(expressedasaveragemultipliers)on
RSMeansElectricalCostData2002.
1
Thedistributormarkupconvertsthemanufacturerselling
pricetothedistributorprice,thepricepaidbytheelectricalcontractor.Thisdistributormarkup
coversthecostsofthedistributionbusiness,includingsaleslabor,warehousing,overhead,and
profit. Thenthecontractorappliesamarkuptothedistributorpricetocovercontractoroverhead
andprofit.
Forbothliquid-immersedanddry-typetransformers,DOEaddedshippingcosts,sales
tax,aninstallationlaborandequipmentmarkup,andweight-dependentinstallationcosts.
Distributiontransformerscanbeveryheavy(someweighmorethanaton)andcostlytoship.It
iscommonpracticefortransformerstobeshippeddirectlytoaconstructionsitewithno
intermediatewarehousing. DOEestimatedshippingcostsbycollectingasmallsampleof
quotationsfortransportingtransformers.Basedonanaverageshippingdistanceof1,000miles,
DOEestimatedshippingcostsof$0.20/poundforlargeshipments.UsingRSMeansElectrical
CostData2002,DOEestimatedaninstallationlaborandequipmentmarkupof52percent.By
weightingthesalestaxforeachindividualStatebyitspopulation,DOEcalculatedanational
averagesalestaxof5.6percent.Finally,DOEaddedinstallationcosts.Theinstallationcostis
thecostoflabor,equipment,andmaterials(otherthanthetransformeritself)neededtoinstalla
distributiontransformer. DOEdevelopedseveralempiricalequationsforestimatinginstallation
costsasafunctionoftransformerweight.
7.3 ESTIMATIONOFINSTALLEDPRICE
DOEestimatedtheinstallationcostsandcontractormarkupsontransformersbyfittinga
linearcostfunctiontotheRSMeanselectricalcostdata. TheRSMeansdatabreakdownthe
totalinstalledcostfortransformersintermsoffourcostcomponents:
1. Materials: transformerpurchaseprice,includingmountinghardware.
2. Labor: laborcostrequiredforinstallation,includingunloadinganduncrating,hauling
within200feetoftheloadingdock,settinginplace,connectingtothedistribution
network,andtesting.
3. Equipment: equipmentrentalsnecessaryforcompletionoftheinstallation.
4. OverheadandProfit: installationoverheadandprofitexpensesforthecontractor(for
dry-typetransformersonly).
DOEdisaggregateditsinstallationcostsintothesefourcostcomponents.RSMeanslists
thetransformerpriceasamaterialcost.DOEperformedaregressiontodisaggregatethe
overheadandprofitassociatedwithinstallationlaborandequipmentrentalfromtheoverhead
andprofitassociatedwiththetransformer(material)cost.Theregressionequationis:
O&P=aMat+bL&E+c Eq.7.1
7-2
where:
O&P = theoverheadandprofitexpense(2001$),
Mat = thematerialcost(i.e.,transformerandhardware)(2001$),
L&E = thedirectlaborandequipmentcostsofinstallation(2001$),and
a,b,andc = thecomputedlinearregressioncoefficients.
DOEfittedthelaborandequipmentcostsasafunctionoftransformerweight.This
relationshipisjustifiedbecausetransformerweight(anditscorrelatedsize)isasignificantfactor
indetermininginstallationcostsforlaborandequipment.Forpole-mountedtransformers,DOE
assumedpolecostsdidnotvarywithchangesinefficiencybutrecognizedthat,insomecases,a
moreefficient,heaviertransformercouldrequireastrongerpole.BecausetheRSMeansdatado
notspecifytransformerweight,DOEinferredtheapproximateweightofatransformerfromits
kVA(kilovolt-ampere)capacity,asdescribedbelow.
ForuseintheLCCanalysis,DOEadjustedthese2001$to2006$usingthegross
domesticproduct(GDP)pricedeflatorfromtheEnergyInformationAdministration(EIA)s
AnnualEnergyOutlook2007(AEO2007).
7.3.1 EstimationofTransformerWeightsandPoleCosts
DOEderivedtheweight-versus-capacityrelationshipfortypicaltransformersfromthe
designdataproducedbytheengineeringanalysis.Itusedtheweight-versus-capacityrelationship
toestimatethetransformerweightcorrespondingtothetransformercostsreportedinRSMeans.
DOEestimatedascalingrelationshipbetweentransformerweightanddirectinstallationlabor
andequipmentcostsbyfittingthecorrelationbetweenweightandinstallationcoststoapower-
lawequation.
Inevaluatingdesignoptionsandtheimpactofpotentialstandardlevels,DOEexamined
thepotentialfornewstandardsfordistributiontransformerstolessentheutilityorperformance
oftheseproducts. StakeholdersmentionedintheircommentstoDOEthatheavy,more-efficient
transformerscouldhavelessenedutilityduetoimpactsonutilitypolerequirementsforoverhead
transformers. For single-phase,pole-mounted,liquid-immersedtransformers,DOEestimated
theadditionalinstallationcostsforthosedesignsthatwouldrequireanupgradetothepolebased
oncostdataprovidedbystakeholders.
FortheNOPRanalysis,DOEaddedapole-replacementcostfunctiontotheinstallation
costequationfordesignline2,whichcoverspole-mountedtransformers.Thisanalysisassumed
thatapolechange-outcostof$2,000occursforupto25percentofpole-mountedtransformers
whentheweightofthetransformerexceeds1,000pounds.DOEalsoincludedatransformerpole
supportcostof$0.12/lbtoaccountforthecostofasturdierpole.Thepolecostequationis
7-3
includedintheLCCspreadsheettoolforDL2sothatstakeholderscanconductsensitivity
analysesregardingpolereplacementcosts. Becausenotalltransformerinstallationsrequirea
change-outofexistingequipmenteveninthemostextremecase,DOEassumedamaximum
change-outfraction.DOEselected25percentasthemaximumchange-outfractionestimate
basedonstakeholderinput.
2
Themethodforderivingtheweight-versus-capacityrelationshipusesatypical
transformerweightfromtheengineeringanalysis.DOEdefinedthetypicalweightasthe
minimumweightplus20percenttimestheweightrange,wheretheweightrangeisthedifference
betweentheminimumandmaximumtransformerweightfortheselecteddesigns.
Fromthesedata,DOEobtainedthefollowingpower-lawrelationshipfortransformer
weightasafunctionofcapacityandbasicimpulseinsulationlevel(BIL)rating:
Weight=13.13kVA
0.765
BIL
0.244
Eq.7.2
where:
Weight = theweightofthetransformer(lbs),
kVA = thecapacityofthetransformer(kVA),and
BIL = theBILratingofthetransformer(kV).
AlthoughRSMeansdoesnotprovidetransformerweights,itdoesprovidetransformer
capacityandprimaryvoltage.DOEestimatedweightfromcapacityandBIL,whichitestimated
usingprimaryvoltage.DOEthencomparedtheweighttothedirectinstallationcostsfromthe
laborandequipmenttoobtainapower-lawrelationship.
Thefirstregressionperformedwastheinstallationdirectlaborandequipmentcostsasa
functionoftransformerweight. Dataanalyzedincludedall115distributiontransformerkVA
ratingsspanningthethreeRSMeanselectricalequipmentcategories:drytypetransformer
(16270-200),oil-filledtransformer(16270-600),andtransformer,liquid-filled(16270-610).
Theresultingcorrelationequationis:
L&E=42.08Weight
0.46
Eq.7.3
where:
L&E = theinstallation,directlabor,andequipmentcosts(2001$),and
Weight = thetransformerweight(lbs).
Theregression,performedasapower-lawtrendlinefitinExcel,resultedinanR-square
of0.95,indicatingagoodfittothedata.
7-4
7.3.2 OverheadandProfitforInstallationExpenses
Thenextregressiontargetedcontractoroverheadandpurchaseprofitexpensesintermsof
amarkuponmaterials(i.e.,thetransformer),andlaborandequipment(i.e.,directinstallation).
Initially,DOEperformedalinearregressionwithaconstantterm.Whenitfoundthatthe
constanttermwasnotsignificantlydifferentfromzero,itrantheregressionagain.Theresulting
equationis:
O&P=0.10Mat+0.52L&E Eq.7.4
DOEusedequation7.4toallocateoverheadandprofitexpensestoamarkuponthe
distributorpriceandaseparatemarkuponthedirectlaborandequipmentcostsforthe
installation.
7.3.3 Dry-TypeTransformerInstalledPriceEquation
Fordry-typetransformers,theresultoftheseanalyticalstepsisatotalinstalledcost
equationasafunctionofthemanufacturersellingpriceandtransformerweight:
Installed_Price=M
tax
(M
L&E
L&E+M
Mat
(M
Ship
Weight+M
Dist
ManPrice)) Eq.7.5
where:
Installed_Price= thefinalinstalledpriceofthetransformer(2006$),
M
tax
= thefactorthataccountsforsalestax,estimatedas1.054,
M
L&E
= thefactorthataccountsforthemarkupondirectinstallationlabor
andequipmentcosts,estimatedas1.52,
L&E = theinstallation,directlabor,andequipmentcosts(2001$),adjusted
to2006$usingtheGDPpricedeflatorfromAEO2007,
M
Mat
= thefactorthataccountsforthecontractormarkuponthepurchase
ofthetransformerfromthedistributor,estimatedas1.10,
M
Ship
= theshippingcost,estimatedas$0.20/lb,
Weight = thetransformerweight(lbs),
M
Dist
= theaveragedistributormarkupfactor,estimatedas1.15,and
ManPrice = themanufacturer'ssellingprice(2006$).
DOEappliedtheinstalledcostequationbyusingthemanufacturerpriceandweightfrom
theengineeringanalysis.Forexample,theengineeringanalysisestimatedthatthedesignline9
(three-phase,300kVA)transformerwiththeminimummanufacturerpriceweighs1733pounds
andhasamanufacturerpriceof$5341.80.Forthistransformer,DOEestimatedtheinstalledcost
7-5
tobe$9631.39,where$2082.73istheinstallationcost,and$7548.66isthetransformerretail
price,includingshippingcosts,salestax,andmarkups.
7.3.4 Liquid-ImmersedTransformerInstalledPriceEquation
Forliquid-immersedtransformers,DOEremovedthecontractormarkupfromthecost
equationtoobtain:
Installed_Price=M
tax
(M
L&E
L&E(M
Ship
Weight+M
Dist
ManPrice)) Eq.7.6
where:
Installed_Price= thefinalinstalledpriceofthetransformer(2006$),
M
tax
= thefactorthataccountsforsalestax,estimatedas1.054,
M
L&E
= thefactorthataccountsforthemarkupondirectinstallationlabor
andequipmentcosts,estimatedas1.52,
L&E = theinstallation,directlabor,andequipmentcosts(2001$),adjusted
to2006$usingtheGDPpricedeflatorfromAEO2007,
M
Ship
= theshippingcost,estimatedas$0.20/lb,
Weight = thetransformerweight(lbs.),
M
Dist
= theaveragedistributormarkupfactor,estimatedas1.07,and
ManPrice = themanufacturer'ssellingprice(2006$).
Aswiththedry-typetransformers,DOEappliedtheinstalledcostequationbyusingthe
manufacturerpriceandweightfromtheengineeringanalysis.Forexample,theengineering
analysisestimatedthatthedesignline1(single-phase,50kVA)transformerwiththeminimum
manufacturerpriceweighs719poundsandhasamanufacturerpriceof$937.32.Forthis
transformer,DOEestimatedtheinstalledcosttobe$2607.64,where$1389.70istheinstallation
cost,and$1217.94isthetransformerpricefortheutility,includingshippingcost,salestax,and
markups.
7.3.5 Liquid-ImmersedTransformerSpace-ConstraintCostEquation
DOEalsodevelopedcostequationstoestimatetheeconomicimpactsofminimum
efficiencystandardsonspace-constrainedvaulttransformerinstallations.Vaulttransformersare
distributiontransformersthatareusedinundergrounddistributionnetworkswerethe
transformersareinstalledinsideaconcretevaultthatisopenatthetop. Ifareplacement
transformeristoolargetofitwithinexistingconcretevaultspace-constraintsthenavaultmay
needtobemodifiedormovedincurringanextrainstallationcost.
7-6
Forspace-constrainedtransformers,DOEassumeavaultreplacementormodification
costequationthatincludedbothfixedandvariablecostcomponentsasfollows:
Vault_Change_Cost=VCC_Fixed+VCC_VariableVolume Eq.7.7
where:
Vault_Change_Cost= thecostofchangingorexpandingatransformervault
(2006$),
VCC_Fixed = thefixedcomponentofthetransformervaultchangecost(2006$),
VCC_Variable= thevariablecomponentofthetransformervaultchangecost
relativetoincreaseintransformervolume(2006$percubicfoot),
Volume = thetransformervolume(cubicfeet).
DOEusedthiscostequationforvaultreplacementandmodificationcostsinitssubgroup
analysisforspace-constrainedtransformersinChapter11ofthisTSD.Toobtainestimatesof
thefixedandvariablecostcomponentsofthetransformervaultcostfunction,DOEexamined
transformervaultcostsasafunctionoftransformersizeasprovidedbyRSMeans(2003). First,
usingstandarddrawingsforutilityvaults,DOEdeterminedatransformertovaultvolumeratioof
0.27:1. ThenusingcostdatafromRSMeans,DOEestimatedvaultreplacementcostsincluding
replacementofthevault,removalandresetofthemanholecoveranddemolitionoftheexisting
vault. AsreportedinthenoticeofdataavailabilitypublishedonFebruary9,2007,DOE
estimatedthefixedcostas$1740pertransformerandthevariablecostas$26pertransformer
cubicfoot.72FR6189
InresponsetotheNODA,severalstakeholderscommentedonDOEscostequation
parameterestimates. TheCanadianElectricityAssociation,estimatedthatrebuildingor
expandingavaultmaycostmorethan$15,000Canadiandollarsperinstallation.(CEA,No.171
atp.2) Dominionpowercompanyestimatedthattoremovesidewalkandstreetcoverings,
excavatearoundthevault, formupandpourwalls,andbreakouttheoldwallforatransformer
vaultwillcost$50,000to$60,000whilenewtopsandgratesfortheexpandedvaultwillcost
$10,000to$15,000.(Dominion,No.172atp.2)AndGeorgiaPowerestimatedthecostofvault
replacementrangesfrom$26,000forjustthelidto$100,000forasingle500kVAvaultto$1
millionforafive-unit2000kVAvaults. (SouthernCompany,No.178atp.8)Georgiapowers
estimatecorrespondstoafixedcostcomponentofapproximately$30,000andavariablecost
componentof$688percubicfootoftransformer.DOEexaminedthefullrangeofvaultcost
equationparametersinitssubgroupanalysisofvaulttransformers.
7-7
REFERENCES
1. RSMeansCompanyInc.ElectricalCostData:26thAnnualEdition.2003.ed.J.H.
Chiang.Kingston,MA.
2. Rosenstock,S.ANOPRforDistributionTransformers,Docket#EE-RM/STD-00-550,
RIN#1904-AB08,commentNo.63.November8,2004.EdisonElectricInstitute.
7-8