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Instrucuon: Filin the snadeo ceis with appicabie rormua. Liz Gates, senior buyer at Northwest Gas \& Electric systems. Metering requirements differed based on the Company (NG\&E) in Portland, Oregon, was reviewing a diameter, pressure, and volume of the pipeline. For examproposal from Covington Meters (Covington) for the pur- ple, transmission pipeline networks were often large in chase of 2,000 rotary gas meters. Alex Butt, sales manager diameter, designod to carry high volumes of natuml gns at Covington, had provided information in his proposal compressed to as much as 1,500 pounds per square inch suggesting that operating costs for their meters provided (psi). In contrast, distribution pipelines were smaller significant savings over the life of the product, justifying in diameter, requiring as little as 3 psi of pressurizaa higher purchase price. It was Thursday, March 24, and tion. Natural gas meter capacity was measured in stanLiz needed to finalize her recommendations by March 31, dard cubic feet per hour (CFH), with sizes ranging from when she was to meet with her boss, Larry Lin, director 600CFH to 56,000CFH of procurement. Larry was expecting a convincing case to justify the acquisition of a higher cost meter. METER PURCHASES NORTHWEST GAS \& ELECTRIC NG\&E purchased several different types of meters for its COMPANY pipeline network each year, representing an anneral spend of approximately $10 million. Liz Gates took over respoeNG\&E was one of the largest combination natural gas and sibility for meter purchases the previous year and had electric utilities in the Uniled States. Based in Portland, committed to achieving cost savings, defined as year-overthe company employed approximately 15,000 people year price reductions, representing 3 percent of NG\&E's who carried out its primary business-the transmission spend on meters for the current calendar year as part of and delivery of energy. The company provided natu- the purchasing department's overall cost-reduction target. ral gas and electric service to approximately 12 million The company had two approved strategic suppliens people throughout a 50,000 -square-mile service area in for its meters. Becker Meters (Becker) had been a long: the Northwest. standing supplier to NGEE and was one of the woild's The transportation system for natural gas consisted of a largest providers of natural gas meters. Headquartered in complex system of pipelines, designed to efficiently move Germany, Becker had 8.000 cmployees with operations natural gas from its origin to where it was needed. These in Europe, North America, South America and Asia. The networks consisted of gathering, feeder, transmission and company's U.S. operations were based in Chicago. The distribution pipelines. Gathering systems consisted of majority of the meters currently installed in NG\&E' netlow-pressure, small-diameter pipelines that transporied work had been supplied by Becker raw natural gas from the welliead to the processing plant. NG\&E had recently approved Covingron as a aew Transmission lines were the superhighways of the system, supplier after a thorough audit of its manufacturing moving large volumes of natural gas within a state and operations, quality processes, engineering capabilities, across state or international boundaries. Feeder pipelines customer service operations, human resource practices. moved natural gas from processing facilities and storage and financial position. Larry Lin had been concerned tanks in the field to the transmission pipelines. Local that Becker's 12-week lead times were too long. and distribution companies operated natural gas distribution he felt it prudent to have an alternative source. Lacated lines to homes and commercial customens. Compressor in Cincinnati, Ohio, Covington was a privately beld stations, consisting of large turbines, were placed along company that had been in operation for more than the pipeline to iocrease pressure and push the natural 40 years, specializing in rotary gas metern. Compacy revgas through the pipe to its destination. NG\&E operated cnues in the most recent fiscal year were approximately approximately 33,000 miles of natural gas distribution $20 million. pipelines and 5,000 miles of transmission pipelines. Each year, NG\&E parthased approximately 2,000 Utiities and pipeline companies used metering sys- avelers with capacity of 1,000 CFH for use in its distributems to measure and regolate the amount of natural gas tion network. This equipment was rtgatded as a capital entering. exiting and flowing through their pipeline expense, which was amortirod over a 20-year period The EXHIBIT 1 Covingten Proposal - Total Cost of Ownership Analysis (20-Year Life Cyele per Meter) Assumptions: 1. Field inspections for 20-year life cycle (per anit) company had been using the B-1,000 diaphragm meter THE COVINGTON PROPOSAL from Becker, which was approximately 20 inches tall and 14 inches wide and weighed 55 pounds. James Flynn, the Lie asked Alex Buat to submit a proposal in onder to sales rep for Becker, quoded a price of $950 for the B-1000 compare price and lead time. She indicated to Alex that. meter, conditional on Lir committing so a three-year coo- NGEE would be prepared to sign a three-year contact. tract with unbial volumer of 2,000 units. This price repee. Alex met and with Lir in her offiee on Marth 21 and seniod a 560 reduction from the price in Becker's previous reommested the CON-1,000 mary meter, for a cont of contract with NGiE. Which was doe to expire. $1,700 each, based on a three-year contrset with anntal volumes of 2,000 units. Lead times were eight weeks. weight and 70 percent reduction in size compared to During the meeting, Alex commented: I expect our the B-1,000, allowing for easier and sarer handling and price is higher than you are used to paying for diaphragm installation. A summary of the analysis provided by Alex meters from Becker, but there are factors other than price in his proposal is in Exhibit 1 . that need to be taken into consideration. Rotary meters are more durable, requiring less maintenance. Our engineer- ANDREW SPENCE MEETING ing department has analyzed the differences between our product and comparable diaphragm meters, and we esti- In preparation for her meeting with Larry, Liz visited mate that you can save at least $1,700 per meter on a total Andrew Spence, director of field maintenance at NG\&E. cost basis over a 20-year period. I have provided the details on March 23. After showing Andrew the proposat from in the quote, and I think you will find our proposal very Alex Butt, he commented: "We do service our diaphragm attractive." meters on a five-to seven-year cycle. depending on the The Covington proposal included its COV-1,000 level of use and manufacturer specifications. Most require rotary meter with a diaphragm meter conversion kit, routine maintenance and a proof test to ensure accuracy. complete with required piping, gaskets and bolts, and We check for internal friction, leaks, and diaphragm the instructions to facilitate replacement of existing dia- displacement. Rotary meters are definitely sturdier. The phragm meters. The conversion kits were pre-sized and pressure bodies are good for 20 years or more, but the factory tested, so there would be no need for welding. electronics need to be checked every 10 or 11 years. It pipe cutting, and other extensive labor. Installation costs. is expensive for technicians drive to the site to remove a would be similar to the diaphragm meter. meter for testing and swap in a replacement meter. The The proposal from Alex indicated several advantages amount of time required depends on the location and of the COV-1,000 rotary meter compared to comparable travel time. ldeally we combine maintenance activities diaphragm meters. First, the rotary meter would require or batch the inspections and do all the meters at a site at fewer field service inspections, at an interval of every one time. The $220 estimate per meter is likely close pro11 years. Diaphragm meters required three inspections vided you want to include costs for technician labor, usc during a 20-year period, with intervals of seven years of the vehicle and equipment, parts, and administrative for the first inspection and every five years thereafter. costs. Keep in mind that our technicians have been serSecond, the higher flow-rate accuracy of rotary meters vicing and installing diaphragm meters exclusively for as provided higher revenues. Alex provided test results long as I remember. A switch to rotary meters will be seen indicating that the COV-1,000 meter increased gas regis- as a big change, and there will be lots of questions from tration by 0.05 percent, which resulted in approximately the technicians. Keep me posted on what happens. If we $66 per year in additional revenues. A third potential change to the Covington product, I will need to arrange advantage was the opportunity for NG\&E to reduce its training sessions." inventory of meters used as replacements when meters were removed from the field for inspections in order to COMPARING OPTIONS avoid interruptions in operations. NG\&E currently beld 2,000 diaphragm meters in inventory to support service As Liz prepared for her meeting with Larry, she wondered inspections. Alex's proposal suggested that this num- how to balance the potential long-term cost efficiencies ber could be reduced to 665 meters if NG\&E used the of the Covington meter with the lower cost of the Becker COV-1,000 rotary meter in its pipeline network. Lastly, product. She was all too aware that Larry was expecting ro the Covington meter offered a 50 percent reduction in see price reductions in meter purchases this year