City Council Report

January 19, 2010

City Council Meeting: January 12, 2010

Agenda Item: 8-B

To:                   Mayor and City Council

From:              Carol Swindell, Finance Director

Subject:          Purchase of Biodiesel Fuel

 

 

Recommended Action

Staff recommends that City Council award bid number 2984 to General Petroleum Corporation in an estimated amount of $2,050,131 annually, to supply and deliver B5, B20 and B50 biodiesel fuel blends to the Big Blue Bus Department and the Fleet Management Division.

 

Executive Summary

The purchase of biodiesel fuel supports Santa Monica’s Sustainable City Plan for reduced emissions and sustainability.  General Petroleum is recommended following a formal bid process.  The purchase order following award of bid will be effective through June 30, 2010, with four additional one year renewal options, subject to annual budget appropriation.  The total estimated expenditure for the balance of the current fiscal year is $1,195,910.  The total estimated expenditure for the four and one-half year term is $9,225,590.

 

Background

In February 2005 the City began using biodiesel in the municipal fleet and in October 2006 the Big Blue Bus began using biodiesel in all diesel buses.  One of the negative impacts of using biodiesel is an increase in Oxides of Nitrogen (NOx) emissions.  In June 2006, the Council approved a contract with South Coast Air Quality Management District (AQMD) which allowed the City to participate in a project to demonstrate the validity of biodiesel and mitigate impacts associated with the increased use of biodiesel, such as NOx emissions.  Other parties to this arrangement were LA BioFuel, the National Renewable Energy Laboratory, Extengine Transport Systems, and the California Energy Commission.  This demonstration was concluded on September 30, 2009.

 

Biodiesel blends are made from mixing biodiesel and petroleum diesel.  An alphanumeric designator indicates the level of biodiesel in the blend.  For example, B20 indicates that 20 percent of the biodiesel blend is biodiesel and 80 percent is petroleum diesel.

 

Biodiesel can be made from a variety of feed stocks, including plant-derived sources such as soybean oil, palm oil, and other vegetable oils; animal-derived sources such as tallow, lard, and poultry fat; and recycled oil and grease (yellow grease) usually obtained from restaurants and food processing plants.  Numerous studies clearly show that the production and use of biodiesel (derived from any of these feed stocks) results in significantly lower lifecycle environmental impacts when compared to petroleum-derived diesel.

 

In comparing different types of biodiesel, life-cycle assessments that take into account energy and resource use related to its production from these various sources show that biodiesel made from yellow grease is the most sustainable option by a large margin, with the plant-derived sources being the least sustainable.  This is because yellow grease is a re-used ‘waste’ product, whereas plant oils require significant energy, water and fertilizer inputs to produce and process. (Note: the sources derived from animal fats have a somewhat larger ecological footprint than biodiesel derived from yellow grease, and they can be problematic because they tend to congeal in cold temperatures, potentially clogging vehicle fuel lines.  For that reason, they are not considered a viable long-term source of biodiesel for the City).

 

An additional sustainability consideration related to biodiesel is the shipping distance and method of shipping for both the raw materials to the manufacturing site and the finished fuel from the manufacturer to the end user.  In general, greater shipping distances translate to larger environmental footprints of the fuel because they require more energy to get the fuel to the end user.  For this reason staff has prioritized the purchase of biodiesel manufactured as close as possible to Santa Monica to minimize these impacts.  The bid specifications also emphasized the use of yellow grease as a City priority, since feed stock for yellow grease does not require shipping virgin stock across the country.  An economic incentive also exists for yellow grease, since efficiencies can be gained from using feed stock that is close to a production facility.

 

Higher levels of biodiesel in the biodiesel blend, up to B99, provide increasing environmental advantages because they reduce the amount of petroleum diesel needed to fuel the vehicles.  However, the amount of biodiesel that can be used in certain vehicles is restricted by a number of variables.  Big Blue Bus transit vehicles, which use the greatest amount of biodiesel, are limited to a maximum of B20 due to the particulate matter reduction.  Additionally, State regulations also govern the storage and disposal of biodiesel from underground storage tanks (USTs).  As referenced later in this report, the configuration of Big Blue Bus storage tanks limits storage and dispensing to B5 biodiesel.  This means that of the 720,000 gallons of biodiesel blend estimated to be used by the Big Blue Bus under the purchase order contemplated in this staff report, only 5% (or 36,000 gallons) will be biodiesel, while the remaining 95% (or 684,000 gallons) will be petroleum diesel.

 

In May 2007, the City of Santa Monica opened a competitive bid to secure a contract for the supply of biodiesel.  As the bid progressed, staff recognized challenges associated with the technical bid specifications and, in August 2007, hired Gladstein, Neandross, and Associates (GNA) to help the City navigate the intricacies of creating specifications and evaluating responses.  Following an extensive review process, staff returned to Council in July 2008 with a proposal to award the bid to the lowest bidder, General Petroleum.  At that meeting, Council directed staff to undertake a new competitive bid, following examination of the overall effects that various feed stocks would have on the City’s carbon footprint.  In the interim, Council awarded a purchase to General Petroleum for a period of six months.

 

In December 2008, staff again returned to Council to recommend General Petroleum be awarded the biodiesel bid.  General Petroleum had again provided the lowest bid, however, following a discussion between staff and Council on sustainability issues, it was decided to conduct a third bid for biodiesel, with another interim purchase order awarded to General Petroleum.  The third bid, presented in this report, again yielded General Petroleum as the lowest bidder for the provision of biodiesel fuel.  The bid specifications for this bid and the bid presented to Council on December 8, 2008, were prepared by staff and did not utilize any consultants to provide technical or other support for the procurement of biodiesel.

 

Discussion

Since May 2007, City staff has been working to secure a supply of biodiesel fuel for vehicles and buses operated by the City.  The relatively new arrival of biodiesel as an alternative fuel has provided numerous challenges in crafting reasonable bid specifications and in evaluating nonmonetary concerns, including the carbon footprint of fuel delivery.

 

Following a December 2008 Council meeting in which a biodiesel bid award was considered, issues surrounding the purchase of biodiesel have been studied extensively by a team comprised of members of Finance, Community Maintenance, the Office of Sustainability and the Environment (OSE), and the Big Blue Bus, with guidance from the City Manager’s Office (CMO).  The specifications for the bid were modified to ensure a fair and competitive bid process, the selection of a vendor that offered a competitive price, an uninterrupted supply of reliable biodiesel, and meet the City’s requirements for environmental sustainability.  These bid specifications also considered current regulations for the storage and dispensing of biodiesel, which have changed since the last bid.  Current regulations only allow the storage of B20 in underground storage tanks.  Underground storage tanks at the Big Blue Bus facility are restricted to storing and dispensing biodiesel blends of up to a maximum of B5 due to the facility’s current configuration.

 

At the December 2008 Council meeting, it was noted that an index did not exist for yellow grease (i.e. recycled cooking oil), which complicated the bid process.  Since that meeting, an index has been added to the Oil Price Information Service (OPIS) for the local area.  The OPIS index provides a mechanism for staff to evaluate various bidders by providing a common starting point.  For example, if the OPIS index for yellow grease is $3.00, a bidder will add the various taxes, including federal and state excise taxes, and the proposed markup, which reflects the cost for storage, transportation, and overhead costs, resulting in a per gallon price.  This allows the bids to be evaluated based on a per gallon price, and the only discretionary portion of the bidders proposal will be reflected in the markup, which will ultimately indicate how competitive the bidder’s price is.  The most recent bid specifications required vendors to price three components for biodiesel, including yellow grease, soy methyl ester (SME), and ultra low sulfur diesel (ULSD) number 2.  The bid specification listed waste oil (recycled cooking oil and yellow grease) from the State of California as the top priority.  SME was included in the bid to allow the City to change to a different biodiesel mixture if circumstances adversely impacted the City’s ability to use yellow grease biodiesel.  Although biodiesel has always been available for delivery, any disruption in the supply of biodiesel would cause the City to purchase petroleum diesel.

 

To gain a greater understanding of the production process, staff from Finance, Community Maintenance, OSE, and the Big Blue Bus visited the three major producers of biodiesel from yellow grease in Southern California, which included the Imperial Western Products, Inc. plant in Coachella, the New Leaf Biodiesel plant in San Diego, and the Crimson Renewable Energy plant in Bakersfield.  All plants utilize yellow grease obtained from California to produce biodiesel and, while a complete life cycle carbon footprint analysis cannot be quantified by City staff, all appear to meet criteria sought in the bid specifications.  Additionally, biodiesel produced by these plants meets biodiesel standards promulgated by the American Society for Testing and Materials (ASTM).  In preparing the bid specifications, staff also considered requiring bidders to be BQ9000 compliant.  BQ9000 is a quality management certification offered by the National Biodiesel Accreditation Commission (NABC) that measures the “capacity and commitment of the applicant to produce or market biodiesel fuel that meets the ASTM D6751 Specification.”  Since ASTM compliance can easily be measured from objective sources, such as testing and data sheets, and, since only one California biodiesel producer is currently listed on the BQ9000 Quality Management Program web site, staff concluded that this specification would radically reduce the pool of candidates and likely increase the cost to the City for fuel.

 

The bid specifications required vendors to provide the names of companies from which biodiesel was obtained and the locations of these producers.  This requirement allowed staff to ascertain some measure of the carbon footprint of the individual bidders.  The three producers visited by staff ranged in distance, measured from Santa Monica, from 103 miles (Crimson in Bakersfield), to 136 miles (New Leaf in San Diego), to 151 miles (Imperial Western Products in Coachella).  Each of these producers collects waste yellow grease from a variety of locations throughout California for use as biodiesel feed stock.  The amounts collected and collection locations change over time depending on availability and cost.  Because of this, it was not possible for staff to accurately calculate a carbon footprint for the production and delivery of the biodiesel portion of the each of the bids to rank them in order of sustainability.   Another factor that makes a full sustainability analysis of biodiesel more complex is that biodiesel from a producer often must be shipped to a blender, which would require an additional level of carbon footprint analysis for that transportation step.  Likewise, a producer that blends their product must obtain petroleum diesel from some source.  Unfortunately, the petroleum diesel component of the biodiesel blend is less measurable in terms of sustainability, as a gallon of ULSD may originate from any point on the globe and have traveled to a production facility by any number of transportation means which are not possible for the City to track.  For these reasons the assumption was made (for the purpose of the vendor selection) that yellow grease obtained and produced within southern California would be treated equally, particularly because it was in the economic interest of all of the producers to minimize the amount of transportation required to collect the waste yellow grease, and because the biodiesel portion of the overall fuel purchase is a relatively small (5% to 20%) percentage of the total fuel purchase.

 

Vendor Selection

The biodiesel bids were opened on August 24, 2009.  Prior to the opening, the Purchasing Division mailed written notices to 63 known fuel, oil, and lubricant vendors previously registered on Planet Bids.  This notification informed these vendors of the competitive bid for biodiesel and provided instructions for obtaining a bid packet.  The bid was also advertised in the Santa Monica Daily Press on two consecutive days, the 25th and 26th of August.  A question and answer period commenced on September 1st, during which potential bidders and any interested party could request further information on or clarification of the bid process.  A comprehensive list of questions and the City responses was posted online on September 4th.  On September 23rd, the bid closed and a public opening of the submitted bids was conducted.

 

The competitive bid produced nine bids and, based on requirements set forth in the bid specifications, staff recommends award of bid to General Petroleum.  This vendor, like most of the vendors, was able to provide yellow grease biodiesel produced from feedstock collected in the State of California (from New Leaf Biodiesel in San Diego), meet ASTM standards, and deliver in a timely manner.  Additionally, General Petroleum provided the most advantageous pricing for this commodity, as depicted in Attachment A.   General Petroleum is a reliable provider of biodiesel fuel in the Los Angeles region.

 

Financial Impacts & Budget Actions

Fiscal Year 2009-10 budget authority in the amount of $1,195,910 is available in the following line items:

 

·        Fleet:  $128,442 in account 54554.522910, “Vehicles-Fuels/Lubrication”

 

·        BBB:  $1,065,119 in account 41.111008, “Fuel-Revenue Vehicles”

 

·        BBB:   $2,349 in account 41654.522840. 80W, “Fuel & Oil Taxes”

 

Prepared by:  Chuck McBride, Assistant Director of Finance

 

Approved:

 

Forwarded to Council:

 

 

 

 

 

 

Carol Swindell

Director of Finance

 

P. Lamont Ewell

City Manager

 

Attachments:

A – Biodiesel Bid Results