City Council Report
January 19, 2010
City Council Meeting:
Agenda Item: 8-B
To: Mayor and City Council
Subject: Purchase of Biodiesel Fuel
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.
The purchase of
biodiesel fuel supports
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
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
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.
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
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
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
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
Prepared by: Chuck McBride, Assistant Director of Finance
Forwarded to Council:
Director of Finance