City Council Report

City Council Meeting: June 8, 2010

Agenda Item: 1-G

To: Mayor and City Council

From: Carol Swindell, Finance Director

Subject: Renewal Option for Biodiesel Fuel

Recommended Action

Staff recommends that City Council authorize City staff to exercise the first one year renewal option offered by General Petroleum Corporation to supply and deliver biodiesel fuel blends to the Big Blue Bus Department and the Fleet Management Division during the period July 1, 2010 through June 30, 2011 in an estimated amount of $2,050,131.

Executive Summary

Staff recommends that the City exercise the first one year renewal option offered by General Petroleum Corporation. The estimated expenditure for Fiscal Year 2010-2011 is $2,050,131. On January 19, 2010, Council considered the award of Bid #2984 to General Petroleum for the purchase of biodiesel fuel through June 30, 2010 with four additional one year renewal options. At that meeting, Council awarded Bid #2984 to General Petroleum for the purchase of biodiesel fuel through June 30, 2010 and requested that City staff return to Council annually to renew this purchase order to ensure that the selected firm is reflective of the City’s goal of sustainability. Council also requested additional information regarding the possibility of storing higher blends of biodiesel fuel and requested that General Petroleum Corporation apply for a variance to the California Business and Professions Code, Division 5, Chapter 14, Section 13405 (B & P Code), which allows for the sales of developmental engine fuels under certain conditions.

Discussion

Although the biodiesel market is continuing to evolve, staff is not aware of any local suppliers or producers that can consistently provide large amounts of biodiesel fuel that meet the City’s minimum standards from a single local source. Despite the fact that GeoGreen Biofuels, a company based in Vernon, CA, is currently collecting waste oil locally, the fuel production plant that the company had hoped would be fully operational in January is still under construction and is not expected to be completed until September of this year. Once fully operational, the plant will produce yellow grease biodiesel fuel derived from locally collected waste vegetable oil (WVO) and will have the potential of producing up to 3 million gallons annually.

Urbanx Renewables Group, Inc., another producer and distributor in the Los Angeles Area that collects yellow grease from local restaurants and various food manufacturers and suppliers, is currently in the process of relocating to Long Beach. This plant is still under construction and is not expected to be fully operational until August of this year or later. The proposed plant will primarily produce yellow grease based biodiesel fuel (80% plant derived and 20% animal fat derived) with the capability of switching to soy based biodiesel if required. Urbanx will also have the potential of producing up to 3 million gallons per year. The City’s annual estimated usage is 800,000 gallons. Exercising the first one year renewal option would allow staff to evaluate options available and incorporate any additional requirements into a new bid specification.

As referenced in the January 19, 2010 staff report, State regulations govern the storage and disposal of biodiesel from underground storage tanks (USTs). The most recent bid specifications that were issued considered current regulations for the storage and dispensing of biodiesel. 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.

As a follow up to the certification concern expressed by Council in January, General Petroleum has submitted an application for a developmental engine fuel variance certificate to the California Department of Food and Agriculture, requesting a variance for different blends of biodiesel for wholesale distribution. However, since the purchase order was issued, the California Department of Food and Agriculture has confirmed that blends up to B20 can be sold or distributed in California without a variance.

Financial Impacts & Budget Actions

The purchase order to be awarded to General Petroleum Corporation is $2,050,131. Funds are included in the FY 10-11 budget in the following line items:

· Fleet: $220,186 in account 54554.522910, “Vehicles-Fuels/Lubrication”

· BBB: $1,825,918 in account 41654.522911, “Fuel-Revenue Vehicles”

· BBB: $4,027 in account 41654.522840, 60W, “Fuel & Oil Taxes”

Prepared by: Kimberlie Nimori, Senior Buyer

Approved:	Forwarded to Council:
Carol Swindell Director of Finance	Rod Gould City Manager