HomeMy WebLinkAboutItem 11o - Change Order to the City Fleet Fuel Purchase OrderChange Order for City Fleet Fuel
August 16, 2022
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DATE: August 16, 2022
TO: Honorable Mayor and City Council
FROM: Paul Cranmer, Public Works Services Director
By: Jeramie Brogan, Management Analyst
SUBJECT: CHANGE ORDER TO THE PURCHASE ORDER WITH MERRIMAC
PETROLEUM, INC. DBA MERRIMAC ENERGY GROUP FOR THE
PURCHASE AND DELIVERY OF FUEL FOR THE CITY’S FLEET IN AN
AMOUNT NOT TO EXCEED $150,000
Recommendation: Approve
SUMMARY
On October 6, 2020, the City Council approved a Purchase Order with Merrimac
Petroleum, Inc. dba Merrimac Energy Group (“Merrimac”), for the purchase and delivery
of fuel for the City of Arcadia’s (“City”) fleet vehicles and other fueled equipment in an
amount not to exceed $350,000 annually. The agreement includes optional annual
extensions through 2024. Due to the unexpected increase in the cost of fuel during the
last year, the City’s current purchase order is deficient.
It is recommended that the City Council approve a Change Order to the Purchase Order
with Merrimac Petroleum, Inc. dba Merrimac Energy Group for the for the purchase and
delivery of fuel for the City’s fleet in an amount not to exceed $150,000.
BACKGROUND
The Public Works Services Department (“PWSD”) is responsible for the purchase of bulk
fuel delivery (unleaded and diesel) for over 200 City vehicles and other fueled equipment
such as generators. Annually, the City uses approximately 85,000 gallons of unleaded
fuel and 28,000 gallons of diesel fuel. The City’s purchasing rules and procedures allow
the City to join, or “piggyback” onto, an existing written purchase contract obtained
through a competitive bidding process prepared and awarded by another local, state, or
federal government agency.
After exploring possible contract opportunities for the purchase and delivery of fuel, it was
determined that piggybacking on the City of Torrance’s purchase order contract with
Merrimac would provide the most competitive pricing and meet the City’s fleet fuel
Change Order for City Fleet Fuel
August 16, 2022
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delivery needs. The City of Torrance’s fuel pricing contract with Merrimac was awarded
on February 26, 2019, providing the best pricing for a three-year period, with two optional
annual extensions through 2024. On October 6, 2020, the City Council approved a
Purchase Order with Merrimac. Arcadia’s current Purchase Order with Merrimac spans
the period of October 8, 2021, through October 7, 2022.
The mechanism used to price motor fuel is the Oil Price Information Service (“OPIS”)
wholesale/rack index pricing, which rises and falls daily as a function of the oil market.
OPIS is used as the industry standard for reporting national weekly average fuel prices
on a per gallon basis. Based on the fuel order date, the City pays the daily OPIS price
with a fixed price adjustment discount (-) or surcharge (+) factored in, based on volume
and load size. Applicable local taxes and state fees are then added on the per gallon
price.
The pricing terms of the City of Torrance’s contract are based on a per gallon discount
(-) or surcharge (+) from the daily OPIS price for the Los Angeles area for bulk and non-
bulk fuel deliveries. Bulk fuel sites are storage tanks over 10,000 gallons in capacity,
while non-bulk fuel locations are comprised of smaller storage tanks and back-up
generators from 200 to 1,000 gallons in size. The City of Arcadia orders in bulk quantities
for our fueling sites, and receives a discounted OPIS price as a result.
DISCUSSION
Historically, the City purchases an average of 113,000 gallons of fuel per year (85,000
gallons in unleaded and 28,000 gallons in diesel). In determining the original purchase
order contract amount, in 2020, the factors taken into consideration were the average
price paid per gallon in Fiscal Year 2019-20, average gallons used, and the proposed
OPIS discount amount.
Currently, the volatile oil market is affecting the overall cost of fuel, and as a result, the
average unit cost per gallon of unleaded and diesel fuel paid by the City has increased.
In Fiscal Year 2021-22, the City paid on average $ 4.39 per gallon of unleaded fuel,
including taxes and fees, as compared to $2.83 in Fiscal Year 2020-21, and $4.73 per
gallon of diesel fuel, as compared to $2.74 in Fiscal Year 2020-21. Although the City
receives a discount on the OPIS price by purchasing in bulk, the OPIS price is subject to
fluctuation and the increases experienced during this Purchase Order term have resulted
in a shortfall to the existing Purchase Order.
For these reasons, it is recommended that the City Council approve a Change Order to
the Purchase Order with Merrimac Petroleum, Inc. dba Merrimac Energy Group to cover
the existing invoices and the estimated fuel usage through the remainder of the purchase
order term. There is sufficient budget capacity to cover the $150,000 Change Order
amount.
Change Order for City Fleet Fuel
August 16, 2022
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ENVIRONMENTAL ANALYSIS
The proposed action does not constitute a project under the California Environmental
Quality Act (“CEQA”) per Section 15061(b)(3) of the CEQA Guidelines as it can be seen
with certainty that it will have no impact on the environment. Thus, this matter is exempt
under CEQA.
FISCAL IMPACT
Fleet fuel costs are broken down into each Department’s budget based on their individual
fleet needs. Sufficient funds are appropriated in each Department’s Fiscal Year 2022-23
Operating Budget for the purchase and delivery of unleaded and diesel fuel, including the
increase.
RECOMMENDATION
It is recommended that the City Council determine that this action does not constitute a
project and is, therefore, exempt under the California Environmental Quality Act
(“CEQA”); and approve a Change Order to the Purchase Order with Merrimac Petroleum,
Inc. dba Merrimac Energy Group for the purchase and delivery of fuel for the City’s fleet
in an amount not to exceed $150,000.