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HomeMy WebLinkAboutItem 11o - Change Order to the City Fleet Fuel Purchase OrderChange Order for City Fleet Fuel August 16, 2022 Page 1 of 3 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 Page 2 of 3 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 Page 3 of 3 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.