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HomeMy WebLinkAboutItem 10i - Extend City's Fleet Fuel POExtend Purchase Order for City Fleet Fuel October 4, 2022 Page 1 of 3 DATE: October 4, 2022 TO: Honorable Mayor and City Council FROM: Paul Cranmer, Public Works Services Director By: Jeramie Brogan, Management Analyst SUBJECT: EXTENSION 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 $506,000 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 fleet vehicles and other fueled equipment in an amount not to exceed $350,000 annually. The agreement included optional annual extensions through 2024. Arcadia’s current Purchase Order with Merrimac expires on October 7, 2022. The proposed extension to the Purchase Order includes an increase of $156,000, based on the City’s anticipated fuel usage for the next year and current fuel prices. All other terms and conditions will remain the same. It is recommended that that the City Council authorize and direct the City Manager to approve a one-year extension 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 $506,000. 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 Extend Purchase Order for City Fleet Fuel October 4, 2022 Page 2 of 3 Merrimac would provide the most competitive pricing and meet the City’s fleet fuel 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. Arcadia’s current Purchase Order with Merrimac expires on 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 City of Torrance pricing terms 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 its fueling sites. 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) and is expecting to use a similar volume of fuel for City vehicles this Fiscal Year. The factors used to determine the Fiscal Year 2022-23 Purchase Order are provided below and include the average price paid per gallon in Fiscal Year 2021-22, the average gallons used, and the average unit price paid including all taxes, fees, and the OPIS discount. Under the City’s fuel purchasing contract, the City receives an OPIS discount of $0.1509 for Unleaded Gasoline bulk deliveries and $0.0299 for Ultra Low Sulfur Diesel bulk deliveries. Under this pricing structure, the City saves thousands of dollars annually. Estimated Usage Average Unit Price Paid in FY21-22 (Including taxes, fees, & OPIS Bulk Delivery Discount) Total Anticipated Cost for FY 22-23 Unleaded Gasoline Bulk Deliveries 85,000 $4.39 $373,150.00 Ultra Low Sulfur Diesel 28,000 $4.73 $132,440.00 Total Based on Anticipated Annual Usage $505,590.00 The oil market’s ongoing volatility continues to affect 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 Extend Purchase Order for City Fleet Fuel October 4, 2022 Page 3 of 3 increased since the original purchase order amount was approved in 2020. 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. It is expected that the market volatility will continue to impact fuel prices in the coming year, which necessitates an increase to the Purchase Order in the amount of $156,000, for a total Purchase Order of $506,000. There is sufficient budget capacity to cover the increase. Merrimac has provided excellent service and has been prompt and responsive to staff’s requests during the contract term. Therefore, it is recommended that the City Council authorize and direct the City Manager to approve a one-year extension to the purchase order with Merrimac Petroleum, Inc. dba Merrimac Energy Group. 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. The PWSD will conduct a mid-year budget review of the fuel contract and recommend budget adjustments, if needed. 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 authorize and direct the City Manager to approve a one-year extension 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 $506,000.