City Council
Report
City Council Meeting: May 23, 2023
Agenda Item: 5.F
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To: Mayor and City Council
From: Edward F King, Director, Department of Transportation, Transit Maintenance Subject: Approval of Second Modification to Contract with Clean Energy Corporation for Increased Funding for Purchase of Renewable Liquid Natural Gas Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of categorical exemption pursuant to Section 15301 (Existing Facilities) of the California Environmental Quality Act (CEQA) Guidelines
2. Authorize the City Manager to negotiate and execute a second modification to agreement #11155 in the amount of $5,899,994 with Clean Energy Corporation to provide Renewable Natural Gas fuel for the Santa Monica Department of Transportation. This will result in an amended agreement with a new total amount not to exceed $11,771,926, with future year funding contingent on Council budget approval, with the original five-year term of the agreement remaining unchanged.
Summary
The Department of Transportation (DOT) supports the City of Santa Monica’s sustainability goals through the purchase of zero-emission transit buses and by purchasing the lowest carbon intensity fuel available for its fleet of existing natural gas buses. DOT’s Big Blue Bus currently has 177 buses powered by Renewable Natural Gas (RLNG) harvested from land-fill methane. Because natural gas is a widely traded commodity, its price can be volatile. The purchase price of DOT’s RLNG fuel is based on the SoCal Border Index price for natural gas and varies monthly. The price of natural gas purchased for use in DOT transit buses has increased since the award of its current contract for fuel purchases resulting in higher-than-expected expenditures. As such, contract purchasing authority will be exhausted by the end of fiscal year 2023. To provide sufficient funding for transit bus fuel purchases through the remaining contract 2 of 4
period, staff recommends modifying the existing five-year agreement with Clean Energy to increase the total amount by $5,899,994 for a total not-to-exceed amount of $11,771,926.
Discussion
On May 11, 2021, Council awarded bid #4404 to Clean Energy and authorized a contract to provide RLNG fuel to Big Blue Bus for a five-year period with a total amount not to exceed $5,871,932. The current contract expires on June 30, 2026, and fuel purchases to date have exhausted purchasing authority. Staff is currently working to execute a first modification of DOT’s contract for fuel purchases to exercise the contingency approved by Council at its May 11, 2021 meeting. This will provide sufficient funding for fuel purchases through the end of fiscal year 2023.
Fuel expenditures have exceeded staff expectations due to large fluctuations in the cost of natural gas. DOT’s fuel price under its fuel purchases contract is based on the SoCal Border Index natural gas price with added charges to convert the fuel to a liquid form, a delivery fee, and a discount based on Low Carbon Fuel Standards credits received from the State of California. The SoCal Border Index (Index) is broadly representative of natural gas pricing in the Southern California region and is influenced by the broader natural gas market. At the time of the contract award, this index price had averaged $2.5604/Metric Million British Thermal Unit (MMBtu) over the preceding two fiscal years.
Based on the bid pricing, staff had expected fuel costs to fall by 38% over the previous contract pricing provided there were no large fluctuations in the Index price.
The Index price of natural gas began to increase substantially after the award of DOT’s fuel contract resulting in higher-than-anticipated fuel pricing. The average Index price of natural gas was $5.9900/MMBtu the first year of contract #11155 and $11.9640/MMBtu in the current contract period representing a 134% and 367% increase over our estimated pricing of $2.5604/MMBtu. These price changes have been observed in the broader natural gas market and are driven by national and global factors, including winter storms and war in Ukraine, creating increased demand for natural gas and disrupting supplies. Staff expect expenditures to decrease in Fiscal Years ending 2025 3 of 4
and 2026 due to increases in SMDOT’s fleet of zero-emission transit buses. These reductions are included in this modification request. This second modification would provide sufficient funding for fuel purchases through the remainder of contract #11155.
Environmental Review
The contract modification for the purchase of renewable fuels is categorically exempt pursuant to Section 15301 (Class 1 Existing Facilities) of the CEQA State Guidelines.
Section 15301 exempt projects that consists of the operation, repair, maintenance, leasing, licensing, permitting, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of the existing or former use. The contract modification would not result in any modifications to existing fueling facilities or BBB fleet. Fueling facilities for the BBB fleet currently exist and the contract modification would not expand or materially change existing fueling operations. Therefore, the project is categorically exempt as set forth in Section 15301 of the CEQA State Guidelines.
Past Council Actions
Meeting Date Description
05/11/2021
(attachment A)
Award Bid #4404 and Enter into Agreement with Clean
Energy Fuels Corporation for purchase of Renewable Liquid Natural Gas.
Financial Impacts and Budget Actions
Staff seeks authority to approve funding from the Big Blue Bus Fund to increase the amount of its contract #11155 with Clean Energy for the purchase of RNLG fuel for its transit bus fleet. Funding will be included in the FY 2023-25 Biennial Budget for Council approval. Future year funding is contingent on Council budget approval.
Contract Modification Request
Agreement
#
Current
Authorized
Amount
FY 2023-24
Budget Request
Amount
Future Years
Amount Dept/CIP Account #
Total
Requested
Contract
Amount
11155 $5,871,932 $1,927,131 $3,972,863 60600013.521841 $11,771,926 4 of 4
Prepared By: David Nanjo, Administrative Analyst
Approved Forwarded to Council
Attachments:
A. CSA 11155 - Staff Report
B. Clean Energy CSA 11155 - Oaks
C. Clean_Energy_Contract__11155