Article

Palm Beach County Uses Co-Op Purchase Agreement to Reduce Fuel Costs

November 2005, Government Fleet - Feature

by Doug Weichman, CAFM

Fuel has always been a concern for government fleet managers. Now fuel is at the top of the list of things that keeps them up at night. In the past, fuel costs were usually third on the list of expenses related to a fleet operation, trailing the cost of additional and replacement assets, behind maintenance-related expenses. It is now edging into first place as the most costly expense, depending on how an operation is managed. With the soaring cost of fuel and the threat of supply disruptions in a disaster, a fleet manager must establish good policies and procedures related to fuel operations. A fuel program should address:
  • The purchasing process.
  • Fuel distribution and inventory controls.
  • Environmental, safety, and security controls.
  • Efficient fuel site management.Palm Beach County Florida Fleet Management Division has in place operational processes that address its fuel management program.Fuel Co-Op Established
    More than 10 years ago, a fuel co-op purchase agreement among cities and government agencies was established by Palm Beach County. The county is the administrator and author of this contract. The current contract is a 5-year arrangement for one 3-year period, with the option to renew for an additional 2-year period. It is broken down into five lots that are determined by geographical areas within the county. When the current fuel bid was due to expire and needed to be re-bid this year, all the cities and governmental agencies located within Palm Beach County were contacted by phone or letter. Interested new participants attended a meeting to discuss the contract and their needs. Contracts Saved Money
    The contract is a bid using OPIS (Oil Pricing Information Service) as its basis for cost-per-gallon. The various lots are then bid using this pricing, which is broken down between different grades and types of fuel, and includes transport and tank wagon pricing. The buying power of this co-op - just under 10 million gallons of fuel per year -secures excellent pricing. As of presstime, the current OPIS bid pricing on transport deliveries of 87 grade gasoline is minus .0047 per gallon, and OPIS on transport deliveries of low sulfur diesel is plus .0174. The contract also includes a surety bond, which holds the vendor responsible for deliveries within a 24-hour period after orders are placed. This surety bond covers cost differentials if the co-op must go to the open market to purchase fuel when a vendor defaults on the 24-hour delivery requirement. This bond was used during the interruption of deliveries during hurricanes and other disasters, and was very successful in keeping supplies available and adhering to contract pricing. {+PAGEBREAK+} Weekly vs. Daily Pricing
    Although most fuel vendors would prefer daily OPIS pricing, the co-op bid uses a weekly benchmark, requiring price adjustments just 52 times a year. Weekly pricing also helps stabilize the volatile pricing of fuel that has occurred in the past few years. In addition, weekly pricing allows the co-op to occasionally time purchases to get better pricing. For example, with a month’s inventory of fuel at the Palm Beach County’s combined fuel sites, fuel purchases can be delayed. Inventories can also be shored up on a weekly basis. A week before rising fuel prices are expected, such as the summer holidays or winter storms hitting the north, the co-op will stock-up inventories. When Hurricane Katrina hit the Gulf Coast, fuel prices jumped almost 50 cents in a week, but we were locked into the weekly OPIS released the Friday before the big increase. The week after the hurricane hit, when the weekly OPIS pricing caught up, we backed down on purchases. Then, during the following weeks, OPIS dropped by about 20 cents per gallon each week for the following two weeks.System Automates Transactions
    Palm Beach County’s 13 fuel sites (with three more scheduled to come online in the next few years) are all self-service and fully automated, using the EJWard fuel management system. The system is set up to track every fuel transaction by fuel type, amount, employee, asset, site, dispenser used, and date and time of transaction. The system also has built-in logic, requiring the operator to enter the correct mileage when fueling. The fuel system stores the vehicle’s range and last odometer reading and will deny fuel dispensing if a mileage outside of the parameter is entered. Anyone obtaining fuel outside the system must have the mileage updated through fleet management administration. Mileage is also transferred into the fleet management information system for preventive maintenance data and is used to record current mileages and fuel usage history.Fuel Site Maintains Monitoring System
    Each fuel site maintains a monitoring system to detect leaks and tank level inventories. This TSL 350 Veeder-Root system is considerably more accurate in verifying deliveries and tank inventories than the stick measurements used in the past. The monitoring systems are connected to the automated fuel system so all tank levels can be monitored from fleet management administration. Tank inventories can be monitored along with the dispensing of fuel through one system. Technicians inspect and monitor fuel sites weekly. These 24/7 on-call techs keep the sites operational. All tank fills and access points are locked. The fuel sites utilize in-ground tanks, except for one site at which well-field requirements mandate an aboveground tank. Palm Beach County Fleet Management Division believes in-ground tanks are less a security threat than the aboveground type and are easier to maintain and fill. Controls Help Manage Costs
    Palm Beach County’s Fleet Management Division addresses additional cost-related areas in the co-op arrangement. To obtain the best possible pricing all fuel used for off-road is coded and accounted for in relation to paying required taxes. Off-road taxes are less than on road levies. The county’s fleet management also presented the case for tax exemption to budget and administration officials. This local county gas tax is collected for mass transit. Ultimately, fleet management was exempted from this tax, saving 10 cents per gallon. The cost to maintain and run the fuel sites is nearly fixed. Palm Beach County Fleet Management applied the theory that additional fuel site customers could help keep the mark-up low, because the higher volume of fuel would generate more revenue without increasing expenses proportionately. Therefore, the county entered into several fuel purchase agreements to sell fuel from its sites to such agencies as the FBI, Secret Service, Public Defender, State Attorney, the State Health Department, the Health Care District and several cities without fueling sites of their own within the county. Palm Beach County Fleet Management Division can provide fuel to its customers at a mark-up of 2 cents per gallon. Customers are usually charged 35 cents per gallon less than retail stations within the county.
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