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ADOPT A RESOLUTION AWARDING A CONTRACT TO FERRELLGAS LP FOR THE PURCHASE OF PROPANE AT THE DELTA WATER TREATMENT PLANT
recommended action
RECOMMENDATION
It is recommended that the City Council approve a resolution to award a five-year contract to Ferrellgas LP for the amount not-to-exceed $101,923.75 ($2.26 per gallon) to purchase propane for the Delta Water Treatment Plant (Exhibit 1 to the Resolution).
It is further recommended that the City Manager be authorized to take all necessary and appropriate actions to carry out the purpose and intent of this resolution.
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Summary
The Municipal Utilities Department (MUD) operates and maintains the Delta Water Treatment Plant (DWTP), which supplies potable water to City customers. The DWTP does not have access to a natural gas utility line near the facility, and consequently uses propane delivered to the site to operate three furnaces, ten-unit heaters, five water heaters and a boiler for several buildings.
If approved by the City Council, this action will award a five-year contract to Ferrellgas LP for the amount not-to-exceed $101,923.75 ($2.26 per gallon) to purchase propane for the Delta Water Treatment Plant.
DISCUSSION
Background
The Intake Pump Station located on Empire Tract pumps water from the San Joaquin River via a 13-mile pipeline to the DWTP. This water must be treated and filtered before it is delivered as safe, clean drinking water to Stockton customers. The DWTP does not have access to a natural gas utility line near the facility and needs to purchase and store propane. Propane is used at the DWTP to operate three furnaces, ten-unit heaters, five water heaters and a boiler for several buildings.
Present Situation
On January 4, 2024, the City advertised an Invitation For Bids for the purchase of propane (PUR 24-020). In addition, notifications were sent via e-mail to vendors.
On February 8, 2024, the City Clerk opened, examined, and publicly declared the sealed bid from Ferrellgas LP:
|
Description |
Unit Price |
Total Cost Over 5 Years |
|
Lease 500 Gallon Tank |
$10.00 Per Year |
$50.00 |
|
Lease 1000 Gallon Tank |
$10.00 Per Year |
$50.00 |
|
Refinery Cost of Propane |
$1.45 Per Gallon (est.) |
(est.) $65,250 |
|
Margin Cost of Propane |
$0.65 Per Gallon |
$29,250 |
|
Install of New Tank |
$0.00 For Install of Tanks |
$0.00 |
|
Tax on Propane |
7.75% for Refinery and Margin |
$7,323.75 |
|
Total Cost |
$101,923.75 |
Propane is subject to taxes. The DWTP is located in the San Joaquin County, and commodities such as propane are taxed at the 7.75% tax rate. All propane prices are fixed, except for the refinery cost of propane per gallon. The cost of propane per gallon is composed of two values: a margin cost and a refinery cost. The margin cost for propane is the vendor’s operational costs to provide propane to the customer. This agreement includes a fixed margin cost of $0.65 per gallon over a five-year purchase agreement. The refinery cost of propane is the wholesale price the vendor pays to procure the propane. This cost changes according to market fluctuations. This agreement will use the San Francisco rate for the refinery cost of propane, which is the industry standard for the Stockton area. Requesting bids that include a margin cost and a refinery cost allows vendors to provide the most competitive price for propane.
The bid submitted by Ferrellgas LP is regular in all respects and meets the City’s specifications. The City will pay only for the quantity of propane delivered.
Staff recommends the City Council award a five-year contract to Ferrellgas LP to purchase propane for the amount not-to-exceed $101,923.75. The price includes a fixed five-year charge on the margin cost of propane, leasing of two tanks, propane delivery, and installation of new propane tanks.
FINANCIAL SUMMARY
Funds will be available following Council approval of the FY 2024-25 Annual Budget for the procurement of propane for FY 2024-25 from the Water Utility Fund and as allocated annually in the table below:
|
Product |
Estimated Quantity/Year |
Propane Cost/Gallon (7.75% tax) |
Tank Lease and Delivery Cost/Year |
Estimated Cost/Year |
Total Cost |
|
Propane |
9,000 Gal |
$2.26 |
$20.00 |
$20,384.75 |
$101,923.75 |
Future propane purchases will be budgeted in the following fiscal years to be approved by the City Council during the annual budget process.
There is no impact to the General Fund, or any other unrestricted funds, from this action.