It is Time to Stop the Bleed
It is Time to Stop the Bleed
It may have seemed like a good idea back in 2005--build a compressed natural gas (CNG) station in Barstow, using someone else's money (MDAQMD) and reduce the City's costs for fueling city vehicles including those of our contractors such as the city transit system and the solid waste hauler, there by reducing our costs on those contracts. However, today we find the City CNG operation is a boondoggle drowning in red ink.
In January 2010, Karen Jonas[i], reporting for the Desert Dispatch, pointed out the problem with the CNG operation--from day one, it lost money,nearly $500,000 between 2006 and 2010. Despite the news story touting the contractoras a marketing firm, it is instead a CNG/LNG producer.[ii]
It is important to understand the CNG operation in the City budget is an"Enterprise Fund". Anenterprise fund is a subsidiary business activity that is intended to be self-sustaining, meaning the user fees/purchase price collected offset the cost to operate so there is no impact to the City's general fund.
Here is the problem for us as taxpayers--when the enterprise fund does not make enough money to cover the cost, the City general fund must make up the difference. To date, the CNG operation has lost $1.2 million, which had to be paid, and will continue to be paid, from tax dollars instead of the enterprise fund.
In March 2010, the City Council authorized staff to issue a Request for Proposal to seek a new station operator. Unfortunately, only one company responded to the Request for Proposal and the City Manager presented the proposed contract to the Council on November 15, 2010.
When the company appeared before the Council to sell themselves, the company pointed out the lack of signs directing customers to the station as a problem they would fix. Today, the only signs you can find are the same signs that were in place when the company promised to improve signage.
The company also indicated part of their strategy was to create a CNG fueling corridor from LA to Vegas. Their plan was to establish a fueling location in the Las Vegas area, to strengthen the viability of the Barstow station as a fueling location. Still today, the company does not have a LasVegas fueling location. The company's only fueling stations are in Ontario and Barstow,[iii] and the price in Barstow is $0.89 per gallon higher than the two stations operated bythe City of Victorville.[iv]
Variouspoints addressed in the RFP, such as the City's right to terminate the agreement, were not included in the contract. Infact, a review of this contract reveals it is unfavorable to the City on nearlyevery point, while publically it was hailed as the turning point toprofitability.
The contract also includes an automatic renewal every year, beginning in 2013, for ten years, not based on successful performance measures, but because the company wants a renewal. The way the contract is written, the company can mismanage the operation, still collect the operation fee from the city, which this year is about $66,000 and the City has no choice but to renew the contract.
Based on my own research, I asked the City Manager for a presentation to the Council concerning the CNG operation. A few weeks ago, representatives from the contractor came to the Council and provided an overview of the CNG operation. The company made clear they intend to exercise every renewal option available tothem, which means they will continue to be the contractor until 2023. The value of the contract to the company, overthe life of the contract, is about $900,000.
Barstow is paying this company to sell the CNG they produce. That's right; they produce the CNG, bring it to Barstow and sell it. We provide the station, we pay for station upgrades, and we pay the company to "run" the self-serve station, so they can sell the gas they produce and own. We even clean the bathroom and maintain the landscaping.
During the briefing, I asked how much gas is currently being lost to venting. The company representative said they no longer vent gas to the atmosphere. That is interesting, because seventeen hours after that statement I drove past the CNG station and saw gas being vented. I talked to the company employee who told me he normally vents the tank weekly.
The Desert Dispatch story after the presentation[v] focused on a "spike" in sales. However, this "spike" will do nothing to change the financial impact on the City; since the City will not receive a royalty on fuel sales until sales reach 250,000 gallons above the amount purchased by the City.
Unfortunately, the problems with this contract are complicated and there does not seem to be an obvious or easy way out. The money we are throwing down this green energy rabbit hole could be better used to improve our parks or improve conditions in our city.
The previous city administration created this problem, and unfortunately, we now have to find a solution. I want to let you know we are working to find a resolution that meets our obligations while protecting the City from unnecessary loss.
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[i]Desert Dispatch, City Officials HopeMarketing Firm Will Turn Fuel Station Around, January 10, 2011
[iv]www.cngprices.com, prices checked April 15, 2013
[v]Desert Dispatch, Natural Gas Sales'Spike' at City-Owned Station, April 17, 2013
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