CITY CLERK. Tender for Gasoline and Diesel Fuels. (City Council on December 4, 5 and 6, 2001, adopted the following recommendation:

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1 CITY CLERK Clause embodied in Report No. 18 of the, as adopted by the Council of the City of Toronto at its meeting held on December 4, 5 and 6, Tender for Gasoline and Diesel Fuels (City Council on December 4, 5 and 6, 2001, adopted the following recommendation: It is recommended that the joint report dated November 6, 2001, from the Acting Chief Financial Officer, the Commissioner of Corporate Services, the Medical Officer of Health, and the Commissioner of Works and Emergency Services, as embodied in the Clause, wherein Option B is recommended, be adopted. ) The submits, without recommendation, the joint report (November 6, 2001) from the Acting Chief Financial Officer, the Commissioner of Corporate Services, the Medical Officer of Health, and the Commissioner of Works and Emergency Services. The reports, for the information of Council, having requested the Director of Purchasing and Materials Management: (1) to submit a report directly to Council for its meeting scheduled to be held on December 4, 2001: (i) (ii) on the sulphur issue; and providing a comparison with the tenders received; (2) to meet with the bidders to explain the circumstances respecting the concerns raised regarding Clause 14.0 contained in tender document FS; (3) to revise the tender document (Clauses 14.1 and 14.2) to make it clear that fixed price is an alternative to adjustable price; and (4) to submit a report to the, in consultation with the Director of Information and Privacy and the City Solicitor, on methods the City could undertake to maximize the amount of information contained in tenders that can be publicly released.

2 2 The submits the following joint report (November 6, 2001) from the Acting Chief Financial Officer, the Commissioner of Corporate Services, the Medical Officer of Health, and the Commissioner of Works and Emergency Services: Purpose: The purpose of this report is to advise the results of the tender issued for the supply and delivery of Gasoline and Diesel Fuels used in various fleet vehicles, heavy equipment and emergency power generators, by various Departments for the period January 1, 2002, to December 31, 2002, and to request authority to award a contract to the recommended bidders based on one of the two options detailed herein. Source of Funds: Funds will be provided in the appropriate operating budgets for 2002 subject to availability of funds in specific accounts. Recommendations: Two options are presented to the for consideration: Option A: Based on the lowest cost tender received meeting specifications, the award of this requirement should be made to Shell Canada Products Limited and Petro-Canada for the supply and delivery of the following fuels: Firm Fuel Estimated Quantity (Litres) Total Estimated Cost Including All Taxes and Charges Shell Canada Products Limited Shell Canada Products Limited 87 Octane Unleaded Gasoline Low Sulphur Diesel Fuel 3,645,000 $2, 312, ,425,000 $4,228, Petro-Canada Coloured Diesel Fuel 2,395,000 $954, Prices are subject to escalation or de-escalation as of January 5, 2002, based on Bloombergs Oil Buyer s Guide. Option B (taking reduced sulphur into consideration): Taking reduced sulphur content into consideration where it is a significant factor as well as cost and meeting specifications, the award of this requirement should be made to Shell Canada Products Limited and Sunoco Incorporated, for the supply and delivery of the following fuels:

3 3 Firm Fuel Estimated Quantity (Litres) Total Estimated Cost Including All Taxes and Charges Sunoco Inc. 87 Octane Unleaded Gasoline 3,645,000 $2,338, Shell Canada Products Limited Low Sulphur Diesel Fuel 7,425,000 $4,228, Shell Canada Products Limited Low Sulphur Coloured Diesel Fuel 2,395,000 $1,009, Prices are subject to escalation or de-escalation as of January 5, 2002, based on Bloombergs Oil Buyer s Guide. It is recommended that the adopt Option B. Background: The Bid Committee at its meeting held on October 17, 2001 opened the following tenders from Shell Canada Products Limited, Petro-Canada and Sunoco Incorporated for Tender No for the supply and delivery of Gasoline and Diesel Fuel used in various fleet vehicles, heavy equipment and emergency power generators by various Departments for the period January 1, 2002 to December 31, 2002 as summarized in Appendix A attached. A Tender was also received from Big K. Fuels Inc. which after review by Legal Services was declared informal because the pricing commitment is ambiguous and the bidder s intent cannot be ascertained. Comments: A summary of prices (Appendix A ) for the supply and delivery of Gasoline and Diesel Fuels for the period January 1, 2002 to December 31, 2002 is attached. Base price firm until January 5, 2002 after which price may be adjusted monthly based on Bloombergs Oil Buyer s Guide (Canadian Unbranded Rack Prices for Regular Unleaded Gasoline Toronto Industry Average) average of the months of September 2001 to December Subsequent changes may occur on the 5 th of each month on the previous month average. As shown in Appendix A attached the sulphur content for the fuels offered by all bidders was within current federal government regulations. A comparison of the low base price for each item against the pricing received last year is as follows:

4 4 Option A: Item Price Per Litre Including All Taxes 2002 Price Per Litre Including All Taxes Price Difference Per Litre Percentage Difference (Shell) Unleaded Gasoline, 87.0 Octane $ $ $ % (Shell) Low Sulphur Diesel Fuel $ $ $ % (Petro-Canada) Coloured Diesel Fuel: Use A-1 $ $ $ % Use A-2 $ $ $ % Use B $ $ $ % Option B (Taking Reduced Sulphur into Account): Item Price Per Litre Including All Taxes 2002 Price Per Litre Including All Taxes Price Difference Per Litre Percentage Difference (Sunoco) Unleaded Gasoline, 87.0 Octane $ $ $ % (Shell) Low Sulphur Diesel Fuel $ $ $ % (Shell) Low Sulphur Coloured Diesel Fuel: Use A $ $ $ % Use B $ $ $ % The decrease in price for this commodity for the 2002 contract compared to the 2001 contract is attributed to the drop in worldwide crude oil prices which are reflected in the tendered prices. Environment Considerations and Evaluation Summary: In October 1998, the Board of Health recommended to City Council, through the Corporate Services Committee, the adoption of a joint report by the Commissioner of Corporate Services, the Medical Officer of Health and the Director of Fleet Management Services, entitled Sulphur in Fuels Toronto s Fuels Purchase Program. The report recommended that, a) the City

5 5 purchase on-road diesel fuel for its off-road diesel fleet if the Province eliminates the Provincial Fuel Tax for that purpose; and b) when making bulk purchases of gasoline, on-road diesel fuel and off-road diesel fuel, the City should consider sulphur content, as well as cost, as selection criteria. This report was subsequently adopted by the Corporate Services Committee and City Council. In January 2001, the recommended to City Council the adoption of a report prepared jointly by the Chief Financial Officer, the Commissioner of Corporate Services, the Medical Officer of Health, and the Commissioner of Works and Emergency Services, entitled Tender for Gasoline and Diesel Fuels that recommended purchasing on-road diesel for off-road purposes and purchasing diesel and gasoline with the lowest sulphur levels for an increased cost of $73, The City is examining sulphur levels in the fuels it buys because there is a strong association between the sulphur levels in fuels, air pollution and human health. In July 1998, the federal government released the report, Setting a Level for Sulphur in Gasoline and Diesel Fuel that clearly demonstrated that air quality and human health are significantly improved by reducing the sulphur levels in on-road and off-road fuels. These air quality improvements would entitle the City to Emission Reduction Credits (ERCS) as proposed under the Province s Strategic Attack on Air Pollution (2000). The City is beginning to exercise due diligence with respect to ERCS by actively claiming ERCS that rightfully belong to the Corporation. By paying a premium for low sulphur fuel, the City has taken an environmental action that is beneficial and creditable under the Provincial trading program being developed for NOx and SO 2 (the pert. org website currently lists ERCS for SO 2 at $150.00/tonne). To this end, contract language for ERCS has been included in the City s fuel tender for the past two years. Unfortunately, none of the bids received have indicated that any ERCS arising from this fuel purchase would be shared with the City. We will continue to include and refine contract language for ERCS to be factored into the corporate decision making and treated as a revenue stream. 87 Octane Unleaded Gasoline: In 1998, the federal government introduced the Sulphur in Gasoline Regulations that will require petroleum refineries to reduce sulphur levels in gasoline to an annual average of 30 parts per million (ppm) by January 1, The federal government has estimated that this standard will produce health benefits worth $5.2 billion in seven Canadian cities including Toronto over a twenty-year period, by preventing 1352 premature deaths, 1537 hospital admissions, 17.9 million acute respiratory symptoms and other health effects. In 2000, Ontario s five refineries produced gasoline with sulphur levels averaging 450 ppm. The lowest-cost bid received for 87 octane unleaded gasoline is from Shell Canada Products Limited at a total estimated cost of $2,312, The bid from Sunoco Incorporated is the lowest in sulphur content at a total estimated cost of $2,338,

6 6 Sunoco Incorporated produces gasoline with an annual average of 210 ppm sulphur; this is 56 percent less sulphur than the gasoline offered by Shell. By purchasing Sunoco s gasoline, the City would emit 56 percent less sulphur dioxide pollution (1.4 tonnes) from its fleet for an increase in cost of $25, (1.1 percent). Diesel Fuel: Two types of diesel fuel are purchased low sulphur diesel fuel used for on-road vehicles and coloured diesel fuel used in off-road vehicles and emergency power generators. In 1998, the Federal Government implemented the Diesel Fuel Regulations for on-road vehicles which established a standard of 500 ppm for on-road diesel (called low-sulphur diesel). In February 2001, the Federal Minister of the Environment proposed that Canada reduce the sulphur levels for on-road diesel fuel from the current concentration of 500 ppm to 15 ppm by June This would align Canadian standards with the standards and timing established in the United States. In an earlier study, the Federal Government has concluded that reducing the sulphur content to 50 ppm would produce substantial health benefits worth $1.2 billion in seven Canadian cities over a twenty-year period. In 2000, sulphur levels in on-road diesel produced by Ontario s five refineries averaged about 350 ppm. Low Sulphur Diesel Fuel: Given that Shell Canada Limited annual average sulphur level of 390 ppm reported for on-road diesel is the lowest in sulphur content as well as the lowest bid received, it is recommended that the City award the bid for on-road diesel to Shell Canada Products Limited at a total estimated cost of $4,228, Coloured Diesel Fuel: The Federal Government has not yet regulated coloured diesel used in off-road vehicles but did determine that the health benefits associated with a 400 ppm standard could be substantial ($2.9 billion in seven Canadian cities over a twenty-year period). In 2000, the Ontario average sulphur levels in coloured off-road diesel was about 3000 ppm. In 2001, City Council approved the purchase of low-sulphur diesel fuel (on-road fuel) for use in its off-road vehicles and generators. This environmental achievement was financially feasible because the taxes applied to on-road fuel under the Provincial Fuel Taxes do not apply when the fuel is used in off-road vehicles, provided the fuel is coloured. For the City s off-road applications, tenderers were requested to provide a price for coloured low-sulphur diesel fuel as well as coloured regular diesel fuel. For the City s off-road applications, a choice must be made between using coloured low-sulphur diesel fuel or coloured regular diesel fuel. Coloured regular diesel fuel contains extremely high sulphur levels compared with coloured low-sulphur diesel fuel (approximately 2000 ppm and 400 ppm, respectively). Purchasing coloured low-sulphur diesel fuel for the City s off-road fleet is an excellent way to achieve large, immediate reductions in the pollution emitted from that fleet. Two (2) bids were received for coloured regular diesel fuel. The lowest bid from Petro-Canada at a total estimated cost of $954, with higher sulphur levels than the other Tenderer. The difference in sulphur levels between the two suppliers is considered insignificant. The purchase of coloured regular diesel fuel is not recommended.

7 7 The lowest-cost bid received for coloured low-sulphur diesel fuel is from Petro-Canada at an estimated total cost of $990, However, the bid from Shell Canada Products Limited is the lowest in sulphur content for coloured low-sulphur diesel fuel providing 17 percent lower sulphur content at an additional cost of $18, (1.8 percent). Shell s bid is recommended at a total estimated cost of $1,009, because it provides substantial pollution savings at modest additional cost. The City could reduce sulphur dioxide emissions from its off-road diesel fleet by 84 percent (8.1 tonnes) by purchasing the lowest sulphur coloured diesel from Shell instead of the coloured regular diesel, for an additional $54, (5.7 percent). Purchasing coloured low sulphur diesel from Shell for the City s off-road fleet is recommended. In summary, the additional cost for accepting Option B is $79, ($25, for gasoline and $54, for coloured diesel fuel). The difference in cost and total sulphur dioxide emissions between Options A and B for the City fleet are compared below. Option Total Price Total Sulphur Dioxide Emissions (Tonnes) Option A $7,495, Option B $7,575, Difference $ 79, Therefore, for an additional cost of $79, (one percent), sulphur emissions would decrease by 9.5 tonnes (56 percent) due to purchasing coloured low sulphur diesel for its off-road fleet and low sulphur gasoline. The following City organizations which report this purchase to their own Boards may also have additional costs in accepting Option B, as detailed below: Organization Gasoline Additional Funding Required Low Sulphur Coloured Diesel Total Toronto Police Services $47, $ $48, Toronto Housing Company Nil* -$ ** - $ 61.05** Exhibition Place $ $ $ Toronto Zoo $ $ 17.55** $ Toronto Hydro $ 5, Nil $ 5, Grand Total $55, *Purchased from City Fleet Management Services **Coloured Diesel used for generators would be a savings in accepting Option B.

8 8 Similarly, other City organizations, which report this purchase to their own Boards, would have additional costs of $55, resulting in decreased sulphur emissions of 3.6 tonnes. York University, McMaster University and Toronto District School Board are also participants in this tender and the award of this requirement will be communicated to each of these organizations. The Manager, Fair Wage and Labour Trades Office, has reported favourably on the firms recommended. Conclusions: This report requests authority to award contracts for the supply and delivery of Fuels used in Fleet equipment as listed in Option A to Shell Canada Products Limited for Gasoline and Low Sulphur Diesel Fule and Petro-Canada for Coloured Diesel Fuel, being the lowest cost tenders received or as listed on Option B, taking reduced sulphur into consideration, to Sunoco Incorporated for Gasoline and Shell Canada Products Limited for Low Sulphur Diesel Fuel and Coloured Low Sulphur Diesel Fuel. Staff recommends Option B, which provides gasoline and coloured diesel fuel with significantly reduced sulphur content, as the preferred option. Contact: L.A. Pagano, P. Eng. C. Chiaravallotti Director Director Purchasing and Materials Management Fleet Management Services Tel. (416) Tel. (416) W. G. Crowther Executive Director Technical Services Tel. (416) List of Attachments: Appendix A - Summary of Prices for the Supply and Delivery of Gasoline and Diesel Fuels.

9 9 Insert Table/Map No. 1 Appendix A

10 10 Insert Table/Map No. 2 Appendix A

11 11 The also submits the following communication (November 13, 2001) from Mr. Keith Stewart, Ph.D., Smog and Climate Change Coordinator, Toronto Environmental Alliance (TEA): High sulphur levels in gasoline and diesel fuel contribute to smog, acid rain, and the production of extremely small acidic particles that can become imbedded deep in lung tissue. According to Health Canada, there is no safe level for these acidic particles, which have been linked to respiratory irritation and disease, corrosion of materials, and reduction of visibility. According to the Ontario Medical Association, Toronto hospitals spend $150 million annually to treat the victims of air pollution and smog costs the Toronto economy $128 million in lost productivity. The City can reduce air pollution and demonstrate leadership on a key environmental issue by continuing to purchase low-sulphur fuels. Recommendations: It is recommended that: (1) TEA encourage the to accept staff s recommendation to purchase the fuel with the lowest sulphur content; and (2) any Emissions Reduction Credits generated through the purchase of low-sulphur fuel should be retired (i.e., not sold), to ensure that there is a net environmental benefit. Contact: Keith Stewart. Ph.D. Smog and Climate Change Coordinator Toronto Environmental Alliance Tel. (416) The reports, for the information of Council, having also had before it the following communications: (i) (October 29, 2001) from Councillor Betty Disero attaching correspondence from Mr. John L. Kelly, Chairman and CEO of Big K Fuels Inc., respecting Tender No ; and advising that Mr. Kelly wishes to appear before the Administration Committee respecting the tender issued for the supply of Gasoline and Diesel Fuel for the City of Toronto; and (ii) (November 6, 2001) from the Director, Purchasing and Materials Management forwarding a communication dated November 3, 2001, from Ms. Linda LeBourdais, President, Mentor Communications, respecting the quote by Big K Fuels for the supply and delivery of Gasoline and Diesel Fuels to the City of Toronto.

12 12 The following persons appeared before the in connection with the foregoing matter: - Mr. John Kelly, Chairman and CEO Big K Fuels Inc.; - Ms. Kim Kovar, Aird and Berlis, on behalf of Big K Fuels Inc.; and - Mr. Keith Stewart, Toronto Environmental Alliance, and filed a written submission in regard thereto. Councillor Howard Moscoe, Eglinton-Lawrence, appeared before the in connection with the foregoing matter. (City Council on December 4, 5, and 6, 2001, had before it, during consideration of the foregoing Clause, the following report (November 27, 2001) from the Chief Administrative Officer and Acting Chief Financial Officer: Purpose: The purpose of this report is to respond to the s request to provide a report directly to Council on the sulphur issue and a comparison of the tenders received in regards to the award of the tender for Gasoline and Diesel Fuels. Source of Funds: Not applicable. Recommendation: It is recommended that this report be received for information. Background: At its meeting on November 13, 2001 the submitted, without recommendation, the joint report (November 6, 2001) from the Acting Chief Financial Officer, the Commissioner of Corporate Services, the Medical Officer of Health and the Commissioner of Works and Emergency Services and requested for the information of Council, that the Director of Purchasing and Materials Management report directly to Council on the following: (i) (ii) on the sulphur issue; and providing a comparison with the tenders received.

13 13 Comments: The Bid Committee at its meeting held on October 17, 2001 opened tenders from Shell Canada Products Limited, Petro-Canada, Big K. Fuels Inc. and Sunoco Incorporated for Tender No for the supply and delivery of Gasoline and Diesel Fuels used in various fleet vehicles, heavy equipment and emergency power generators by various Departments for the period January 1, 2002 to December 31, The tender received from Big K. Fuels Inc. was declared informal after review by Legal Services. The problem with Big K. Fuels tender was the pricing commitment was ambiguous and the bidders intent could not be ascertained. Further review of the tender submitted by Big K. Fuels Inc. showed that it also did not provide the sulphur levels in the fuels offered as requested in the tender document which prevented evaluation based on sulphur content. Sulphur Issue The City is examining sulphur levels in the fuels it buys because there is a strong association between the sulphur levels in fuels, air pollution and human health. In December 1998, City Council, Strategic Policies and Priorities Committee Report No. 26, Clause 4, which contained a joint report by the Commissioner of Corporate Services, the Medical Officer of Health and the Director of Fleet Management Services, entitled Sulphur in Fuels Toronto s Fuels Purchase Program. The adopted report recommended that the City purchase on-road diesel fuel for its off-road diesel fleet if the Province eliminates the Provincial Fuel Tax for that purpose; and when making bulk purchases of gasoline, on-road diesel fuel and off-road diesel fuel, the City should consider sulphur content, as well as cost, as selection criteria. To comply with the adoption of the above mentioned report by City Council to consider sulphur content in fuels as well as cost as a selection criteria, the tender document requires the sulphur levels in the fuels offered to be provided by the tenderer. For unleaded gasoline, the instructions in section and of Specification No FS state Bidders must complete the Table in full. This table contains the sulphur content information. For diesel fuels, the sulphur content information is requested in sections 2.2, 3.2 and of Specification No FS which form part of the tender document issued by the Purchasing and Materials Management Division. The tenders received from Shell Canada Products Limited, Sunoco Inc. and Petro-Canada were completed in full with sections and of Specification No FS and sections 2.2, 3.2 and of Specification No FS of the tender filled in with respect to the sulphur levels in the fuels offered. The tender from Big K. Fuels Inc. was received with these sections of the tender left blank with respect to the sulphur levels in the fuels offered and the tender could not be evaluated based on sulphur content.

14 14 Comparison of Tenders The tender document requests the tenderer to specify the term pricing offered in section 14.0 of Specification No FS for Unleaded Gasoline and in section 16.0 of Specification No FS for Diesel Fuels. The tender document requests the tenderer to indicate whether they are offering a firm price for the duration of the contract without fluctuating costs or an adjustable price subject to escalation or de-escalation on a monthly basis. Three tenders were received from Shell Canada Products Limited, Sunoco Inc. and Petro- Canada in accordance with the tender requirements with respect to the term pricing with all three tenderers specifying no to a firm price (section 14.1 of the specification for unleaded gasoline and section 16.1 of the specification for diesel fuels) and yes to an adjustable price (section 14.2 for unleaded gasoline and section 16.2 of the specification for diesel fuels). These companies in their replies indicated that the prices submitted are adjustable prices subject to escalation or de-escalation on a monthly basis. The tender from Big K. Fuels Inc. was received, specifying yes to a firm price without fluctuating costs and yes to an adjustable price. As this was ambiguous, Purchasing and Materials Management Division forwarded the tender submitted from Big K. Fuels Inc. to Legal Services for their review. Legal Services declared the tender from Big K. Fuels Inc. informal because the pricing commitment is ambiguous and the bidder s intent cannot be ascertained. A further review of the tender revealed the sulphur levels in the fuels offered were not provided by Big K. Fuels Inc., as requested in sections and of Specification No FS and sections 2.2, 3.2 and of Specification No FS. A comparison of tenders received with respect to term pricing and sulphur levels is attached as Appendix A. Conclusion: As noted in this report, the tender received from Big K. Fuels Inc. was declared informal by Legal Services since the pricing commitment was ambiguous and the bidder s intent could not be ascertained. As directed by Council, the City should consider sulphur content, as well as cost, as a selection criteria when making bulk purchases of gasoline and diesel fuels. The sulphur levels in the fuels offered were not provided by Big K. Fuels Inc. as requested in the tender document and as a result their submission could not be evaluated based on sulphur content. A comparison of the tenders received show all except the tender received from Big K. Fuels Inc. were completed correctly in regards to both the pricing and sulphur content.

15 15 Contact Name L. A. Pagano, P. Eng., Director Purchasing and Materials Management Tel: Attachment: Appendix A APPENDIX A COMPARISON OF TENDERS RECEIVED Term Pricing: Shell Canada Products Ltd. Sunoco Inc. Petro- Canada Big K. Fuels Inc. Unleaded Gasoline Spec. - #002-69FS Firm Price Sec No No No Yes Adjustable Price Sec Yes Yes Yes Yes Diesel Fuels Spec. - #004-69FS Firm Price Sec No No No Yes Adjustable Price Sec Yes Yes Yes Yes Sulphur Levels 2000 Annual average: Unleaded Gasoline Spec. - #002-69FS 87.0 Octane Sec ppm Incomplete 89.0 Octane Sec ppm Incomplete Diesel Fuels Spec. - #004-69FS Coloured Regular Diesel Sec. 2.2 ppm No Bid Incomplete Low Sulphur Clear Diesel Sec. 3.2 ppm Incomplete Coloured Low Sulphur Diesel Sec ppm Incomplete) (City Council also had before it, during consideration of the foregoing Clause, a graph published by Environment Canada, circulated at the request of Councillor Walker, entitled Sulphur Levels in Diesel Fuel by Refinery/Importer in 2000, a copy of which is on file in the office of the City Clerk.)