Economic Development

The Gas Bill

Facing a future of rising fuel costs, fleet managers are looking to an array of options.
by | March 2006

Ramiro Lopez plays a critical role in the operation of his city's fleet. As assistant director of the Dallas Department of Equipment and Building Services, it's up to him to identify cost-saving, environmentally friendly options for operating 4,600 vehicles. But give a nod as well to Lopez's sidekick: his personal Ford pickup-- 140,000 miles young. "So many vendors call us, saying they have a new oil or some thingamajig that we need to use," Lopez says. "When that happens, I get the product, stick it in my truck and see if I feel or see a difference."

Lopez will test almost anything, and it's not as if his accomplice can argue about it. And like Lopez, most state and local government fleet managers are becoming students of the latest vehicles, fuels, additives and other tools that might help them operate their sophisticated and diverse fleets--from police cars and fire trucks to heavy-duty construction equipment--at maximum efficiency.

A variety of factors have brought public fleet managers to this point, but chief among them is the spike in gasoline prices. Some fleet managers, of course, have the luxury of operating in jurisdictions that have long encouraged innovation in fuel efficiencies. In Portland, Oregon, and Seattle, for example, fleet managers were able to initiate comprehensive, fuel-saving programs long before gas prices became a headline-grabber last year. In some localities, the incentive for updating fuel programs had been environmental mandates for air quality under the Clean Air Act. Elsewhere, fleet managers were--and continue to be--motivated by an ongoing reality: Their agencies are very visible targets for privatization, and advocates for outsourcing are on a constant prowl to uncover inefficient government operations.

In their search to balance tight budgets with rising fuel costs, fleet managers are finding that, whatever their past history and their state's or locality's culture, they do best by using an array of options. Any move to, say, simply replace a fleet of gasoline-powered cars with hybrid vehicles or convert an entire fleet of heavy equipment from traditional diesel fuel to biodiesel would ignore the complexities of these decisions, as well as lose sight of more routine, everyday solutions that can make a difference.

"We like to get excited about coming up with grand plans to solve our problems," says Joseph H. O'Neill, executive director of the National Conference of State Fleet Administrators and a former fleet administrator for the Arizona Department of Transportation. "Quite frankly, the guy who just continues to march smartly and practice good management and tight supervision and maintenance will get the most efficient fleet."


At the top of the list for controlling costs is the search for a cheap substitute for gasoline. A dizzying array of names go onto a list of alternative-fuel options. Most governments that have already moved into this territory have probably looked at two general sets of choices for fleets: compressed natural gas (CNG) or ethanol for passenger-style vehicles, and some formulation of biodiesel for heavier, diesel-powered equipment.

CNG offers dramatic cost advantages but the higher purchase price of vehicles that run on it can be a drain on the savings. Seattle has been pumping CNG into its fleet of public cars for several years. Every department in the city of Seattle, says Dave Kerrigan, the city's fleet services director, relies to some degree on CNG.

This form of alternative fuel is a good fit for this northwestern city. It is readily available locally and reduces concentrations of fine particulates, a major source of pollution in the Pacific Northwest.

The low cost of CNG has been a bonus, particularly during last year's period of extreme price volatility for gasoline. Last September, when the price of regular unleaded gasoline was $2.60 a gallon, Seattle was able to pump CNG into its cars for $1.36 for the amount equivalent to a gallon, Kerrigan says.

Dallas, too, has been realizing savings through CNG, which currently fuels about one-quarter of the city fleet's needs. While Lopez allows that "CNG has really been our big cost saver," he notes that the city is looking for ways to improve the balance among the fuels it uses, to take full advantage of price and environmental benefits. "We're not locked into any one fuel," Lopez says. Recently the city has been looking into introducing ethanol, produced mostly from corn in the United States and commonly used in a mix that is 85 percent ethanol and 15 percent gasoline.

Ethanol use has been particularly popular in Midwest communities that can boast of helping local farmers--even as the "cleaner" fuel improves the environment and reduces dependence on foreign oil. About 50 vehicles in Aurora, Illinois' government fleet run on E-85. Most of the E-85 cars are used by such departments as building and permits and public safety, says Joseph Hopp, director of fleet operations.

Ethanol does not represent a significant cost-cutting strategy, however, since a loss of fuel economy with ethanol vis-`a-vis gasoline more than offsets per-gallon savings at the pump. Hopp says Aurora has experienced a 16 percent loss of fuel economy with ethanol. Still, the other benefits of using ethanol, as well as a $340 per vehicle rebate from the state for ethanol-use cars, make the decision to use the alternative an easy one, he says.

For heavier construction equipment and other vehicles in a government fleet that run on diesel fuel, biodiesel has become a widely accepted fuel alternative. It can be produced from a variety of oils ranging from soybean oil to cooking grease and is generally used in a B20 blend--20 percent biodiesel and 80 percent standard diesel. It is produced in concentrations as high as 100 percent biodiesel, but at such levels it can freeze at temperatures of 25° Fahrenheit or below.

A 1999 governor's initiative in Ohio asked the state Department of Transportation to purchase $1 million in biodiesel for its vehicles. At that time, officials were still learning techniques for mitigating the problem of the fuel gelling in the department's storage tanks, says Lindsay Mendicino, spokesperson for the state DOT. Six years later, with 4,200 pieces of heavy equipment that can run on either diesel or biodiesel, the department is on pace to exceed 1 million gallons of biodiesel a year.

Saving money is not the primary driver behind use of biodiesel. It generally costs more than conventional diesel fuel and also results in some givebacks in fuel economy. But in some jurisdictions, incentives have made up for the higher cost at the pump. The school district encompassing Las Vegas, for instance, has 1,200 buses that run on B20. While the company that produces the biodiesel receives federal tax credits on the fuel, it has agreed to pass some of that bounty along to the local government in the form of a credit. The payoff for the producer company rests in the city helping to build a larger market for biodiesel.

"The factors that are paramount in these fuel-purchase decisions," says Dan Hyde, fleet and transportation services manager in Las Vegas, "are air quality--we're in a nonattainment area for carbon monoxide-- diversifying fuels and jobs." Biodiesel satisfies all of Hyde's stated goals. It not only reduces soot and appears to have no negative effect on vehicle performance or power, it has the added bonus of making use of a homegrown product.

Hyde also continues to look at other alternative-fuel options; two passenger cars in the city's fleet run on a new technology of hydrogen fuel cells that work in a similar way to an electric battery. Hyde believes the public sector constitutes the only entity in a position to test these options and help bring them into the mainstream faster.

"It is the fiduciary responsibility of fleet managers to make alternative fuels part of their job description," he says. "If we can't get these fuels into our fleets, so that the public isn't the one put to the test when these eventually get to the mass market, who else can do it?"


They cost more--$8,000 per car in the subcompact category--but hybrid gas-electric vehicles offer substantial fuel savings over conventional gas-powered cars. Seattle's Kerrigan estimates that hybrids save about $400 to $500 per car on fuel over the course of a year.

But that doesn't mean fleet managers are rushing out to replace existing cars with hybrids. They are, in fact, involved in a dicey balancing act. The hybrids are, after all, expensive and have not reached their full technological capacity. However, the cost of the cars is somewhat offset by higher resale values.

Bottom line: Kerrigan and other fleet administrators say they are keeping an eye on plug-in hybrid technology and fuel cells, hoping that fleets could derive even more benefits from those. "We're willing to look at any new technology that will improve the environment or save us money," Kerrigan says.

Meanwhile, some cities are making the investment in present hybrid technology. Excluding police sedans, 49 of the nearly 400 sedans in Portland, Oregon's municipal fleet are hybrids, and the response to them from drivers in the fleet "has been overwhelmingly favorable," says Don Taylor, assistant fleet manager for the city.

Another prevalent strategy with vehicles has involved replacing aging gasoline-powered vehicles with "flex-fuel" cars that can run on either gasoline or ethanol. Since ethanol's availability varies from location to location, this approach offers drivers flexibility and can enable them to price-compare as the cost of both fuels fluctuates.


During times of economic crisis, fleet administrators often resort to what can be a tough--and highly unpopular--decision: downsizing the fleet. No department likes to lose access to cars and the mobility they represent for their workers. Not surprisingly, fleet managers can be subjected to harsh reactions when they take cars away from departments. But reductions are a fact of life. In the 2001 economic downturn, Seattle found that the elimination of 200 cars helped balance its fleet books.

A growing number of localities, mostly in the West, are also using an accompanying strategy to control fleet size. For workers who require use of a car only occasionally, fleet managers are entering into car- sharing agreements--the use of a car on an as-needed basis, be it an hour or a day.

These car-sharing arrangements--a variation on rental car contracts-- have been more commonplace for private businesses and among city dwellers who may walk or take public transit to work but who like access to a car for an occasional weekend excursion or shopping trip. Now cities such as Portland are using car-sharing contracts to reduce the size of city motor pools, particularly for vehicles that can go unused for long periods of time.

Car-sharing is similar to a family choosing between buying a beach home to use for its annual two-week vacation versus purchasing a time- share for that two-week period. Bruce Cross, who retired in late 2005 as fleet manager in Portland, says that his office looked at other options for short-term use--arrangements with cab companies or mass transit operators--before selecting the car-sharing service run by a private company.

Government employees in a downtown location with nearby residential development, where the private company can share the costs of the service among many drivers, are ideal candidates for this type of arrangement. Also, it helps if the participating employees do not need a car every day: A building inspector, for instance, would be a poor candidate for car-sharing.

As is the case with individuals and businesses, government agencies that enroll in a car-sharing program pay for the service based on vehicle usage, usually an hourly rate. In Portland's program, an employee who needs a car for an event or meeting can book the car online. When the employee arrives at the car, which is usually parked in a garage in a downtown location, he or she takes out a power card that holds member information, swipes it against the windshield, and unlocks the door. Entering more codes inside the car allows the driver to start the car and proceed to the destination. The driver returns the car to the same location after the trip is completed.

Portland's car-sharing contract took effect July 1. While city officials expected they wouldn't see even 300 hours a month of total usage in the first year, they were surpassing 600 hours a month by October. The success of the arrangement allowed Portland to cut the size of its 30-vehicle motor pool in half.

The city did experience some glitches with the system at first. It had to arrange to have new parking placards for display with the private vehicles so that parking enforcement personnel would know that, although the car had no city logo on it, it was being used by a city employee who had parking privileges.

But despite the fact that city employees using the service have to "compete" with others in the community for temporary use of a car, response from staff was overwhelmingly positive. About the only potential barrier to the system's long-term use in Portland is a pending union grievance filed by mechanics over a loss of work on cars at the motor pool.

If Portland could eliminate its motor pool entirely, it could realize a $30,000 annual saving, as the motor pool's $100,000 cost outpaces the $70,000 projected tab for the car-sharing arrangement.


When government fleet managers face unexpected upturns in fuel prices, the best, most immediate response lies in routine steps. "You can save 5 percent in fuel costs by making sure your tires are properly inflated," O'Neill says. "You can save 5 to 7 percent by switching to synthetic oil in your engines, transmissions and rear ends. It comes down to smart and efficient management."

Indeed, there is evidence that many agencies that were already using alternative fuels, hybrids and other innovations prior to last year's gasoline price shock focused mostly on everyday maintenance and driving habits when prices soared in 2005.

"We did get the word out through our vehicle liaison for people to reduce use and to bring vehicles in for regularly scheduled maintenance," Portland's Taylor says. Officials also urged drivers of city vehicles to shorten idling times, as a gallon of fuel is wasted for every hour the engine is idled. The cost of that can add up quickly. Seattle's Kerrigan has this rule of thumb: "If you have to idle for more than 30 seconds, don't do it at all."

Dallas's Lopez describes these kinds of steps as instilling a culture change in those who operate vehicles in a government fleet. "It's a message you have to constantly work on," he says. "You want employees to be more conscious about things like a leaking vehicle."

The main advice of these government administrators to their colleagues is that whether or not gasoline prices approach record levels again this year, they should be considering all options large and small for improving the efficiency of the fleet operation. And for any officials who feel they need more help to test the possibilities, who knows: Maybe Lopez's pickup will be up for sale soon.


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