Looking for the Big Pay-Off: What’s the best fuel at the pump for your business?

Common sense would indicate that, with the price of gasoline higher than $3 per gallon, local businesses would flock to alternative fuels.

But it ain’t necessarily so. Some larger companies and the state government are converting fleets to accept alternative fuels, but many area businesses have not found conversion economical.

State Farm Insurance, which has a regional office in Columbia, has about a dozen cars in its local pool, all of which are flex-fuel capable, according to Alicia Robinson, State Farm’s public affairs specialist for Missouri. The company implemented a companywide policy in 2004 with a goal of making 60 percent of its fleet either flex-fuel E-85, hybrid electric or four-cylinder cars, she said, and there have been no employee complaints.

Of State Farm’s 1,300 cars in its five-state Central Zone that includes Missouri, 1,035 are flex-fuel vehicles that can use E-85. Nationally, the company also owns 143 hybrid electric vehicles and two biodiesel vehicles. Robinson said that in 2006 the company reduced its gas usage by 87,000 gallons and cut its greenhouse gas emissions by 287 tons.

For Bob Bachta, general manager of Jefferson City bridge manufacturer DeLong’s Inc., the economics for alternative fuels don’t add up yet. DeLong’s hires contractors to haul girders around the Midwest and pays them a per-job rate. Drivers who keep costs down make more money, and alternative fuels are less effi- cient when managers calculate costs-per-mile he said. “The bottom line is these guys who are hauling the steel have got to make money,” he said. “They’re going to find the cheapest way they can do it, and the cheapest way is conventional fuels.”

With hydrogen fuel cells and electric technologies still mere dreams on the horizon, ethanol and biodiesel are the most realistic choices today for alternative-fuel use by businesses. The good news is there are definite signs of life in the local alternative-fuels market, said Cindy Carroll, energy specialist with the Missouri Department of Natural Resources’ Energy Center, with the number of E85 (85 percent ethanol) stations expanding in Columbia and Jefferson City within the last two years.

In fiscal year 2007, the University of Missouri-Columbia reported having 64 alternative-fuel vehicles and one hybrid vehicle among its 750 vehicles, said Teresa Vest, who completed the most recent annual report on the fleet required by the Missouri Department of Natural Resources.

By state law, as of Jan. 1, 70 percent of all new university vehicle acquisitions must be capable of using an alternative fuel, she said, and the university requires all newly acquired vehicles to run on alternative fuels unless exceptional circumstances warrant a waiver. MU policy also has increased the number of electric golf carts for on-campus deliveries and requires an annual review of vehicle usage by departments to eliminate non-essential vehicles.

More than a third of the flex-fuel vehicles in the state fleet based in Jefferson City run on alternative fuels. According to Cindy Dixon, state fleet manager, state agencies in the Jefferson City area operate about 1,688 vehicles, including 540 flex fuel-capable vehicles that use E85 or regular gasoline, five hybrids, and 184 diesel vehicles able to use biodiesel. The Missouri Department of Transportation operates the largest fleet of vehicles and recently mandated that its drivers use B20 (20 percent biodiesel) and E85 when possible.

On the national front, President George W. Bush signed the Energy Independence and Security Act in December 2007. It sets a mandatory Renewable Fuel Standard (RFS) that requires fuel producers to use at least 36 billion gallons of biofuel by 2022 and sets Corporate Average Fuel Economy (CAFE) standards of 35 miles per gallon by 2020. The RFS also includes a biomass-based diesel fuel component that calls for 500 million gallons of biodiesel by 2008 and 1 billion gallons by 2012.

The new standards may drive the use of more alternative fuels. Likewise, last year Gov. Matt Blunt signed legislation putting a 10 percent ethanol mandate for gasoline in Missouri into effect in January, and this year he announced a similar 5 percent standard for biodiesel. Missouri does not require pumps to be labeled if an ethanol blend is 10 percent or less or a biodiesel blend is 5 percent or less, so Missourians may even be using biofuels without knowing they are doing so. Financial Savings vs. Efficiency For strict monetary savings per gallon at the pump, ethanol is the current star, with prices often 20 percent lower per gallon than regular gasoline.

However, E85’s energy content is 73 percent regular gasoline, so the fuel is less efficient in terms of miles per gallon and the economic benefit to the individual pocketbook may be a wash. Tom Kolb, co-owner of Jefferson City Oil Co. and Midland Oil, says the ethanol cost needs to be 70 to 75 cents lower than gasoline for a driver to break even. Tom May, marketing director for MFA Oil, said Breaktime stores are committed to selling the fuel at 20 percent less, about 55 cents less at present, than regular gasoline. Originally, that price came by special arrangement with its supplier, but that agreement is no longer in effect. Kolb said he can only afford to sell the fuel for about 35 cents a gallon less than gasoline.

Such opportunities to make ethanol more competitive are welcome, said John Buchanan, senior planner for the state’s Energy Center. “The long-term goal is to try to establish E85 facilities throughout the Midwest,” Buchanan said. “We have the ability not only to produce but to consume that here in the Midwest more readily than locations outside the Midwest where they are still struggling to build ethanol plants for a replacement fuel additive to MTBE, which has been virtually removed from all the markets in the United States by either business practice or legislation.”

The drop-off in efficiency varies. The National Ethanol Vehicle Coalition reports 15 percent less efficiency. May says MFA Oil studies found a less than 20 percent drop in efficiency for his company’s fleet, but Kolb reports as much as 25 to 30 percent less efficiency in his vehicle, a flex-fuel GMC Suburban. May said recently completed research on ethanol blends from 10 to 85 percent showed that a Toyota Camry and Ford Focus actually got better mileage on a 30 percent blend.

Realistic Predictions, Realistic Production Although Kolb says ethanol is a good step on the road to energy independence and predicts that accepted blends will slowly increase in percentage over time as production of ethanol increases, he said E85 will never replace gasoline even if new sources of ethanol are found. “There’s just no way to produce enough and make it as financially competitive as crude oil,” Kolb said. “I don’t think there is any way that can compete with the infrastructure of getting crude out of the ground and running it through a refinery.”

Biodiesel has nowhere near the fuel mileage efficiency loss of E85, but it is more expensive today, although May said it has been equal to or less expensive than regular gas over the past several years. “Biodiesel is at the mercy of the soybean; that’s what sets the price,” Kolb said, noting that the current price of soybeans is $12 a bushel. “We do a lot of biodiesel blending when the price is right, but today we’re not doing much because the price of biodiesel to do any percentage of blend is about a penny per percentage upcharge over diesel fuel.”

So Kolb’s cost of 20 cents a gallon extra, plus another six or seven cents to winterize the fuel so that it doesn’t thicken in the cold, makes the cost unattractive for businesses wanting to cut costs. “The only people doing a biodiesel blend are those that want to support biodiesel or that feel they want to do their part for the environment,” he said. “I have some companies on biodiesel, but it’s their ‘good neighbor’ act to support the environment, not to save money.”

But prices could change at any time, Kolb said, if diesel were to go up in price, or if soybeans were to go down. The price of the blend is more attractive when soybeans are cheaper than diesel fuel. Last summer, the price of B5 was cheaper when crude oil was very high and soybeans were low, he said.

It would seem that, for the current biofuel craze to spread to commercial fleets, and if we are to reach the presidential mandate goals, E85 and biodiesel must become more cost-competitive. “Whether that’s achievable or not is yet to be seen,” Buchanan said. “The intent is very good. It’s a push toward true independence from petroleum, but it may actually have a backlash effect. In our fervent efforts to reduce energy price, we may in fact be blindsiding ourselves by increasing the price of other goods and products.”