Clean Energy Fuels Corp (CLNE) Q1 2021 Earnings Call Transcript

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Clean Energy Fuels Corp (CLNE -0.45%)
Q1 2021 Earnings Call
May 6, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Clean Energy Fuels First Quarter 2021 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Robert Vreeland, Chief Financial Officer. Thank you. You may begin.

Robert M. Vreeland -- Chief Financial Officer

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31, 2021. If you did not receive the release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we'd like to remind you that some of the information contained in the news release, and on this conference call, contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy's Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and excludes certain expenses that the company's management does not believe are indicative of the company's core business operating results.

Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Andrew J. Littlefair -- President and Chief Executive Officer

Thank you, Bob. Good afternoon, everyone, and thank you for joining us. I will quickly touch on our financial and operational highlights and then spend some time speaking about our very important and exciting Amazon announcement. Our new strategic partnership with Amazon is multi-pronged and we believe positions Clean Energy very well for the future and confirms the direction we set for ourselves years ago. As anticipated, the COVID pandemic continued to impact our volumes, but with stronger environmental credit pricing, our adjusted EBITDA of $11.7 million was up 4% over last year. As with the rest of the country, we are optimistic that the overall economy, including transportation sector specifically, will continue to rebound. Our balance sheet remains healthy with $146 million in cash and investments and $90 million in debt at the end of the quarter.

All in all, a good quarter considering the lingering effects of COVID, which have hit two of our sectors the hardest, transit and airport fleets. But these two sectors have improved from their lows during the pandemic recession as people begin to travel more across town via a bus or across the country from one of the airports we serve. In fact, our business continues to expand with new customers, demonstrated in the press release we distributed yesterday that I hope you saw, which highlighted a number of recent fueling agreements we have signed. Now let's talk about Amazon. The recent announcement that we made with them is the most important commercial event in Clean Energy's history. Not surprisingly, for a deal like this, we are under a nondisclosure restriction, so we are limited as to what we can say. And we don't want to get caught speeding because we don't need to.

Even so, I want to make sure everyone fully understands this significance to Clean Energy. This new strategic partnership with Amazon is based on two different agreements. One is a commercial deal and is about Amazon agreeing to buy a substantial amount of renewable natural gas fuel through our stations, potentially hundreds of millions of gallons of RNG. This fuel will be consumed by a fleet of mostly heavy-duty trucks and some midsized trucks that Amazon is in the process of deploying with many of the trucks already operating. These trucks will fuel at 27 of our existing stations around the country that we own and operate. And as Amazon deploys more RNG trucks, they will fuel at 19 additional Clean Energy stations that we plan to build by the end of the year. We've already identified most of the locations for these stations, and in some cases have already secured the land.

Clean Energy will own the new stations. And while it's nice to have a large anchor fleet customer like Amazon, these new stations will be available for other fleets to fuel as well. You've heard me speak in the past that one of the beneficial aspects of RNG is that it's a drop-in fuel, and that can be quickly and easily provided to a new customer at any of our fueling stations in the U.S. The Amazon fueling agreement is a perfect example of this, and in fact, one on steroids. As they deploy their new fleet of RNG trucks across 15 different states around the country, Amazon is immediately operating in the most sustainable way possible. Fortunately, we were the first to make RNG commercially available, and we have continuously worked for years to secure a growing supply of RNG.

We have gained a deep knowledge of how to work with the different government agencies and utilities to provide the fuel to designated locations throughout our U.S. network of over 540 stations. We also have the experience to navigate through the federal and states environmental credit procedures, which allows us to provide ultraclean fuel for less than diesel. As I mentioned, because of our customers' wishes, I don't speak to the number of trucks that Amazon is deploying. But it's safe to say that by fueling at 46 different stations with roots crisscrossing the country, it is a substantial commitment. Another way to judge the scale of the fuel deal is through the lens of the second agreement, which involves our issuing a warrant to Amazon to purchase 53 million shares of our stock. As you might have read in our 8-K or our proxy statement, the shares vest in multiple tranches as Amazon continues to purchase more and more RNG fuel from us up to a total of $500 million.

And that figure excludes any passthrough costs, such as gas, electricity and transportation. So the actual number to our topline revenue would be considerably higher. Clean Energy's executive team and Board looked at the decision to allow Amazon to eventually purchase up to 20% of our outstanding shares very closely. We concluded that these agreements represent so much of what we have been working toward for the last decade and have the possibility to make a lasting effect, not only on our business, but on heavy-duty RNG fueling overall. By linking the fuel purchase agreement to the warrant agreement, Amazon is indicating they want a longer-term and deeper partnership than just being a customer. As a strategic partner and potential substantial owner of Clean Energy, they now have a stake in our success and are incentivized to purchase more and more RNG from us.

The better we do, the better Amazon and our shareholders do. Furthermore, if Amazon earns into the warrant and exercises it for cash, proceeds to Clean Energy will be more than $700 million, and we're talking about a strike price of $13.49 per share. We believe the market share price of our stock at the time of exercise will be significantly higher than the strike price, creating a meaningful incentive and upside for Amazon. Upside gain for Amazon, which would also mean tremendous upside to all Clean Energy shareholders. This is a great validation of the value of Clean Energy, especially when looking back to the not-too-distant past. In short, we believe the strategic partnership with Amazon could be worth $1.5 billion or more in gross proceeds between revenue from fuel sales and proceeds from cash exercise of the warrant.

It is an extraordinary statement that one of the largest brands in the world, which has carved out a very impressive leadership position in the drive to address climate change, chose RNG as they expand their logistics operations into heavy duty trucking. But they are in good company. Other alternative fuels might continue to grab the headlines about their potential future. But Amazon is now joining the largest logistics company in the world, UPS, the two largest waste companies in the U.S., WM it is now officially called, and Republic Services. And the two largest transit agencies in the country, New York MTA and L.A. Metro, among many others, all of which are operating thousands of heavy-duty trucks, refuse trucks and buses with RNG every day. By doing so, these fleets of large vehicles are keeping hundreds of millions of tons of greenhouse gas from escaping into the atmosphere.

To the skeptics that say RNG might be a niche fuel, I would say it's real and having a significant and profound effect on the climate change today. And in doing so easily and cost effectively, is cost effectively for the operators of these fleets. Let me depart here for a second from my script and talk about kind of the context of the way I look at animal waste and as it develops into RNG. If you look at the current studies out, there's probably about 30 billion gallons of RNG from all sources that's available in the United States. And that's on an annual basis. And of course, that would take into account landfills and wastewater treatment and dairy hogs, dairy cows, etc. I'd like to focus, though, on the fact of when people think about this, well, gosh, this might be kind of a niche.

Well, I think that when you look at the low-hanging fruit, and others agree with me on this, in fact, the major energy companies' staff agrees, there's probably five billion to seven billion gallons of dairy RNG available annually. Now that's going to take five to 10 years to bring it all online, probably five to seven years. And at the cost of $50 billion to $70 billion. But these RNG facilities are very economic. And so you think, well, that's kind of a niche, five billion to seven billion gallons. After all, the United States is using 35 billion gallons of diesel annually. But when you put that on the carbon scale and you recognize that this fuel is three times to four times less carbon than diesel per gallon on the carbon scale, you can see that you're really talking about removing 20 billion gallons of diesel annually from the roads. So it's a huge and very important contribution to our effort to combat climate change and reduce carbon.

This growing demand for RNG and particularly RNG from dairies and agricultural facilities, which is rated by the California Air Resources Board as much as two times to 3.5 times cleaner than any other alternative, helps to bring into focus the other agreements that we finalized in the first quarter. The two joint ventures that we now have in place with Total and BP to bring more of this ultraclean RNG online is already showing great progress. We are working with multiple dairy owners to construct, own and operate digesters and RNG processors at their facilities. In fact, just this morning, we signed an agreement with a family owned dairy to construct a digester which is expected to add over 1.2 million annual gallons of negative carbon RNG supply when it comes online. The capital allocated toward these projects and the resulting additional RNG supply will keep us well positioned in meeting the growing demand by Amazon and other new customers.

So thank you for allowing me a little more time to expound on our new relationship with Amazon. I think it is important for everyone to know the significance of it and the long-term benefits it has to the upward trajectory of Clean Energy's business, particularly if you are a shareholder. And as you know, a portion of the warrant needs to be approved by our shareholders. Clean Energy's Board of Directors has already approved the warrant and strongly recommends that our shareholders do the same. We have never been more excited and optimistic about the future and how Clean Energy has positioned itself over the last few years to take advantage of the world's heightened awareness of the actions urgently needed to address climate issues. The transportation industry must play a large role in this, and we have the solution. And with that, I will hand the call over to Bob.

Robert M. Vreeland -- Chief Financial Officer

Thank you, Andrew. For the first quarter of 2021, our results were in line with our expectations. And as we look forward, we're maintaining our adjusted EBITDA guidance of $60 million to $62 million for 2021. We are updating our guidance on GAAP earnings for 2021 to reflect the noncash accounting treatments of the vesting of the warrant we issued to Amazon. I will speak to that accounting treatment in more detail in a moment. Continuing with the first quarter, total volumes were 92.4 million gallons compared to 99.3 million gallons a year ago. The year-over-year decline is directly attributed to the impact of COVID to 2021 compared to the 2020 first quarter, which was minimally impacted by COVID. And although our overall volumes declined, our RNG volume grew 3% in the first quarter compared to a year ago. RNG volumes for the first quarter of 2021 were 37 million gallons compared to 36 million gallons a year ago.

Because we flow RNG to many of our fueling stations, the lower fueling volumes due to COVID also impacted our RNG and lowered the year-over-year growth. However, on the financial side, our RINs and LCFS revenues from RNG deliveries increased 63% to $9.5 million from $5.8 million, despite there being only a 3% increase in RNG volumes. This increase in RIN and LCFS revenue was primarily from gains in RIN pricing compared to a year ago with modest gains in LCFS. Overall, revenue was $77.1 million for the first quarter of 2021, which was reduced by $2 million due to the noncash change in fair value of our Zero Now related hedge and customer contracts. Exclusive of the $2 million reduction, our revenue amounted to $79 million. Prior year first quarter revenue was $86 million, which included $5.6 million in noncash gains related to the changes in fair value of the Zero Now related hedge in customer contracts.

Otherwise, the prior year first quarter revenue was $80.4 million compared to $79 million on less volume. We benefited in the quarter from a higher effective price on our volume-related revenue. Our effective price per gallon in the first quarter of 2021 was $0.76 per gallon compared to $0.70 a gallon a year ago. This reflects generally higher natural gas prices and related prices at the pump. Both station sales and AFTC revenues remained steady and within expectations, but also both are still being impacted by COVID, particularly when comparing to last year. Our gross margins improved in the first quarter of 2021 compared to 2020, when excluding the noncash fair value loss of $2 million from 2021 and the noncash fair value gain of $5.6 million in 2020. Exclusive of these fair value items, our gross margin was $28.8 million in the first quarter of 2021 compared to $27.4 million in the first quarter of 2020.

A big part of this improvement in gross margin was the gains in RIN and LCFS revenues previously mentioned. Our effective margin per gallon for the first quarter of 2021 spiked a bit to $0.26 per gallon compared to $0.22 a gallon a year ago, also reflecting favorable RIN pricing and favorable commodity sales during the quarter. We still believe our margin per gallon will be within our expected range of $0.22 to $0.26 for the year. Our SG&A was $21.4 million in the first quarter of 2021 compared to $18.3 million a year ago, an increase of $3.1 million, of which $2.3 million relates to an increase in stock compensation as expected and as noted in my annual guidance. Our GAAP net loss for the first quarter of 2021 was $7.2 million, which also includes the $2 million in noncash losses from the change in fair value of the Zero Now hedge items.

Prior year first quarter net income was $1.7 million, which included $5.6 million in the noncash gains from the Zero Now hedge items. Adjusted EBITDA was $11.7 million for the first quarter of 2021 compared to $11.2 million a year ago, which again highlighted the benefit in 2021 of incremental revenues associated with our RNG deliveries. Our cash flow provided from operations amounted to $3.3 million for the first quarter of 2021 compared to cash used in operations of $4.3 million in the first quarter of 2020. Exclusive of changes in operating assets and liabilities, operating cash flow was $11.4 million in the first quarter of 2021 versus $9.1 million in the first quarter of 2020. capex spending was $3.3 million for the first quarter of 2021, and Andrew mentioned our cash and investments balance of $146 million with debt of $90 million at the end of March 2021.

And in April, subsequent to the quarter, we paid in full the $50 million loan from BP that was associated with funding initial project costs related to our new RNG joint venture with BP. Looking forward, as I mentioned, we are updating our guidance for our GAAP earnings for 2021 to reflect the accounting for the warrant issued to Amazon. While we believe the warrant has far-reaching value implications to Clean Energy, the accounting rules fall within the GAAP revenue standard since the warrant is directly related to our fuel agreement with Amazon. We will be recognizing a contra revenue charge as the warrant vests. The warrant shares vest over time based on fuel purchases by Amazon and its affiliates. We have estimated for 2021, a contra revenue charge of $76 million, with approximately $68 million of that being recorded in the second quarter, principally due to the initial vesting of 13.3 million warrant shares or 25% of the possible 53.1 million shares available.

Thereafter, the number of warrant shares vesting will be proportionate to the fuel purchases and recorded as a contra revenue in the periods the fuel purchases occur, and the vesting will continue until all the warrant shares have been vested. Keeping in mind that if all the vesting conditions are met by Amazon, they will have purchased hundreds of millions of gallons of RNG from us. And with that, operator, I'll turn the call over for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your questions.

Eric Stine -- Craig-Hallum -- Analyst

Hi, Andrew. Hi, Rob.

Andrew J. Littlefair -- President and Chief Executive Officer

Hi, Eric.

Eric Stine -- Craig-Hallum -- Analyst

So just maybe on the Amazon deal, and I know that you're limited as to what you can say, but in light of the fact that these are going to be clean, owned stations, curious your thoughts if there's anything you can talk about on whether Amazon pushes this to their suppliers. I mean, it sounds like you're confident in getting volumes from other fleets, wondering if those other fleets would be those suppliers. And just -- I don't know if you have a thought on what those volumes could be, they would seem to be significant.

Andrew J. Littlefair -- President and Chief Executive Officer

Well, I don't have anything specific from Amazon to give you at this point on that, Eric. But I do know that we have had some Amazon vendors and suppliers purchasing natural gas trucks and arriving at our stations. And so I don't know how Amazon is looking at this, and I haven't -- I can't discuss exactly any program that they might have. They'll have to do that. But I know that as companies like Amazon look at their carbon emissions, their supply chain and their suppliers and those coming to and from supplying them goods, they get -- they have to account for those emissions and those carbon emissions. And so I think it's probably instructive that these stations that are being built at the request of and located with Amazon in mind, are being open to the public. So we'll have to kind of see how that develops. But I think that's probably the significant point there.

Eric Stine -- Craig-Hallum -- Analyst

Yes. Okay. And then I know it's still early, so maybe this is a question for a few quarters down the road, but I know when UPS started on their route, I mean that was a driver of additional fleet interest. Wondering if it's too early for that, if you are seeing it, incoming calls on that. And then, do you feel like people are sharing to get the value proposition here? I mean, given that truckers care about seems down to half a penny, so --

Andrew J. Littlefair -- President and Chief Executive Officer

I do, Eric. We have had inbound calls by large logistics and large for-hire fleets. A lot of these fleets haul for Amazon, right? And so they're very familiar with what's going on and are obviously keenly interested in it. And so that's a good thing. And we have demo truck going out to some very significant fleets right now that have tried it in the past and are looking again. I also say, and I've said this kind of before, is the -- as these fleets are facing their ESG goals and their sustainability goals, the screws are tightening everywhere. And people are taking, having to take this more seriously. And as they begin to look at their other options, electric heavy-duty trucks, the potential someday of fuel cell trucks, they begin to become familiar with the costs associated with these other options, and the RNG looks very favorable in that case. And it's something that can happen today and can begin.

It can be dropped in today using a power, a power source that's very familiar, that they're very familiar with, right? Cummins engine. And so we are seeing some momentum from this. And I hope as this becomes more widely known and people begin to see more tractors on the road, that it will just increase the interest.

Eric Stine -- Craig-Hallum -- Analyst

Got it. And then -- well, last one for me, and I know maybe not specific to Amazon, but just more from a Clean Energy owned station standpoint, that's part of this agreement. I know there's been some confusion over what the margin impact would be. So just maybe just channel a little bit about the margins at company-owned stations, which obviously these are at Amazon.

Andrew J. Littlefair -- President and Chief Executive Officer

I'll let Bob maybe fill in here after if I bungle this and he wants to embellish it. But you know the number that we quote, the $0.22 last quarter and this quarter it was a nice spike in that up to $0.26, that's across all of the gallons that we sell. And that would take into account different categories of gallons, right? Operation and maintenance gallons where we may not be selling the fuel, but we're getting paid per gallon to maintain a particular station. So when you blend it all together, that's how we arrived at this $0.26. That is one of the numbers that is the number that we cite. But when you look at stations that we own, where we are providing the fuel and in control of, for instance, our RNG, there would be many, many stations in California and all across the country, the margin is substantially higher, right?

So I mean, I've taken, I think on this call over the years, I've taken you through the buildup when you look at the price of natural gas, and you understand that there's seven gallons of diesel per Mcf. And so that means your commodity per gallon is $0.35 or so, and then you put on $1 or $1.20 of costs, so you're at the nozzle tip at $1.50 and you're competing with diesel at $4, you can see there's a lot of room in there. There's a lot of room to give our customers a discount, and there's room for us to have a very nice margin. So we have stations where we have considerably higher-margin than that. So these are going to be our stations, as you point out, Eric. And of course, we're giving a good price, but we're also recognizing the fact that we're building a station for a customer with a commitment on fuel volume, but it's a much -- has a much different margin profile than maybe some kind of jump to the conclusion that it was just to multiply some of these gallons toward -- by that $0.26.

Eric Stine -- Craig-Hallum -- Analyst

Okay. Thanks.

Operator

Our next question comes from the line of Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Rob Brown -- Lake Street Capital Markets -- Analyst

Hi, Andrew. Hi, Rob.

Andrew J. Littlefair -- President and Chief Executive Officer

Hi, Rob.

Rob Brown -- Lake Street Capital Markets -- Analyst

My first question on the ramp and the rollout plan here, I think you said you were going to build the stations in 2021. Maybe give us a sense of the size of the station you're building and then how you see the ramp of the project going in terms of gallon sales?

Andrew J. Littlefair -- President and Chief Executive Officer

Right. We are going to build those by 2021. There's a little bit of wiggle room here. I know Amazon wants them all done tomorrow, and it takes a while to build these stations. Really, the station construction, as we've discussed before, Rob, isn't -- this isn't -- we've done 718 station projects over time. So we know how to build stations. It's the permitting, right? It's the local permitting. We went through a planning commission last night in a California city and got approved five to nothing. So that's good. So there's that. But yes, the expectation is almost all of these stations will be substantially completed, if not many online, by 2021. That's our hope. I'd like to have them all done, if we could. These stations are going to be large. You should -- they'll be sized depending on the needs at particular locations, so some are larger than others.

But I would say, in general, you should be thinking that these stations would be sort of truck stop like in terms of being able to fuel two tractors at a time, sometimes three, at 10 gallons a minute type speeds, which is good. Average tractors should take onboard about 85 gallons at a fill. So that's a good time in terms of dwell time for the fueling. And these stations will be sized. But I would say if you kind of wanted to use an average, they would be able to fuel 100 tractors a day or more. And some will be significantly larger that have that capability. So they're going to be -- have room to grow, and they're not stations of yesteryear for light-duty taxi cabs, they're large commercial truck stops.

Rob Brown -- Lake Street Capital Markets -- Analyst

Okay. Great. And so once they're in place, then it's a matter of trucks ramping to get the fuel volume up. Do you have a sense on sort of the timeline of how that rolls out and how you see that ramping over sort of what period?

Andrew J. Littlefair -- President and Chief Executive Officer

Well, those trucks have been -- the trucks in question that we can't would love to get to the number at some point, the trucks, they've been ordered. And the first tranche of trucks have been built. And then there's another huge big slug coming that are being built and will be delivered in the remainder part of the year. And I think the expectation is those trucks are going to arrive all in 2021. And as they do, they'll fuel on our network and they'll fuel at the stations as they open, and they'll move trucks around to make sure they can begin to put those into service. But they have the truck slots and those have been ordered.

Rob Brown -- Lake Street Capital Markets -- Analyst

Okay, great. Thank you. And then on the capacity side, I think you talked about adding some facilities or starting that process through the JVs that you have. But how quickly do you need to add RNG capacity to meet Amazon? Or will those things work in tandem? And then I guess what's your sort of view of supply capacity that you'll add over the next couple of years?

Andrew J. Littlefair -- President and Chief Executive Officer

Well, this is -- it's a little complicated because we want as much low CI, negative carbon fuel, as we can get, right? Because think about this, is because we have the low carbon fuel standard in California, we can stand, and we're selling 115 million, 120 million gallons in California, let's just kind of use that number. I'm in the ballpark there, right, this last year. And as I've said before, we expect to be ramping up our low CI dairy gas in California at somewhere between six times to 10 times what we did last year this year. So we're starting from a lower number. But my point is, as we bring on dairy gas from around the country, it will come to California first that's where it's most valuable. And it releases other gas to other parts of the country where it's not as low carbon. And so our focus, that's why I talked about the five billion to seven billion gallons, is to bring on the lowest carbon fuel -- I mean in this way, the low carbon fuel standard, it works, right?

It encourages you to bring on the cleanest fuel possible, capture the most methane. It's been interesting, Rob, that we've been all reading about some of the major oil companies trying to get their arms around sequestration, right? Carbon -- that's what we're doing, right, in a way. We're taking that methane before it escapes, capturing it and putting it into a vehicle and burning it. So it's -- and so we're going to want to do more low CI in California. And over time, our plan right now on the supply side, that's why we're working so hard, we have an origination team that's busy right now. We have in the pipeline 25 different dairy projects where we're working through the negotiations with the farms. We have seven under way right now in the contracting process. We'll need all of it plus. And as you begin to -- we all begin to understand the scale of the Amazon deal, we need to add significantly to the supply.

I don't think there's a problem of outpacing in the near term, though we've been kind of on the ragged edge of it here lately. But outpacing the demand of RNG because the industry is responding on RNG, right? Our friends at Chevron and others are busy on these projects. But the Amazon potential is going to keep us all very busy. But with the landfills and wastewater and other things, you'll be able to meet the demand and other demand that will come on, but you really want to meet it with as low CI as possible. That's our goal because that's the most valuable, and it's best for all. We've got to be creating over the next few years, several hundred million gallons of RNG in addition to where we are today.

Operator

Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

Manav Gupta -- Credit Suisse -- Analyst

I actually wanted to quickly focus on the upstream versus downstream profitability here. So let's say you have a company-owned station and let's say you believe it's giving you $0.30 to $0.35 a gallon. What I'm trying to understand is, is this Amazon deal giving you the volumes to develop the low CI RNG through your upstream partners and the profitability over there is 5$to $7 a gallon. So if you split that half way, that's like $3 a gallon. So it doesn't really matter if on a downstream basis you make $0.30 a gallon or $0.40 a gallon, the real benefit of this deal is that now you can go back to your partners, Total, BP and others, develop the upstream RNG, which is like $3 a gallon. So the real benefit will come from the upstream side on the margin, not really the downstream side. Can talk about that?

Robert M. Vreeland -- Chief Financial Officer

Well, Manav, yes, and no. I mean, there's value on both, but you're absolutely correct that the demand that's created from a deal like this just completely supports our position on the upstream supply side. Because, look, I mean, after all, the upstream is being developed with the intent of putting it into -- to get the highest value to put it into vehicles, heavy duty vehicles. And so when you come to the table where you have that and you have that demand, then it's a pretty powerful upstream proposition. Not to mention the economics that then flow into the upstream, which is separate from that $0.30, $0.35 you mentioned. That would be, in our case, would be in the joint venture. Now we will have those economics to the extent that we are the producer and we're using the gas from ourselves. But we'll have to get it from other sources as well.

Andrew J. Littlefair -- President and Chief Executive Officer

Manav, we also -- just on the source side, I don't want those on the call to think, well how are these guys going to develop all this RNG? We -- because we are the sort of the choke point with the infrastructure and have the largest network, we already take RNG for 40 different sources. And that grows all the time. And it will -- that will continue to grow. But Manav, you're right, the upstream is very profitable. But don't underestimate the value of the downstream per gallon. And don't -- and what I say, go back and look at my buildup, and you might be surprised that at a station that we own, our margin is better than what you're thinking.

Manav Gupta -- Credit Suisse -- Analyst

I am not doubting that. I'm just saying sometimes --

Andrew J. Littlefair -- President and Chief Executive Officer

I know, I'm just trying to help. I'm just trying to remind you that it gets confused on the way we kind of talk about it sometimes.

Manav Gupta -- Credit Suisse -- Analyst

Fair enough. I'm just saying, when you put in the RINS, $35 MMBTU, you put in negative daily CI RNG, the LCFS credit, the magnitude of that can be significant. So again, the downstream profitability is very important, I understand it. But if -- when dealing with dairy farm RNG because the LCFS credit itself is so big that the profitability could be significantly higher. That's the only point I was trying to make.

Andrew J. Littlefair -- President and Chief Executive Officer

No, look, it's -- we agree. But Manav, I'm not giving it away or just flushing it out, OK? I'm going to sell it.

Manav Gupta -- Credit Suisse -- Analyst

One question away from Amazon. You also have programs with people like Chevron, adopt a port. Can you give us an update how that program is going? So we want to understand, besides Amazon, people like Chevron, who are running this adopt a port programs, how are those programs also going?

Andrew J. Littlefair -- President and Chief Executive Officer

Yes. We're very pleased with Chevron, and I have said on the call that we were working to upsize that program, and we are. We're in the process of that. So standby for that. We have a pipeline of trucks at the port that are in the development, proposed and contracting phase, that totals about, oh gosh, I think it's 518 trucks as of last Friday. So that's potentially really good volume. All RNG, all in through our network, all in partnership, receiving incentive dollars from Chevron with us to use that RNG provided by Chevron and their upstream operation into our network. And so we continue to think that's really a kind of an elegant program, and it's kind of, as I've said before, it's a win-win-win. It's a win for Chevron, win for the farmers, went for the port operators that are being forced into cleaner technologies. And this is a way for them to do it with incentive dollars and still do it at a dramatic discount to diesel, and it's a win for us.

Manav Gupta -- Credit Suisse -- Analyst

Thanks. One last question is, I think yesterday or a couple of days ago, you announced a number of new contracts. If you could highlight which ones you think are the most significant, which are your new customers? So if you could just run us through very quickly that announcement of multiple contracts that you signed?

Andrew J. Littlefair -- President and Chief Executive Officer

Yes. And the reason we did that yesterday was just because it's gotten to be -- it's a nice thing, there's so many different deals on this call, it's kind of a laundry list, gets a little confused. Let me just highlight a couple that I think are important in sort of maybe as a fleet segment. CalPortland, CalPortland cement mixers, very large company, just -- I think they have a fleet now of approaching 220 or 250 mixers in this area. They just signed up for an RNG supply agreement for 150 more ready-mix trucks that will use a million gallons a year. And we're seeing that industry kind of take off a little bit, a little slower, it's a little smaller, but it's very similar to the refuse industry. And now we're working with really all of the largest ready-mix companies, so I wanted to point that one out. The PAC anchor one in the port is a real good RNG. That's -- those are heavy-duty trucks down in the port, and so we're proud of that one.

I think the Biagi Brothers, this is a large liquor distributor, 900,000 gallons, that's using our Zero Now program. But Biagi has customers like Anheuser-Busch and Pepsi, so I wanted to highlight that. And then, of course, we continue with like the city of Pasadena, California, a new multiyear RNG supply agreement for 1.5 million gallons to fuel their fleet of 50 new refuse trucks and transit buses. Those tend to be long term. We have those cities for years and years. And there are several different sanitation districts. You're beginning to see all of the refuse companies in the country, and we're now working with 138 different refuse companies, they're all moving to RNG. And so those would be just some that I would mention. And this one is a good customer, it's part of our postal service.

The mail is moved by a lot of large trucks, right? I think the postal service has -- oh, gosh, hundreds of contractors and it may total 30,000 over-the-road trucks. They have a requirement, it's loosely enforced I would say at the USPS, but that they are encouraging their postal haulers to use lower carbon fuel. And one of the early movers on this has been a trucking company called Matheson. I think the Matheson Family now is up to maybe 35 or 40 tractors. These are really high mileage trucks, 30,000 gallons a year running up and down. And this lane is I think, Idaho, California and all up and down California. And so they just took another 16 tractors that use over 200,000 gallons a year. So I think that's enough, but it gives you a flavor that we're seeing it kind of in all of our spaces in transit, refuse and airports and municipalities.

Manav Gupta -- Credit Suisse -- Analyst

That was a very good response. Thank you for taking all my questions.

Andrew J. Littlefair -- President and Chief Executive Officer

[Indecipherable] Thank you.

Operator

Our next question comes from the line of Craig Sheer with Chilly Brothers. Please proceed with your question.

Craig Sheer -- Chilly Brothers -- Analyst

Good afternoon. Details, it's about details, of course. Could you provide a little color on how you might expect the Amazon related volumes to ramp this year and next? No specifics, but would you expect a relatively smooth or lumpier quarterly growth? And how long might it be until you see the full expected contracted volumes kind of reach their expected limit? And as to the new stations built, I think you had mentioned 100-truck fueling capacity on average a day. When the Amazon agreement is kind of at the full initial expected run rate, would you expect them to consume less than half of the new 100 a day stations or the majority of it?

Andrew J. Littlefair -- President and Chief Executive Officer

Not sure I got the last very part of your question, so you might have to help me on that one again, at the very end. But well, look, I have to be careful here. So we're fueling some Amazon trucks now, right? And then that was from an earlier order. And those -- actually, those trucks are being phased in now. And we're actually fueling those in our network at a bigger number than I have cited today. It's on occasion. We've had a month where we've actually fueled trucks at 37 stations. But the way this will work, Craig, is it's when they get the trucks and when those stations are built. And so these trucks have been ordered, they're being built. They'll be built. The slots are later this summer and early fall. And so you'll see those arrive. And so really, it's commensurate with some of our current stations that are being adjusted to accommodate Amazon and the new stations, it's going to be in the latter part of the year, right?

And then going forward, I just -- I'm going to stay away from that because that gets me into the whole scale. But this is going to play out over time, and I'm thinking over time as we all watch the volumes, you're going to be able to get a sense of just what's going on.

Craig Sheer -- Chilly Brothers -- Analyst

Fair enough. I appreciate that.

Andrew J. Littlefair -- President and Chief Executive Officer

I'd like to -- and then your last question was about the stations.

Craig Sheer -- Chilly Brothers -- Analyst

If we're doing 100, if it's 100 trucks, will Amazon do half of it? Will they be 50 of the 100 million or 70 --

Andrew J. Littlefair -- President and Chief Executive Officer

Well, that's -- I kind of got myself into all of that. I mean some of the stations are being built for 180 trucks. So I just kind of said be thinking of 100 because that gives you an idea of a station that's doing 8,500 a day or 10,000 gallons a day, but some of them are twice that size, OK? So when I was using that 100, I mean, that sort of gives you the idea of a lot of that would be Amazon type demand. And then on top of that, these stations have more capacity, right? We're not mapping. When I use that kind of 100 truck, I mean that station could operate theoretically at 24 hours a day. Now they don't operate that way. So there's plenty more capacity than that 100. Let's just say a station was 100, and it's 100 Amazon trucks. Well, it has capacity to do 100 other trucks or 150 other trucks. So these stations have a great deal of capacity.

Craig Sheer -- Chilly Brothers -- Analyst

On an 11-hour day, it sounds like the new stations will be mostly utilized by Amazon. Is that fair?

Andrew J. Littlefair -- President and Chief Executive Officer

Well, I don't know. It's not an 11-hour fueling day, so I don't -- look, we're building these stations with a fuel coop, a commitment from Amazon that justifies building these stations, all right? So they're not spec, but they do have the ability to be added to, right, by other customers.

Craig Sheer -- Chilly Brothers -- Analyst

Fair enough. I understand it's a touchy subject, and we'll see more in coming quarters.

Andrew J. Littlefair -- President and Chief Executive Officer

Yes. I'd like to say more, but I just -- I think I've said enough.

Craig Sheer -- Chilly Brothers -- Analyst

One other area I'd like to get into and try to understand, kind of hearing from more and more utilities about trying to get into RNG like SoCalGas, for example. And wondering if major utilities start getting into the dairy market, if that kind of throws a bit of a monkey wrench into the supply and demand of projects and also maybe even such a deluge of RNG that isn't hitting your fueling stations, unfortunately, would be going the pipeline network if it's authorized. But that might just swamp the LCFS market. And I wanted to get your thoughts on that.

Andrew J. Littlefair -- President and Chief Executive Officer

Well, the LCFS market is in California, right? And so I don't worry about the utilities that much. I mean, look, utilities are being faced with trying to decarbonize. And so you've heard these things about them, RNG and they're going to flow it into their pipeline system. And boy, it's really been a pilot in nature so far. I mean it's been few and far between and all. And when these utilities do it, often it's in the regulated house and so they're pretty cautious. Sometimes they'll do it in unregulated subsidiaries. But now remember, when you're -- so when you got a utility doing it, they're going to put it into power gen, right? And it's not going to compete in my space, and it brings a -- in California, right? It's substantially cheaper. I mean, what they're being paid for that to make electricity versus the vehicle market, it's dramatically -- getting dramatically less for it.

So I just happen to believe in capitalism and I really think that what will happen is it's going to -- if the demand is there, you're going to see a lot of this want to flow to where it's getting the best price, and that will be in the vehicle transportation. Now you'll have some that could be stranded or some utilities that just need to do this for their particular public utilities commission and their particular needs. But I think there's going to be plenty for everything, everyone. But vehicle fuel is the highest and best use and so that's where it's going to go. And when you see a lack of demand, and all the demand dries up, then you'll see it want to go to the stationary. But that's not as good a place to put it.

Craig Sheer -- Chilly Brothers -- Analyst

Understood. Thank you.

Operator

Our next question comes from the line of Pavel Malchanov with Raymond James. Please proceed with your question. Pavel, are you there? I guess I'm not sure where he is. Our next question comes from the line of Jason Gabelman with Cowen. Please proceed with your question.

Jason Gabelman -- Cowen -- Analyst

Hi, guys. Thanks for taking my question. Do you guys hear me?

Andrew J. Littlefair -- President and Chief Executive Officer

Yes, we can.

Jason Gabelman -- Cowen -- Analyst

Great. I have two questions. First, on the Amazon deal, you mentioned that the deal justifies building the stations and implies you have enough volume committed to fuel trucks to build the stations. But can you talk about if you have commitments to source RNG across the country and what that process is like? And if it's a competitive process? Or do you think there's enough RNG out there and how those contracts, I guess, are arranged to supply RNG into the station. And then my second question is on the upstream build-out. I think you mentioned you're in talks with 25 different dairy projects, seven are in contracting right now. Can you just kind of talk us through what that means from a volume perspective? Anything you could share on indicative economics on those dairy projects?

And then more generally, just discuss what the I guess landscape is right now in terms of building these dairy projects out on the West Coast. It seems like there are a lot of players trying to get involved in the upstream business. So do you see it getting more competitive and getting more difficult to source these upstream projects? Thanks.

Andrew J. Littlefair -- President and Chief Executive Officer

No, you've got a lot of things there. First off, it's not just West Coast, right? So this is nationwide. Upstate New York, Wisconsin. We have a bunch of stuff in Wisconsin. So remember, we've got the pipeline system and that's the beauty of RNG. Unlike some of our friends in the alternative fuel space that talk about building out a hydrogen infrastructure, well, we have the infrastructure. It's already in place. It's all across the country. So it's a matter of charting the pipelines and the pathway from Wisconsin and Texas and to California. We want that dairy stuff to come to California, but there will be a day not too distant when you have other states -- look, New York state and the Northeastern states are looking at a low-carbon fuel standard. So the market is getting ready to open up dramatically. And I might just mention to you, you probably know this, but I learned it a while back so I get to repeat it, but there are 40,000 dairies in the United States.

Now some of them are small, and so they're not the first ones you're going to do, right? And we're targeting those that are larger and they have more sophisticated manure handling operations and because that makes them more efficient. In some ways, it may mean that they -- their carbon profile is maybe not as bad as some guys that don't handle their manure correctly, but you'll be kind of focused on those dairies that are sort of 7,500 and above. There's lots of those. There's lots of competition right now. There's going to be a lot more competition. And for the five billion to seven billion gallons of dairy I've talked about, you need the $50 billion to $70 billion. The economics on that, look, this could change over time. It's about a 3-year, 3.5-year payback, so the economics are good on that. These are long life projects.

And you're going to see these deals where it's very profitable for the farmer, for the dairy owner, and it's profitable for us. And there's enough room in there for everybody down through the system, the fleet operator as well as the fuel provider. Amazon deal, all I'll say on that is the requirement is that the fuel all be RNG, all right? So in terms of a commitment, I guess you didn't say, but a take-or-pay, no, but there is a fuel commitment. But on the RNG side, there's a demand, right, because it has to be RNG. And so I know by what I/we are privy to, based on our deal with them is we have to get really busy developing more and more RNG to satisfy just Amazon and our other customers that want it. There will be hundreds of these projects under way in the next few years. And there's been about 400 projects, dairy projects. A lot of it doesn't go into the vehicle market. And some of them are smaller and some of them are in the stationary.

So this isn't new either. And it's not inexpensive. There's some let's just call it loosely plumbing involved and a gathering systems at the dairies because some of these dairies have two and three different sort of farms associated with them. And then it's the movement over to the interconnect out to the pipeline system. But it's not rocket science, right? In terms of kind of embedded in your questions, well, how do these things -- how does it happen? Well, our most recent ones that took us from introduction to signing, the one that we did, signed this morning, it 75 days. And so we like that. We found a couple of weeks in there that we think next time we can peel off. So that, for a long-term multimillion-dollar project, that seems reasonable to me. That doesn't seem to be too slow, seems about right. Then the construction phase is somewhere between six to nine months, and the longest piece of this is not so much the construction, because that's fairly straightforward.

It's the certification process. It's getting it on production the three-month, the six-month and then the nine-month. Once you get them, you're able to start really generating the credit. So it's an 18-month process, 18 months before you're really able to -- now you can be on production before that, but you're not collecting the certificates until toward the end of that time frame. So that's why it's important to have as many of these projects begin to queue up in the pipeline because they take a while to get on production.

Jason Gabelman -- Cowen -- Analyst

Great. That's really helpful. I appreciate the color.

Operator

There are no more questions in the queue. I'd like to hand the call back over to Mr. Littlefair for closing remarks

Andrew J. Littlefair -- President and Chief Executive Officer

Good. Well, thank you, everyone. I hope the commentary on the Amazon deal maybe brought some more clarity to that exciting opportunity for us. And thank you for listening to the call this afternoon, and we look forward to updating you all on our progress next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Robert M. Vreeland -- Chief Financial Officer

Andrew J. Littlefair -- President and Chief Executive Officer

Eric Stine -- Craig-Hallum -- Analyst

Rob Brown -- Lake Street Capital Markets -- Analyst

Manav Gupta -- Credit Suisse -- Analyst

Craig Sheer -- Chilly Brothers -- Analyst

Jason Gabelman -- Cowen -- Analyst

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