The Metropolitan Government of Nashville and Davidson County, TN (Metro), and its area agency partners—including the Metropolitan Transit Authority (MTA) and the Regional Transportation Authority (RTA)—report saving more than $1.7 million in fuel purchases because of a fuel-hedging program implemented 19 months ago.
After having to reduce some bus service levels in July 2008 because of fuel price hikes and volatility on the spot market, MTA sought a way to create budget certainty with regard to fuel prices through the use of commodity hedging. That’s when MTA approached Metro, which agreed to work to create a partnership to facilitate a fuel-hedging program.
“With fuel costs spiraling out of control and the economy in a downturn, it was becoming increasingly difficult for government and agencies to get control of our operating budgets,” said Metro Finance Director Rich Riebeling. “MTA’s request for assistance gave us the impetus to try to do something about it.”
Riebeling and City of Franklin Assistant City Administrator for Finance and Administration Russ Truell, who spearheaded the development of state hedging legislation, oversaw the creation of an interagency agreement between Metro Fleet, Metro Schools, MTA, RTA, and the City of Franklin to begin the program. The partnership currently includes three contracts for gasoline and seven for diesel.
“It had always disturbed me that, other than personnel costs, our single biggest budget item was fuel purchases, and it was uncontrollable,” Truell said. He noted that fuel costs skyrocketed following the 2005 Katrina hurricane; gasoline prices eventually came down, but diesel fuel costs remained high.
“After three years of budget reductions, most government agencies no longer have budgets with any fat in them. And we do not want to be in a position to lay off police or fire department personnel just to purchase fuel as costs continue to rise,” Truell said.
Under state fuel-hedging legislation that passed the Tennessee General Assembly in spring 2009, participants can lock in prices for 24 months forward.
In May 2009, Metro and its partners locked in diesel prices for two years at $1.88 per gallon—saving a combined total of $632,811 in Fiscal Year 2009-2010. During the current fiscal year that began July 1, Metro and its partners already report saving $1.1 million.
Because of the overwhelming success of the program, the partners have signed a new fuel-hedging contract, effective July 1, 2011, that locks in prices at $2.30 per gallon through June 30, 2112.
“This is a great success story and an example of government working effectively on behalf of taxpayers to save money and operate more efficiently,” said MTA Chief Executive Officer Paul Ballard. “We see the hedging program as insurance for the unexpected. It mitigates the necessity to reduce services when fuel prices rise dramatically on the spot market and budgets are tight.”