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The Source for Public Transportation News and Analysis April 22, 2011
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Public Transit Agencies Confront Rising Gas Prices; Cope Through a Variety of Methods
BY SUSAN BERLIN, Senior Editor

As gasoline prices shot upward this spring and automobile drivers are turning (or returning) to public transportation, the question for many transit agencies is how to deal with possible increases in their own fuel costs. How they are handling these increases shows an array of planning approaches, highlighting the concept that one size (or one approach) doesn’t fit all. And sometimes, unfortunately, no amount of planning can accommodate this unexpectedly high and rapid increase.

Not uncommonly, a number of agencies reported seeing their fuel prices jump by $1 per gallon in the past year. 

For example, Lane Transit District (LTD) in Eugene, OR, described how its fuel costs rose by about 45 percent during the current fiscal year, leading to a drain of $945,000 from its operating budget. The agency has sufficient funding reserves for the current year to cover the larger expenditure without budget cuts or fare increases.

However, according to LTD General Manager Mark Pangborn, as his agency looks toward the future, “the precipitous rise in fuel prices will mean that a small amount of available resources, being generated through a sliver of economic recovery, will go toward buying fuel rather than restoring services or addressing other critical budget needs.”

Another agency dealing with this situation is Long Beach Transit (LBT) in Long Beach, CA, where the per-gallon fuel cost rose by more than a dollar compared with the previous year: an increase of about 50 percent.

“We have an operating budget of $74 million and consume about 13,000 gallons of unleaded fuel per day and about 5,000 gallons of diesel fuel per day. That equates to an additional cost of about $18,000 per day,” said Marcelle Epley, senior vice president and chief administrative officer. “Annualized, that’s an additional cost of between $2 million and $2.5 million, or a 3 percent increase in the operating budget for the company over last year’s budget.”

A continued rise in fuel prices, she added, would force LBT to “raise fares and/or cut service at a time when the buses are already overcrowded and we are trying to attract people to use public transit.”

Monterey-Salinas Transit (MST) in Monterey, CA, cited a 60 percent jump in its fuel prices over the past year, from a low of $2.29 per gallon to a high of $3.70 per gallon. MST budgeted $3.15 per gallon for the year, according to General Manager/Chief Executive Officer Carl Sedoryk, but its costs began exceeding budgeted amounts in January. Next year’s budget provides for $4 per gallon—a $600,000 impact.

“In just one year, this single line item in the MST budget will rise from representing 7.5 percent of total expenses to over 10 percent of total expenses,” Sedoryk said. “While MST has seen about a 6 percent increase in passenger boardings since the rise in fuel prices at the beginning of the calendar year, the revenue generated from increased passenger fares is not sufficient to cover the rapid rise in fuel costs.”

As federal funding levels remain stagnant and the agency faces a potential net loss of state funds, he said: “The increased cost of fuel comprises about 25 percent of our projected deficit for the coming year. MST staff are viewing service reductions to balance our budget, which is unfortunate at a time when we seeing increased demand for our services largely due to the high costs.”

CityLink in Peoria, IL, noted that it has seen per-gallon price increases of 33.5 percent for gasoline and 38.7 percent for diesel fuel, but said its finances are currently in good shape. The agency’s fuel costs were below budget early in the year and over budget now, according to Assistant General Manager Rick Tieken, but the agency expects the final figure to be close to the budgeted amount when the fiscal year ends on June 30.

“We all take our best educated guess as to what’s going to happen, but no one really knows” about future fuel costs, Tieken said. He explained that CityLink contracts for half its diesel fuel and half its gasoline (used in support vehicles and some cutaway paratransit vans) on a six-month basis while paying market rates for the rest of its fuel. The current fuel contract, which runs from April through November, begins with per-gallon prices of $3.028 for diesel and $2.20 for gasoline and increases to $3.084 and $2.27 respectively.

Tieken also noted other ways that CityLink is dealing with its fuel usage—specifically that the bus fleet shows an 8.5 percent increase in fuel economy since it began operating with a premium diesel blend. “We were hoping to get a 3 percent improvement,” he said. “We told our board of directors that the test program for this fuel saved us $12,000 in March.” Another conservation effort he mentioned is possible implementation of a no-idle policy that he said “will save some money as well as lessening air pollution and noise.”

Locking in Prices
In Tampa, FL, the Hillsborough Area Regional Transit Authority (HART) reported that—thanks to a fixed price contract that provides fuel for about $2.30 per gallon—the agency reached the highest ridership levels in its history during March 2011: 1.2 million, 14 percent higher than the same month in 2010 and the 13th consecutive month of providing more than one million rides.

Spokesperson Marcia Meija said HART expects the fuel price contract to save it more than $1 million in Fiscal Year 2011. The agency is working its way through the budget process for 2012 and 2013, she said, determining how much to set aside for fuel costs.

METRO Regional Transit Authority in Akron, OH, reported that it also benefits from locking in a fuel price at the beginning of each year but, according to spokesperson Molly Becker, “next year could be a different story.”

She continued: “At the end of each year, METRO locks in its diesel fuel price for the next year on a firm-fixed basis …. If fuel prices reach a prohibitive level, METRO is in a position to avoid cuts in service. Funding earmarked for growing our services could be used to offset a dramatic increase in fuel costs.”

The Greater Cleveland Regional Transit Authority (GCRTA) takes fuel hedging to another level by purchasing fuel futures on the market for up to 36 months in advance, then using the monthly realized gains from those futures to offset the actual diesel costs.

“This is not speculation,” said GCRTA Chief Executive Officer and General Manager Joseph Calabrese. “We do not keep the profits, but use them to the benefit of taxpayers, lowering fuel costs, and we only purchase futures for up to 90 percent of the diesel we project to actually use …. We feel we’ve properly hedged in the market and will therefore not see a large budget hit like we saw in 2008.”

Budgeting Ahead
Other transit agencies did not lock in fuel prices, but provided for potential price increases in their budgets. The South Florida Regional Transportation Authority (SFRTA)/Tri-Rail in Pompano Beach noted that this strategy resulted in only a minor impact on operations despite its fuel costs increasing from $2.85 to $3.19 a gallon over a five-week period.

Spokesperson Bonnie Arnold said the agency will be able to maintain service at current levels into next year because of available reserve funds. “We currently have budgeted $2.55 per gallon through the end of the current fiscal year on June 30,” she said. “For next year, we’ve budgeted $3.50 a gallon. If the price goes above that, we’ll still be all right because we have reserves put aside as part of our budget.”

CNG Not Affected
One segment of the public transportation community is unaffected by fluctuating gasoline and diesel fuel prices: those whose bus fleets operate, completely or primarily, with compressed natural gas. Los Angeles Metro and the Sacramento Regional Transit District are among the larger transit agencies who use CNG.

Los Angeles Metro noted that—because CNG is cheaper than diesel and the supply is more stable because the fuel is produced domestically—its fuel costs have actually decreased. The agency also engages in price hedging, locking in a long-term rate for most of its fuel purchases.

“The impact of these cost increases is minimal because the agency started purchasing alternative fuel vehicles in 1991,” said Los Angeles Metro spokesperson Rick Jager. “If we did have to deal with spikes in the cost of CNG, we’d take measures in terms of trying to control costs or deferring some programs, trying to maintain same level of service—but there is no indication the prices for CNG are inching upward.”

Service Remains Top Priority
Despite the strains that increased fuel prices have placed on public transportation, agencies agree that they have the responsibility to continue to offer the best possible service to meet the needs of their customers.

“Our top priority is to maintain the transit footprint as best we can and maintain our level of transit as best we can,” said HART’s Meija. “We’ll try to do that within any necessary budget restraints.”

CityLink’s Tieken agreed: “We’re doing everything we can to be good stewards of the taxpayers’ dollars. We have a whole fleet of new buses on order and they’re going to be even more environmentally friendly and fuel-efficient than our current fleet.”

SFRTA’s Arnold summed up: “The situation is so critical. We’ve got to keep the trains running because people need them now more than ever—and it looks as if we’ll be able to maintain the service we’re currently operating.”
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