RTC may ‘hedge’ purchases of diesel gasoline for buses

Stephen Curran

Friday, April 15, 2005 | 10:01 a.m.

The Regional Transportation Commission can expect the diesel gasoline that keeps its buses running to take a bigger chunk out of next year's budget, the agency's chief financial officer said Thursday.

The RTC is expected to decide May 19 whether it wants to "hedge" its gasoline purchases for next year, meaning commissioners lock in a specific per-gallon price for a volume purchase in hopes that price will remain below rising fuel prices, Terry Cordell, the RTC's chief financial officer, said.

It's a gamble that could mean a seven-figure windfall for the county agency if diesel fuel prices continue to rise, in which case Wall Street bankers pay the RTC the difference in prices, Cordell said.

But if prices go down, the RTC will be stuck paying higher than necessary prices for the contracted amount of fuel.

The agency last year locked in a price with contractor Rebel Oil at $1.06 a gallon, a buy that has netted more than $1 million for the RTC over the past 12 months, he said. The agency has taken advantage of the process for the last three years, each of which has been successful.

The exact figure is based on a national index price largely contingent on how much gasoline that commissioners expect to use each month. Cordell estimates the RTC would lock that price in for between 400,000 and 500,000 gallons of gasoline a month.

If commissioners, who make the ultimate decision whether to buy at the offered price, opts out of hedging its gas prices, the RTC's exact outlay would be more contingent on fluctuations in prices, Cordell said.

The decision is made in a public meeting within a matter of seconds, he said.

It was unclear Thursday whether the RTC opt out, even as such a bargain looks unlikely this year. Cordell said he is bracing for a price to fall between $1.35 and $1.40 a gallon, although the exact price would vary widely heading into next month.

That price, which is offered but is usually only good for less than a few minutes, would then be set for a year. Cordell said he would not have a "ballpark" idea where the price would be set until about a week before the public hearing.

"As we approach that point, we'll be looking at the strike price and what it's hedging at," Cordell said. "... They (the commissioners) are not afraid to say yes or no."

The portion of money set aside by the RTC for fuel has steadily increased for the past several years, he said. Next year, gas is expected to account fo $9.8 million of the roughly $135 million budget, up from the $8 million budget for this year.

That figure was purposely set high to account for radical fluctuations in price, Cordell said.

The increase is not enough for the RTC to begin weighing potential cutbacks to existing service, Ingrid Reisman, a spokeswoman for the commission, said. While still a significant amount of money, that figure is far lower than the portion allocated for buying new equipment, she said.

"It's one of the less expensive parts of our operation," Reisman said. "Having money to purchase more vehicles and putting more service out there has been the issue for some time."

The RTC owes much of its financial stability to the $2.7 billion Question 10 tax package passed by voters in 2002, Cordell said. Those funds have been used to offset costs in a variety of purchases, from right-of-way for new roads to new buses.

Budget shortfalls in the late 1990s prompted the RTC to cut back on a number of the system's routes, a wound further aggravated by instability following the Sept. 11, 2001, terrorist attacks.

Those cutbacks made the RTC more conservative in planning expansion to existing routes, Cordell said.