Management & Operations

Rising fuel prices pinch agencies, spur creative measures

Posted on August 1, 2005

U.S. transit systems are taking a wide range of actions to deal with rising diesel fuel prices, including considering cutting service and laying off staff members. Fuel increases could cost public transportation systems as much as $750 million more a year, according to a recent Associated Press report. Systems such as the Utah Transit Authority (UTA) are also considering adding fuel surcharges. The authority is currently spending more than $3.50 a gallon for diesel fuel — nearly $1.50 more per gallon than it had anticipated. Hoping to make up for a $2 million shortfall, the UTA was proposing a 25-cent-per-ride fuel surcharge at press time. Other transit properties around the nation have taken hits to their budgets due to skyrocketing fuel prices, including Albany, N.Y.-based Capital District Transit Authority, which expects to pay $900,000 for fuel in the third quarter. The Massachusetts Bay Transportation Authority projects a $20 million surge in fuel costs this fiscal year, double what it had projected earlier in the year. In Denver, the Regional Transit District is expecting to be $11 million over budget for the year. Agencies are not just sitting back with their hands tied, however. Since the end of last year, for example, the Southwestern Ohio Regional Transit Authority (SORTA) in Cincinnati has taken steps to aggressively manage its fuel budget through innovative methods. In addition, SORTA has been able to offset fuel increases through internal cost reductions that don’t affect service on the street or fares. In December 2004, SORTA secured a fixed-price contract for 2005 to purchase half of its fuel each month at about $1.25 per gallon, compared to open market prices of about $2.60 per gallon. It is estimated that this contract alone has saved the agency about $800,000 so far this year. SORTA monitors fuel prices several times a day and has options for the remaining half of its fuel, including purchasing on the open market or under a state contract, whichever is less expensive. Also, SORTA is currently considering diesel futures as a way to hedge against market volatility. The biodiesel solution
In late September, the state of Minnesota passed legislation requiring all diesel fuel sold in the state to be mixed with at least 2% biodiesel, a soybean-based fuel with cleaner emissions. This landmark law speaks to the rise in popularity of biodiesel as a viable alternative fueling option. However, with the meteoric rise of diesel prices, biodiesel now also serves as a legitimate way to reduce costs. SORTA has been operating its 390-bus fleet partially on soybean-based biodiesel for several months. The agency was recently designated as a “blender” by the IRS, which means that it is permitted to mix biodiesel and regular diesel fuel in its own tanks and is eligible for a credit on the cost of the fuel. Biodiesel costs about $3 per gallon, but the agency gets a $1 per gallon credit from the IRS due to the blender status. Since biodiesel can be mixed with diesel fuel in varying percentages, the amount of biodiesel that SORTA uses changes based on availability and price of diesel fuel.

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