Thursday, September 18, 2008

Transit Wednesday - fuel costs

See updated appendd at the end for further information on this post

I pointed out in the past how the Port Authority must be bringing in additional revenues from all the new riders of late, yet has not had to suffer the worstof the highest fuel costs because they contract annually for fuel. They have reported that their 2009 diesel price will be $4.15/gallon, up from $2.28 in 2008. When looking at those prices realize they pay wholesale prices and don't have to pay most taxes on their fuel purchases. So even though fuel costs have shot up, they have not borne the brunt of those increase over most of the last year. Of course those long term contracts end and they recently had to renegotiate their deal for diesel.

So since the Port Authority goes to so much more expense and effort to post a "rumor of the day" online vice putting up useful information like their fuel contract information I will pose this as a question for someone to ask:

Did the port authority lock in diesel prices at the very peak of the market, ensuring that they will be paying the highest prices for the entire coming year?

Oil has come down 33+% recently. If ridership gains unwind then will they be hit from both sides and not have the revenue gains as well? Could be ugly.


Update September 19th... The Port Authority has told me the following that relates to the above:

Typically, Port Authority purchases its fuel under long-term (approximately 2-year) contracts, butdue to the market volatility of this past Summer, Port Authority enteredinto a relatively short six-month fuel purchase agreement for its dieselfuel supply. The contract provides for the purchase of approximately90% of the Port Authority's diesel fuel at $4.15 per gallon. Theremaining 10% is purchased on a spot-market basis at daily market rates.The contract expires at mid-December, and before its expiration PortAuthority will attempt to lock-in a longer term contract at theprevailing market rates

So maybe it's not as bad as it seemed. I would add that I got some of my information from this Pitt News article which was pretty clear and explicit quoting the Port Authority that the $4.15 price was for 2009, not the latter half of 2008. But dealing with media queries enough myself, I am more than willing to accept that something was just lost in translation. If someone meant 'half of a fiscal year' then you need to explain that to a reporter who would not assume that is what '2009' means.


Blogger Unknown said...

Let say they locked in during July. Last year diesel was roughly $2.90 and they bought it for $2.28. This year it was about $4.70. and they locked in at $4.15 (data from The savings per gallon is actually fairly close in both years. So to answer your question I don't think they tried to over pay for diesel. They ended up buying it at the worst possible time. Although I don't remember analysts talking about a sudden drop in oil prices. Another question worth considering is if spot prices affect long-term contracts why not agree to contracts in February?

Thursday, September 18, 2008 9:39:00 AM  
Anonymous Anonymous said...

I've been curious to know if the Port Authority is making a conscience effort to reduce their fuel consumption. I always see their maintenance workers leaving the engines of their trucks running when they are outside doing work. Seems kind of wasteful to me, especially when the Authority markets itself as a "green" alternative to driving.

Thursday, September 18, 2008 2:09:00 PM  
Blogger C. Briem said...

I'm not suggesting it would be their 'fault'.. in all such markets, few should be trying to time the market. but for whatever reason I am a bit curious whether they did buy at a bad time and what it could mean for their cash burn rate.

Thursday, September 18, 2008 5:03:00 PM  
Blogger A Son of the Greatest Generation said...

Port Authority vehicles are set to a 15 minute time limit to automatically shut off

Saturday, September 20, 2008 3:08:00 PM  

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