Press release from the City:
City participating in fuel hedging program as buffer against gas price volatility
Looks to expand participating in statewide program for 2010
Before taking office Jan. 1, 2008, Fort Wayne Mayor Tom Henry pledged to have the City of Fort Wayne participate in more joint purchasing efforts to help tax dollars stretch further.
For gasoline purchases, Mayor Henry has followed through on that promise by participating in the State of Indiana Bond Bank’s fuel-price hedging program as a way to safeguard the City budget against price volatility.
“Fuel hedging is essentially an insurance policy for the City’s budget, protecting us against unexpected price jumps that can wipe out even the best-planned fuel budget,” Mayor Henry said. “We can effectively estimate how much gasoline we will need in a given year, but the varying price can make it difficult to create an accurate budget. This tool allows us to reliably plan expenditure, not just use, and ultimately protect Fort Wayne’s taxpayers.”
Fort Wayne is one of six Indiana cities participating in the program. The City’s contract runs from June 1 to Dec. 31 of this year. The City has a monthly administrative fee that is added on as a per gallon fee. For the month of July, Fort Wayne paid an extra 7 cents per gallon to cover the costs of the program.
The 2009 contract covers 65 percent of the gasoline the City purchases – 262,000 gallons – either from the City’s existing wholesaler or retail outlets. It sets a ceiling of $2.05 and a floor of about $1.70 for the price per gallon. The City is currently paying about $1.95 per gallon plus the program fee for gas. The City does not purchase the gasoline through the Bond Bank.
If the price goes above the price cap, the Bond Bank covers the difference through “swap dealers,” commodities’ traders who use the futures markets. The cost difference does not come from Indiana taxpayers.
Fort Wayne and the State have worked with Maverick Energy Consulting to participate in this new program.
“By taking advantage of the IBB’s hedge program, the City can pool their gasoline purchasing power with other governmental entities across the state to efficiently participate in a program that protects Fort Wayne and other participating municipalities from dramatic price increases,” said Maverick Energy’s John Righeimer. “By participating in the program for the full fiscal year beginning Jan. 1, 2010, thereby reducing price escalation risk for an entire year, the City of Fort Wayne is protected against oil and gasoline prices increases in 2010 as compared to today’s prices.”
The City looks to expand its participation in the program for 2010 to include a larger percentage of gasoline purchases and potentially diesel fuel. The IBB’s program may also include other entities such as schools for next year.