Are you ready for $5 gas? How about $3.50 this weekend?
Gas prices, up about 35 cents a gallon in the past week and 60 cents since December, continue to climb across the country and in Middle Tennessee, which is about 10 cents below the national average.
“It’s uncertain how the turn of events in the Mideast will unfold and therefore it’s hard to forecast how retail gas prices will be affected, whether they will continue to rise or if consumers can expect a break anytime soon,” says Jessica Brady, a spokesperson for AAA.
With no relief in sight – and many experts predicting $5 gas in 2012 – drivers are doing what they can to offset fuel costs. So is Metro.
After getting burned by fuel prices in 2008, the Nashville Metropolitan Transit Authority, Regional Transit Authority and the Music City Star as a group began looking for a way to help stabilize their fuel budget. And for a group that uses 1.7 million gallons a year, price increases can destroy even the most cautious budget.
So in 2009, the coalition entered into a gas-hedging program with Metro Nashville Public Schools, Metro Nashville’s fleet of service vehicles and the city of Franklin.
“Basically, it is a financial instrument,” says Ed Oliphant, chief financial officer of MTA and RTA. “We are not doing fixed price contracts. We are not going out and saying ‘Mr. Supplier, if we promise to buy a million gallons will you sell it to us at this price?’
“It is a financial instrument where we go out and lock in a contract price, and you can buy as many contracts as you want.”
Each contract represents 42,000 gallons of fuel per month. With Fifth Third as the acting bank in the process, the group was able to enter into seven contracts of diesel for $1.88 a gallon and three contracts of regular unleaded, for $1.82 a gallon.
“If you are real gambler, you would get contracts for all the gas you need. But most people are not, and I am not,” Oliphant says. “You only hedge 70 or 80 percent. The risk you are taking is, what happens if gasoline goes down to one dollar? I am still locked in at a $1.88.”
The contract expires June 30, at which point the price is determined by the market. And that means they might take some time off from the program if it seems prices could go down.
“We look at it as an insurance policy,” Oliphant says. “We are buying these contracts to stabilize the budget. We went into our budget process for the year we are in right now, knowing our diesel price was going to be a $1.88. It would be off a little bit if prices went way high because we only hedged 80 percent. But for the most part, we knew exactly what our price was going to be. We don’t want to be at the mercy of gas prices to determine what our service is going to be.”
Metro Schools also have benefited from knowing more accurately what their fuel costs are going to be when creating a budget, but the rising prices affect much more than the 650 buses they have on the road every day.
“Not only is it gas for our vehicles, but it affects our utility costs, too,” says Olivia Brown, director of communications for MNPS. “If costs go up, it goes up for all the different people who provide services to us. But it did help to be able to provide better planning for budgeting for fuel costs.”
In fact, by the time contracts need to be renewed in July, Oliphant estimates savings to be well over $2 million. “Through January, the program has already saved the group $1.7 million dollars,” Olyphant says.
And while small businesses owners like Dalton Quigley of Quigley’s Landscaping doesn’t use millions of gallons of gas each year, he still looks for ways to cut costs on the $350 he usually spends every month. And he begins by being choosy where he shops for work supplies.
“I do a lot of purchasing of my supplies from Home Depot because they offer a rewards card,” Quigley says. “Lowe’s doesn’t offer the card, so I purchase as little as possible there.”
With points he earns on his rewards card, he was able to save 20 cents a gallon when he filled up at Home Depot in Franklin off Moore’s Lane. He also takes advantage of Kroger’s similar program.
At work, he is more conscious of turning off landscaping equipment when it is not in use. And when he fills up, he may get a little extra when he finds gas at a reasonable price. He just stores it in a five-gallon container in his truck.
“I just buy gas when it is cheaply priced as I need it,” he says. “If it goes up, I might rely on my five-gallon tank a little more.”