Chapel Hill Transit could purchase _¶ xed-price fuel

Officials are looking to stabilize Chapel Hill Transit's fuel costs amid swings in prices and an uncertain economic environment.

The free local bus system might start purchasing fuel requirements up to a year ahead of time through fixed-price contracts said Brian Litchfield assistant director of Chapel Hill Transit.

Currently fuel is bought whenever necessary at the lowest cost available.

This change would allow the department to purchase up to a year's worth of fuel at the market price. If gas prices go up the transit authority would be insulated.

Transit providers across the country including Federal Express UPS and most commercial airlines purchase their fuel through fixed-price contracts.

But if the authority buys ahead of time and gas prices continue to drop" it would pay more than was necessary for the same amount of fuel.

""There's a trade-off on this" said Kenan-Flagler Business School professor John Kasarda. They're betting fuel prices will go up and not down. If they go up then the town absolutely wins. If they're wrong" they lose that opportunity cost.""

But cost-effectiveness isn't the only consideration when it comes to shaping Chapel Hill's budget for the coming fiscal year.

The uncertainty and volatility associated with the current recession has made predictability valuable.

Kasarda said many experts are predicting that the recession will continue for another 6 to 12 months. He said he does not expect fuel prices to go up significantly in the next year.

The transit system purchases 600"000 gallons of diesel fuel each year" Litchfield said.

""When we buy fuel off the spot market now" we receive quotes from a number of different vendors and a state contract. We then opt with the lowest cost" he said.

Scott McClellan, general manager of Capital Area Transit in Raleigh, said that so far his staff has not considered purchasing its fuel through contracts.

I suspect that there are risks and opportunities" he said. You may pay at a level more than you would on the spot market" but there's something to be said for having that fixed number in the budget.""

Town officials are currently engaged in risk-assessment and preliminary planning for the contracts" Litchfield said.

The issue will go before the Chapel Hill Town Council on March 9 Litchfield said.



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