Town of Chapel Hill North Carolina Executive Summary

TOWN OF CHAPEL HILL
NORTH CAROLINA

EXECUTIVE SUMMARY

Meeting Date: 2/8/2010
AGENDA #5e


Title of Agenda Item: Authorize Fuel Contract for FY 2010-11. (R-5) Council Goal 5: Improve Town's Fiscal Condition.

Background: Purchasing over 600,000 gallons (over 10% of Chapel Hill Transit's total budget) of ultra low sulfur diesel fuel per year, CHT is one of the largest diesel fuel users in the Triangle. As approved by Town Council, CHT purchased two fuel contracts in 2009, one for March 2009-June 2009 and one for July 2009-June 2010. The March 2009-June 2009 was for 208,000 gallons at $1.424 and the July 2009-June 2010 was for 600,000 at $1.688 per gallon. The average spot market price for March 2009-June 2009 was $1.54 per gallon and it has been $2.02 per gallon for the July 2009-June 2010 contract (to date). CHT has taken nearly 70 fuel deliveries using fuel contracts and over 91% of the time the contract price has been lower than the spot market price. CHT has saved over $135,000 using fuel contracts (spot market v. contract) and over $1.8 million (budget estimates v. contract). CHT competitively procured each of these contracts in the same manner it seeks competitive quotes when it purchases single deliveries of fuel off the spot market. Payment for these contracts is upon delivery and delivery can be taken throughout the period of the contract.

Fiscal Note: The U.S. Energy Information Administration (EIA) expects that the price of crude oil, which averaged $62 per barrel in 2009, will average about $80 and $84 per barrel in 2010 and 2011, respectively. The EIA expects that escalating crude oil prices will drive the annual average diesel fuel retail price to around $2.98-$3.14 per gallon, for 2010-11. Price volatility is expected to continue throughout 2010 and 2011, with a higher probability of increases than decreases. The draft FY10-11 budget is projecting an average cost of $3.40 per gallon for diesel fuel. Entering into a fuel contract for FY 2010-11 will provide substantial savings for the next budget year.

Recommendations: That the Council adopt the resolution authorizing the Town Manager to enter into a fuel contract for FY 2010-11.

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Resolution