Fuelling York Region's fleet not much cheaper, despite low gas prices

YorkRegion.com
Jan. 13, 2015
Lisa Queen

With gas prices below 90 cents a litre compared to the $1.36 you were shelling out just six months ago, you can decide whether to use the savings to pay off debt, invest, buy something practical or blow it on some fun purchases.

Surely, finance officials and politicians at York Region are just as eager to figure out ways of enjoying their windfall, especially since the region spends more than $20 million a year to fuel its public transit fleet, trucks, police cars and ambulances.

Turns out, it’s not that simple, according to Ed Hankins, director of the region’s treasury office, and Richmond Hill Councillor Vito Spatafora, chairperson of the region’s transportation committee.

To provide more budgeting stability, the region pre-purchases or “hedges” 80 per cent of its fuel, so those costs are set and don’t fluctuate on a daily basis the way they do for the average motorist at the gas pump, Hankins said.

“Eighty per cent is fixed and in the past, that has worked out well for us” when fuel prices have been higher and the region has pre-purchased at a lower cost, he said.

Regional vehicles rely predominantly on diesel, which can cost 15 cents more a litre than gasoline.

The region’s hedged cost for diesel is now at $1.16 a litre, but works out, after a fuel tax rebate, to a bottom line figure of $1.04 a litre.

The other 20 per cent of the region’s fuel costs is for gasoline used, for example, in York Regional Police cruisers.

Any savings from lower prices at the pump go into a reserve fund to offset the future cost of fuel when it rises, Hankins said.

Spatafora said he questioned if the region would benefit from plummeting global fuel costs, but acknowledged the 80 per cent hedge program limits possible savings.

“Hedging is something municipalities with large fleets get into, he said.

“We’ve enjoyed our savings when gas prices were higher but because we’re in a contractual agreement, you can’t opt out of it because it’s not in your favour.”

Meanwhile, while motorists are happily filling up at prices that haven’t been seen at the pumps since early 2009, Spatafora doesn’t think the lower prices will last forever.

“The problem with this situation, this is an artificially imposed savings because the demand hasn’t dropped. What has increased is the supply,” he said.

“There are political and economic reasons to do that. It’s a matter of time until they’ve achieved what they wanted. That will cause the cost to go up.”

Falling prices have been attributed to increasing U.S. oil production and the oil cartel OPEC (Organization of the Petroleum Exporting Countries) deciding not to cut production as a way to keep prices higher.

When prices rise, the region will benefit again from hedging, Spatafora said.