March 2009, Government Fleet - WebXclusive
Budgeting for Today's Fuel Costs
Volatility in gas prices has made creating fuel budgets a tough job. Fleets share their ideas and best practices.
By Mike Scott
Just using the words "budgeting" and "fuel costs" in the same sentence sends shudders down the spines of most fleet or purchasing managers responsible for estimating such costs.
The fluctuations of fuel prices experienced in 2008 - from a high of $4.14 per gallon retail for gasoline to a low of $1.60 in a span of roughly four months - certainly have made estimating fuel costs tougher.
While such a broad range of prices isn't expected in 2009, due largely to the worldwide economic recession currently putting a crimp in demand, expectations are that fuel costs have hit a floor and will rise as the weather warms around the country.
So what's a fleet manager to do?
Saving Money by Hedging Fuel Expenses
Bruce MacLean, fleet manager for Charlotte County Sheriff Office in Florida, doesn't have to worry about fuel costs, although he does budget for the sheriff department's expenses. His department purchases fuel directly from Charlotte County, which secured a fixed-fuel price several years ago as part of a long-term contract that has helped keep departmental fuel costs at comparatively low levels.
With the extreme volatility in fuel prices in 2008, Charlotte County agreed to alter its fixed price costs, mainly so the fuel distributor could stay in business and cover costs, MacLean said. However, even then his department was paying an average of 50 to 70 cents less per gallon than many other governmental entities at the adjusted, non-tax price.
"The adjustment the County made was based on spot prices. This long-term vision our County held dates back several years before I came here," MacLean said. "It has been a tremendous benefit for us, even during these times of [escalating] fuel prices.
In fiscal year 2008, Charlotte County Sheriff Department fleet vehicles were driven more than 6.33 million miles. With the lower fuel costs of the long-term fixed price agreement, the department continues offering its law enforcement officials take-home vehicle privileges, something not possible with higher fuel costs, MacLean said.
"Some departments have had to make much tougher decisions than us, such as eliminating take-home vehicle benefits altogether or limiting the number of miles fleet vehicles may be driven for each shift," MacLean said. He knows of some departments that have required two officers to share one vehicle.
Budgeting a Flat Fuel Rate Provides Cushion
Palm Beach County Fleet Management Division Director Douglas Weichman budgeted $3.50 per gallon for fiscal year 2009 -October 1, 2008 to September 30, 2009. He first submitted a draft fuel budget in March 2008, before the huge upturn in fuel prices last summer and subsequent drop-off in late fall.
This strategy allows him some cushion if fuel prices remain comparatively low for an extended period of time. Weichman's budget was based on predictions of how many gallons will be used in the 12-month span.
The three types and amounts of fuel Weichman purchased in last year's budget included nearly 1.1 million gallons of diesel fuel at an average cost of $3.51 per gallon. In 2009, a large percentage of diesel fuel the County uses will be biodiesel, expected to include more than 3.1 million gallons of B-10 gasoline at an average cost of $3.25 per gallon. In addition, 119,000 gallons of Jet A fuel at an average of $3.35 will be used to fuel helicopters.
One strategy Palm Beach County uses is setting up rates that include a reserve fund. Weichman is currently working on the 2010 budget, and despite the recent plunge in fuel prices, he is considering budgeting about $4 per gallon for all fuels.
"It's impossible to predict fuel costs for a 9-12 month period," Weichman said. "It's better to be conservative."