TARC Gets Slammed By Diesel Prices

Remember back in the summer, when TARC fares increased? And TARC officials looked, well, kinda smart for locking in a new diesel contract given that crude oil prices seemed to be going nowhere but up? Well, that’s all over now. The Courier-Journal reports this morning, in the top article on the front page, that TARC is getting hammered by these same contracts, now that the price of diesel has fallen:

With diesel prices hovering at $4.75 a gallon, the Transit Authority of River City in late July locked in a supply contract for $3.92 a gallon.

At the time, TARC officials breathed a sigh of relief “because of the volatility of prices. It also assured us of an adequate supply,” Barry Barker, TARC’s executive director, said last week.

But as the U.S. economy has slowed and demand for fuel has declined, the price of diesel has dropped to about $3.20 a gallon on the open market.

And what once looked like a good deal for TARC is now an iron-clad contract that could end up costing the agency — and its bus riders — $1.75 million more than might be paid by buying on the open market through next July 31.

To help cover its higher fuel costs, TARC raised its base fare 25 cents to $1.50 on July 1, and in August, cut service on a dozen routes.

The article goes on to give comparative fuel rates for other local government agencies, which is actually pretty interesting:

Not all Louisville area agencies that use a lot of fuel have been hit by the higher prices as hard as TARC, which usually uses about 2.6 million gallons of fuel a year in its 358 vehicles.

Louisville Metro Government uses about 600,000 gallons of diesel fuel and about 210,000 gallons of unleaded gasoline a year, said city spokeswoman Kerri Richardson.

She said the city is near the end of the fourth year of a five-year contract with Thornton Oil; the fourth year of the deal ends Dec. 31, and the contract will be put up for bid after the fifth year.

Under the contract, the cost to the city per gallon is based on a formula that is tied to the fluctuating retail pump price.

The city last week was paying $2.65 a gallon for unleaded gasoline and $3.02 a gallon for diesel fuel, Richardson said.

The city gets a discounted rate per gallon and doesn’t have to pay gasoline tax.

Indicative of the recent sharp drop in prices, the city paid an average of $3.60 a gallon for diesel during September, Richardson said.

The Jefferson County school system’s cost of diesel fuel changes almost daily. It was paying just $2.55 a gallon for diesel fuel on Thursday, said Mike Mulheirn, the school system’s executive director for facilities and transportation.

The schools pay a rate that is tied to the daily diesel-fuel rate published every morning by the Chicago Mercantile Exchange. The supplier can charge a markup of up to 24.5 cents per gallon. The school system is also exempt from fuel taxes.

The district just renewed a contract and has a new one-year deal through next October with Heritage Oil, based in Western Kentucky.

Otherwise, there isn’t much to say other than hindsight is 20/20. It’s doubtful that anybody really anticipated oil prices dropping to the level that they have.

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