Example: School District XYZ Fuel Budget for 2011 – 2012 Fixed Price for 2011 – 2012 Volume Hedged
Month
September October
November December January February March April May
$3.40/gal $3.20/gal
30,000 gal/month
Volume (gals) 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
HOW IT WORKS NOTE: A financial Fixed Fuel Hedge does
not affect the physical delivery of fuel. Te customer continues to purchase fuel from their physical supplier of choice. Te components of a Financial Fixed
Fuel Hedge are very straight-forward: 1. Te fixed price is based on the antici-
pated future price of fuel, as established by a recognized market such as NYMEX (New York Mercantile Exchange). 2. Te customer decides how much of
their fuel volume they want to hedge and “locks-in” a fixed price when that price meets their criteria. 3. When the average market price of
fuel for a given month is above the fixed price, the customer is paid the difference. When the average market price of fuel for a given month is below the fixed price, the customer is invoiced for the difference. While the example chart above illus-
trates the mechanics of a fuel hedge, it is important to understand that the decision to hedge this school district’s fuel would be based on the fact that the fixed price ($3.20/gal) is below their budget of $3.40/ gal. So, when operators “lock-in” that price, they are guaranteed to be 20 cents per gal- lon under their budget, regardless of what happens in the market! Tis is the real goal and benefit of fuel hedging…budget sta- bility and budget certainty. ■
Ricks has more than 25 years of experience in the energy industry and is the energy contract manager for Te Cooperative Pur- chasing Network (TCPN). TCPN is a national governmental purchasing cooperative which competitively bids and awards contracts to vendors. Contracts are available for use by public and private schools, colleges and universities, cities, counties, non-profits and all governmental entities. TCPN currently of- fers fuel hedging services through its contract with Aegis Fuel Solutions.
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Fixed Price $3.20 $3.20 $3.20 $3.20 $3.20 $3.20 $3.20 $3.20 $3.20
Market Price $3.40 $3.45 $3.50 $3.40 $3.35 $3.20 $3.15 $3.10 $3.05
Pay to XYZ $6,000 $7,500 $9,000 $6,000 $4,500 $0
Invoice to XYZ
$0
$1,500 $3,000 $4,500
www.TransTechs.com 888-637-3776
www.stnonline.com 39
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