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Continued: Minnesota governments unite to lock in fuel prices

Following a year in which fuel prices reached historic highs, more than 30 metro-area cities, counties, school districts and state agencies have banded together to purchase more than 5 million gallons of fuel next year in a move that will lock in lower prices and reduce their fuel bills by hundreds of thousands of dollars.

Prices in the contracts range from $1.439 for gasoline to $2.31 for premium diesel, below recent market averages in the metro area. Savings from the new contracts come at a good time for the agencies, since many will be hit with cutbacks in state aid payments.

"I'm convinced we haven't seen anything yet," Ryan Schroeder, Cottage Grove's city administrator, said of the municipality's effort to keep itself in positive budget territory given the expected decline in state aid. The new contract will save the city about $250,000 of the $600,000 it budgeted for fuel in the coming year.

Local governments nationwide have been burning through their fuel budgets because of surges in oil prices the past two years. Many have turned to buying larger volumes of fuel earlier in hopes of seeing stability and savings in the next budget year. In the east metro, efforts to reduce consumption -- no-idle policies, purchasing more fuel-efficient vehicles and drawing more efficient vehicle routes -- are also in place.

The new metro-area contract, completed Dec. 17, guarantees that participating local governments will spend about $4.2 million for gasoline and about $5.5 million for all diesel blends. Without the contract, local governments would pay substantially more if fuel prices shoot upward again.

"It helps them with budgeting," said Jim Schwartz, a spokesman for the Minnesota Department of Administration, the agency that coordinated the bulk buy. "The price they were able to lock in should at least help people, and for sure they'll know what they'll be paying for gasoline for the next year."

Prices of fuel -- purchased throughout 2009 from wholesaler Hartland Fuels in Inver Grove Heights -- vary according to volume. Minneapolis will buy the most gasoline at 831,600 gallons. Other heavy hitters include Hennepin County, the University of Minnesota and the Minnesota Department of Transportation.

In the east metro, Washington County contracted to buy 158,520 gallons of gasoline. Dakota County will buy 129,000 gallons. Cottage Grove will buy 66,000 gallons while Roseville will buy 40,000 and Stillwater 24,000.

For diesel, Minneapolis again leads the pack with 364,800 gallons. MnDOT, Hennepin County, Southwest Transit and the Rosemount School District also bought amounts that exceeded 100,000 gallons.

Other east-metro governments taking part are the cities of Burnsville, Eagan and Inver Grove Heights, and two school districts, North St. Paul and South Washington County.

All the fuel in the contract comes from local producers Marathon Oil and Flint Hills refineries, said Jack O'Brien, sales manager for Hartland. Locking in prices makes sense because of a "very volatile" fuel market, he said.

Other local east-metro governments, such as St. Paul, Ramsey County and Woodbury, have formed their own consortium. St. Paul locked into the contract for 2009 a couple of months ago, said Margaret Kelly, the city's finance director.

The city will pay $2.75 per gallon of gasoline -- about 13 cents less than this year -- and $3.42 per gallon of diesel, she said. The amount of fuel the city contracted for -- 1.2 million gallons -- didn't change between 2008 and 2009.

Admittedly, that's not much of a savings when prices at the pump hover around $1.60.

"The advantage for us is we have a stable price and will be paying less next year than we're paying this year," Kelly said. "We're going to realize a savings, but there are people who are disappointed that we didn't lock in at the absolute bottom."

She said cost savings are estimated between $100,000 and $200,000.

"I don't think anyone could have projected the price of oil would go this low," Kelly said.

In Roseville, Duane Schwartz said he expects to save at least $60,000 through his contract purchase, which is 75 percent of what the city projects to use in 2009. The city will spend $1.45 per gallon on gasoline and $2.06 on diesel, said Schwartz, the public works director. The city will take its chance on the open market during winter when prices generally are lower and then begin using the contract fuel in spring.

In Dakota County, the deal could cut next year's fuel budget by $500,000, said fleet manager Kevin Schlangen. The savings comes in the difference between the guaranteed consortium prices -- $1.70 per gallon for unleaded and $2.29 per gallon for diesel -- and the estimated prices used in the county budget, which is $3.94 per gallon for unleaded and $4.52 per gallon for diesel. The county pledged to buy 65 percent of its diesel and unleaded fuel through the consortium, starting in February.

"It's a guessing game," Schlangen said, noting that many other cities opted to commit just a portion of their annual fuel purchases to the arrangement. "Everyone is kind of testing the waters."

chris.havens@startribune.com • 651-298-1542 kevin.giles@startribune.com • 651-298-1554 katie.humphrey@startribune.com • 952-882-9056

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