Insights offered on fuel hedging

PORTLAND, Ore. — The process known as fuel hedging can provide school bus operations with predictability for their fuel budgets, according to a presentation here at the annual state directors conference.

Charley Kennington, former state pupil transportation director for Texas and now director of Innovative Transportation Solutions, described fuel hedging as a way of protecting against price increases, which have been particularly steep in recent years.

In utilizing the process, a school bus operation would enter into a contract of up to 24 months with a fixed price for their fuel. To allow for some flexibility, Kennington said his agency doesn’t recommend putting 100 percent of the operation’s fuel into the hedging program.

The operation then continues to buy its fuel as usual through its supplier, paying the market price. If it rises above the fixed price in the contract, the operation will receive a check for the difference. If the market price falls below the contract price, the operation will be billed for the difference.

For the duration of the contract, the operation will know exactly how much it will pay for the quantity of fuel it put into the project.

“It provides budget certainty,” Kennington told the National Association of State Directors of Pupil Transportation Services.

Kennington and his agency have worked with some Texas school districts on fuel hedging. He also noted that Southwest Airlines has been doing it for decades.

Look for more details on fuel hedging in an upcoming issue of SCHOOL BUS FLEET.