The finance committee of New York’s Metropolitan Transportation Authority on Monday authorized an increase in the amount of fuel-hedging capacity, by an additional $100 million, to $200 million.
MTA officials say such fuel-price agreements establish stability in pricing for its fuels, which include ultra-low sulfur diesel, compressed natural gas and heating oil. The authority hedges roughly 40% of its fuel supply.
“We use fuel hedges to really deal with the volatility in that commodity. It’s one of the more volatile parts of our budget.” finance director Patrick McCoy told the committee. “Fuel hedging mitigates that volatility.”
Hedging must be consistent with board-approved MTA guidelines for entering into payment agreements.
MTA senior deputy budget director David Keller, in a presentation to the committee, said the MTA saved almost $2 million this year through hedging, as of Sept. 19. “Hedging actually reduces the impact of the high prices,” he said.
McCoy, answering some concerns by board members, said increasing the hedge period to 24 months “is not that long.” The MTA began hedging fuel in 12 month periods, then stretched the timeframe to 18 months.
“I’m comfortable with 40% of our fuel at a certain price. The greater the volatility, the more comfortable I am with this plan,” he said.
“It’s never perfect,” added Keller. “Sometimes it’s locked in higher than the market, sometimes lower.”
In August and September, the authority entered into $6.7 million and $7.1 million fuel hedge contracts for 18 months, with Goldman Sachs/J Aron & Co. submitting winning bids with all-in prices of $2.915 and $3.057 per gallon, respectively.
Goldman Sachs and Deutsche Bank are the MTA’s only fuel-hedge contractors after the authority dropped Bank of America Merrill Lynch, which received a downgrade from Moody’s Investors Service to Baa2 in late June.
“We’d like to get one or two more entries into the pool,” said McCoy.
Also on Monday, the MTA awarded a $56 million contract to build a ventilation facility on E. 55th Street in Manhattan to a joint venture of Schiavone Construction Co. and John P. Picone Inc.
The facility will provide ventilation for the new tunnels that will carry Long Island Rail Road trains to Grand Central Terminal, as well as the new LIRR concourse. According to MTA officials, unlike most other ventilation facilities, this one will not have an above-ground component.
The full MTA board will hold its monthly meeting Thursday.
