Brief Description: Concerning the purchasing of fuel by certain state and local agencies.

Sponsors: By House Committee on Transportation (originally sponsored by Representatives Jarrett, Morris and McIntire).

House Committee on Transportation
Senate Committee on Transportation

Background:

Metropolitan Municipal Corporations.
Metropolitan municipal corporations (Metros) are special purpose districts authorized to provide public transportation services as well as other essential public services, including water supply, sewage treatment, and garbage disposal. Metros may be formed in any area of the state containing two or more cities, one of which must have a population of at least 10,000. In addition, any county with a population of 210,000 or more in which a Metro has been established may, by ordinance or resolution, assume the rights, powers, and obligations of the existing Metro. The only established Metro is King County Metro Transit (King County Metro).

King County Metro provides three services that use large amounts of fuel: bus, paratransit, and vanpool. King County Metro typically purchases diesel and gasoline at market price on a daily basis. Metros do not have specific authority to buy into the futures market. In King County Metro's biennial budget process, fuel quantities are estimated based on the miles of operation and efficiency of the fleets in each of its services, and service levels are projected several years into the future. On average, King County Metro purchases 11 million gallons of fuel per year. The cost per gallon is based primarily on estimates using the futures market for diesel and gasoline, and is adjusted based on multiple factors, including variance in the local market and delivery and other local costs.

Washington State Ferries.
The Washington State Department of Transportation (Department) operates the Washington State Ferries. The Department estimates its fuel use on a biennial basis. In general, the Office of State Procurement purchases fuel on behalf of the Department for use in operating the state's ferry system. Neither the Office of State Procurement nor the Department are specifically authorized to implement fuel hedging strategies.
   
Strategies to Reduce Fuel Costs.
In 2005 the Legislature directed the Department of General Administration, through the Office of State Procurement, to explore and implement strategies designed to reduce the overall cost of fuel and to mitigate the impact of market fluctuations and pressure on both short-term and long-term fuel costs. The Office of State Procurement was also directed to submit an annual report to the fiscal committees of the Legislature, including an update on its efforts to implement such strategies as well as recommendations for improving or continuing the fuel cost mitigation program. In its 2007 report, the Office of State Procurement made several recommendations, including the recommendations that the Governor and Legislature establish a long-term hedging program and that the state and King County Metro conduct a fuel hedging pilot project for biodiesel.

"Fuel hedging" is the practice of eliminating the range of probable energy costs over a future time period by locking in the price today for future needs. Hedging assumes the risk that the market price may drop below the locked-in price, but provides the benefit of budget certainty. There are costs and fees associated with implementing a fuel hedging program, and agencies that are high-volume purchasers of fuel are more likely to benefit from a hedging program than agencies that are not high-volume purchasers.

Summary:

Metropolitan municipal corporations (Metros) and counties that have assumed the rights and responsibilities of a Metro are authorized to explore and implement fuel hedging strategies. The Washington State Department of Transportation (Department), in performing its function of operating the state's ferry system and after consultation with the Office of State Procurement, is also authorized to implement fuel hedging strategies. The Department's use of fuel hedging strategies is contingent on an appropriation of funds for that specific purpose.

Metros, counties that have assumed the rights and responsibilities of a Metro, and the Department must submit periodic reports on any implemented fuel hedging strategies to the transportation committees of the Legislature. The Department must also submit periodic reports of any implemented fuel hedging strategies to the Office of State Procurement.

The state is not liable for any financial losses incurred by Metros, or by counties that have assumed the rights and responsibilities of a Metro, that choose to implement fuel hedging strategies.

Votes on Final Passage:

House   94   0
Senate   45   3   (Senate amended)
House   93   0   (House concurred)

Effective: June 12, 2008