I was slowing down over at the Pricelock energy listings in search of a job posting for a flatbed driver — maybe a Ford, maybe not, who knows? — when something much more interesting caught my eye.
Four cities in New England were looking to buy 1.214 million gallons of 87- and 89-octane gasoline over the next three years.
That’s a serious chunk of change, and enough gasoline to fill 60,000 Crown Vic police cruisers.
Pricelock is a great place for energy info junkies, whether you want to know who is selling 119,000 barrels of Ultra Low Sulfur Diesel No. 2 or fulfill that fantasy about being a flatbed driver on a lonely farm-to-market road.
Gerald Foley, the purchasing manager at Connecticut co-op leader Norwalk, filled me in on this bid. Norwalk joined forces with Darien, Weston and Wilton in a quest for a better deal and to cut down their bid overhead.
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The cities (combined population 134,000) operate as a purchasing group and this year extended from two to three years the length of their bid, which was posted in Pricelock and in an oil-trading group at LinkedIn and on other sites.
“We get a lot more flexibility this way. We’ll do gasoline this year, maybe heating oil and diesel the next. We’re adding a year to all of them,” Foley said. “We get a considerable advantage from this in the size of our bid. Of course, the benefit to the others is probably more than the benefit to us. I’m the one putting this together.”
Santa Buckley Energy Group of Bridgeport, Connecticut, won the right to sell 89-octane gasoline to three of the cities, which bid as a unit but gave companies the option to sell either to the group or to the cities piecemeal. Norwalk, Darien and Weston picked Santa Buckley; Wilton chose East River Energy.
Santa Buckley CEO Thomas S. Santa said he likes dealing with cities because of strong credit “unless you are talking about Detroit.”
“The volumes the municipalities are dealing with are fairly significant. You’re talking about rather large economies of scale there,” Santa said. “But overall I’d say the impact of the co-ops is negligible. The market’s still out there as an influence. You may go into this thinking that the price of your fuel is going to change 1 cent per day, and then you look around and it is moving 5 cents per day. You can’t time the market perfectly.”
Transportation costs may skew fuel budgets in favor of one co-op member over another, creating dissent, Santa said. Delivery sizes are hard to predict.
“Whether a customer gets 7,500 gallons or 700 gallons, the cost for transportation is going to be the same,” he said.
And what is the potential profit like? Santa Buckley will sell 89-octane gasoline to largest group member Norwalk this year ranging from $2.8459/gal for deliveries of 119 barrels (5,000 gallons) or more to $2.9549/gal for deliveries of 23.8 barrels (1,000 gallons) or less. That leaves Santa Buckley with a favorable spread of 1.3 cents/gal to 12.2 cents/gal if it were to buy 89-octane at the Platts-assessed 2014 average Atlantic Coast price of $2.8329/gal.
A Texas tale
Another gasoline co-op is taming the market in North Texas.
The group of 24 governments led by Tarrant County just put out bids for 214,943 barrels of gasoline and diesel to be supplied for a year, up from an average of 211,711/year from 2010-2014. The new bid expires in April 2015 with three options to renew, Tarrant County senior buyer Timothy J. Jones said.
Garland (population 233,500) is the biggest customer with a current bid for 15,476 barrels of gasoline, 15,000 barrels of No. 2 TxLED ultra-low-sulfur diesel and 3,095 barrels of red-dyed diesel.
Addison (population 13,600) is one of the smallest co-op members and is the only one bidding for the highest-octane gasoline. It wants 1,904 barrels of unleaded plus for the year, perhaps reflecting the local taste for the good life. Some 35% of Addison’s households bring home at least $75,000 or more annually, compared with 26.5% for all of Texas, US Census data shows.
Addison will take its first deliveries of 89-octane gasoline for the current bid sometime in May and has been a member of the co-op for three years, Addison Director of General Services Mark Acevedo said.
“It used to be that we would go into the market and spend just a little bit less than you or I would spend if we drove over the Chevron,” Acevedo said. “Now it looks like we are probably saving anywhere from 10 to 15 cents per gallon by being in the co-op. In the past, we would go where the price would go. Now we are locked in.”
It looks like Addison has money to spare, too. It will buy 7.3 gallons of fuel/resident in the bid program’s first year counting its diesel purchase, compared with 6 gallons/resident in Garland and just 4.1 gallons/resident in Grand Prairie, another large North Texas city in the co-op.
At 87-octane or 89-octane, it looks like a better arrangement than facing a fuel supplier alone across a table with a contract on it.
“I feel good going to sleep at night with the bids we put out there,” Tarrant County purchasing agent and co-op bid co-ordinator Jack Beacham said.