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City of Macon trying to renegotiate costly fuel contract

Roller coaster gas prices over the past few months have wreaked havoc on Macon’s budget, and the city moved Tuesday night to try to rein in what it has been spending on fuel.

Essentially caught in what some officials said was a bad deal, Macon for the past several months has been locked into paying PS Energy Group Inc., a fixed rate of more than $3 per gallon for gasoline, even as market prices have dropped below $2 per gallon.

“Literally, we could go down there and buy gas at the pump for cheaper, which looks ridiculous,” said Councilman Mike Cranford, who is chairman of the Appropriations Committee.

Further complicating Macon’s fuel purchasing situation has been a legal dispute over whether the city had in fact committed to paying PS Energy a set price, and for the past few days, city officials have wrestled with whether litigation was needed to escape the agreement.

Their decision Tuesday, however, appears to move the city away from a courtroom confrontation.

The city council agreed to let Mayor Robert Reichert sign an additional agreement that will extend the city’s commitment to purchase fuel from PS Energy, but blend the fixed rate with lower-priced market rates so that the city for the next year will pay somewhere in the middle.

Much of the debate over the merits of a contract extension was held behind closed doors, which some council members suggested was an effort to conceal past mistakes that led the city to its current situation. Council members said the trouble was brought about by sloppy paperwork and ineffective legal advice that has gone on since prior to Reichert’s arrival in office.

“This is not the first time we’ve had to deal with situations like this,” Councilman Erick Erickson said. “I think this is going to have to be the last time I support something like this until heads start rolling in this city. ... This is an absurd situation.”

Council members Rick Hutto and Elaine Lucas voted against the extension.

“It’s an outrage,” Hutto said.

The city signed its base contract with PS Energy in August, and council members said they were told then it did not commit them to a set price per gallon. What led to the legal dispute, council members said, is that after the agreement was signed an employee in the Vehicle Maintenance department asked PS Energy to lock the city into a set price.

When market gas prices began to drop shortly thereafter, the energy company wanted to hold Macon to the higher price while city officials argued the employee was not authorized to commit the city to a set price in the first place.

Other local governments in Middle Georgia have had fewer problems than Macon with fuel pricing, partly because they are buying gas differently: at market rates instead of a set price.

Rather than lock into a set price for a period of time, Houston County every six-months asks companies to bid on markup rates that get added to the bill each time fuel is purchased.

For example, the county’s current agreement with Mansfield Oil means that it will pay the standard price per gallon provided for that day by Oil Price Information Service, plus, in the case of gasoline, a .0138 cents per gallon markup. The county generally places orders weekly to keep its tanks full, said Barry Holland, Houston County’s director of purchasing.

Holland said the price provided by OPIS generally runs 20 to 25 cents per gallon less than what most drivers are paying at the pump on a given day.

“This works so much better for us (than paying a fixed rate),” he said. “As the market falls, the price falls. ... It is the best way that I know of to do it.”

In Gray, the public works department takes bids from local gas stations when buying fuel, said City Superintendent Decius Aaron. Currently, workers are purchasing gasoline at the pump at the City Limits Food Mart using fleet cards, he said. The city gets a bill each month, similar to a credit card statement.

“By not purchasing ourselves, we’re at the mercy of the economy,” Aaron said. “But we’re not locked into a price.”

Midstate school systems also are lucky, since many of them are not locked into a fixed rate and are paying the price at the pump, or less, for their diesel fuel.

“Right now we’re reaping the benefits,” said Rudolph Collins, transportation director for the Jones County school system.

Jones, Bibb and Houston County schools all take bids from fuel vendors weekly or monthly to purchase fuel and usually get it at market value or a discounted rate. Houston County schools fills their about 224 school buses up as needed from two different off-site fuel companies, Davis Oil and Walthall.

“Our bill is on average 30 cents less than what you would see at the pump,” said Houston County School System spokeswoman Beth McLaughlin.

Bibb County schools buy fuel about once a week to store in a 7,500 gallon tank.

The system considered a fixed rate contract last year, but didn’t take one because they were unsure whether gas prices would continue to rise, said Ron Collier, Bibb’s chief financial officer.

“Obviously in this case, it worked this time,” he said.

Earlier this month Bibb schools amended its 2009 budget to show they would save $425,000 in fuel since prices dropped after planning for a larger expense last fall.

Telegraph Staff writer Julie Hubbard contributed to this report. To contact writer Matt Barnwell, call 744-4251.

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