SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY Fuel and Electricity Price Risk Management Frank Gormley, Director Operating Budget Philadelphia, PA 2013 APTA Rail Conference Philadelphia, PA June 5, 2013 1
Title of Individual Slide 1 2 3 4 5 or more Diesel Fuel Hedging 2
Title of Why Individual Hedge? Slide Dramatic fuel price increases 2008 and 2009 1 Budget certainty 2 Separate 3 timing of energy pricing from energy consumption 4 Improves 5 or organizational more efficiency 3
Price/Gallon Title Diesel of Fuel Individual Price Trend Slide $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 1 2 $2.86 $2.93 3 4 $4.03 $3.91 $3.53 5 or more $3.59 $3.33 $2.33 $2.41 $2.55 $2.48 $2.21 $2.90 Hedged $3.04 $2.94 $2.90 $1.00 $0.50 $0.00 Period 4
Title of Physical Individual Fuel Slide Platts NY Harbor ultra low sulfur diesel (barge daily 1 midpoint) 2 One year contracts based the above index 3 Spot daily 4 prices 5 or more 5
SEPTA Title Fuel of Individual Hedging Summary Slide 1 2 3 4 5 or more Physical PPG Hedge PPG Difference Savings Realized FY 2011 $ 2.677 $ 2.347 $ 0.330 $ 4.0 M FY 2012 $ 3.004 $ 2.544 $ 0.460 $ 7.6 M FY 2013 $ 3.022 $ 2.837 $ 0.185 $ 2.4 M Based on annual hedge of 15.5 million gallons 6
Hedging Strategy Title of Individual Slide Gauge prices historic vs future 1 Ensure solid base 2 Focus 3 on earlier periods Opportunistically 4 add to positions 5 or more Separate financial hedge contract from physical contract 7
Title General of Individual Guidelines Slide Hedge terms 18 months to 2 years 1 Individual hedge contracts: no single hedge greater than 10 2 percent of annual requirement 3 Average 3 percent 5 percent of annual requirement 4 Goal: two-thirds 5 or more annual requirement hedged Rule: hedge less than fuel requirement which diversifies and lessens risk 8
Lessons Title of Individual Learned To Slide Date Assure hedge aligns with physical delivery (e.g., NY Harbor 1 vs. Gulf Coast) Monitor 2 market daily 3 Small-quantity hedges are preferable from risk standpoint 4 5 or more Doing nothing increases overall risks 9
Title Results of Individual To Date Slide High level of budget certainty 1 Cash flow positive in 28 of 33 months since inception 2 Generated 3 positive cash-flow in excess of $14 million 4 5 or more 10
Title of Individual Slide 1 2 Electricity Procurement 3 4 5 or more 11
Title of Background Individual Slide Local energy rate caps expired December 31, 2010 In 2008, 1 SEPTA considered: Continue 2 with local as default provider Select 3 a third party supplier Amtrak 4 proposed partnership to solicit for third party supplier 5 or more 12
Title of Background Individual Slide SEPTA and Amtrak signed partnership agreement in 2009 1 Advantages 2 included: Economies 3 of scale Amtrak s 4 expertise, capitalization and experience Amtrak 5 or master more agreements 13
1 3 4 Title Master of Individual Agreements Slide Expedite procurement process Executed master agreements required from all participating 2 suppliers Lock-in contracts day of final pricing Multiple contracts negotiated 5 or more 14
Electricity Title of Solicitation Individual Slide Process Two step solicitation process 1 RSQ: Request for Supplier Qualifications 2 RFQ: Request for Quotations 3 4 5 or more 15
Electricity Title of Solicitation Individual Slide Process Solicitation Process - Step 1 RSQ: Request 1 for Specifications and Qualifications Released 2 December 2009 Responses 3 by January 2010 Notified 4 eligible suppliers February 2010 Evaluated 5 or more by Amtrak and consultant 16
Electricity Title of Solicitation Individual Slide Process Solicitation Process - Step 2 RFQ: Request 1 for Quotations June 2010 Indicative 2 quotations Final 3 quotations SEPTA 4 and Amtrak negotiated separately SEPTA 5 or more and energy consultant reviewed final quotations 17
Electricity Solicitation Process: Final Award 1 2 3 4 Title of Individual Slide Criteria and weighted values: Ranked based on RSQ process -10% Financial Assurance 20% Price Quotation 70% 5 or more 18
Electricity Solicitation Process: Final Award 1 2 Title of Individual Slide Contract Awarded June 2010 Contract started January 2011 Award split between two suppliers 3 Split amongst two or more suppliers can lower cost and 4 will reduce default risk 5 or more Initial contract 2-3 years Contracts under Amtrak s master agreement 19
Title Current of Individual Solicitation Slide Current three year contracts expire January 2014 RSQ / RFQ 1 Process underway Recently 2 completed the RSQ (Request for Supplier Qualifications) stage 3 Negotiating master agreements with qualified suppliers 4 RFQ (Request for Final Quotations) is targeted for Summer / Fall 2013 5 for or a more contract start date of January 2014 20
Title Results of Individual to Date Slide Propulsion power annual savings $800,000 GS and HT 1 electricity accounts annual savings $300,000 Combined 2 annual savings $1.1 million Savings to 3 date $2.7 million 4 5 or more 21