MITCHELL — As fuel prices hit record highs, city officials are starting to feel the pinch of soaring energy costs.
Whether it’s seeing some project bids go $4-5 million over budget or allocating more contingency funds for projected fuel cost increases, rising gas prices and diesel presented new challenges to the leaders of the town of Mitchell.
For Kevin Roth, Streets and Sanitation Supervisor, budgeting has been one of the toughest parts of the recent spike in gasoline and diesel prices.
“When you’re trying to budget for 12 months and fuel prices change so drastically, it’s hard to get a good number to start with,” Roth said. “You have no idea what the price of fuel will be in a month or even a few days.”
Projecting fuel costs has never been more challenging for some city leaders than it is today.
Public Works Director Joe Schroeder said fuel budgeting is done taking into account the most recent three-year fuel price average. Given that gasoline and fuel prices have more than doubled from what they were two years ago, he said it would be difficult to use the three-year average this year. In May 2020, the national average for diesel fuel hovered around $2.39, while gasoline was around $2. On Friday, the national average for diesel and regular unleaded gasoline stood at $5.53 and $4.59 per gallon, respectively, according to AAA data.
Comparing Friday fuel prices from the same time in 2021, the national average for a gallon of regular unleaded gasoline is up 50%. Diesel fuel has jumped about 70% over the same period.
To get a clearer picture of how the spike affected city operations, city administrator Stephanie Ellwein pointed to the city’s street department — a division that uses a significant amount of gas and of fuel on an annual basis.
According to Ellwein, total fuel costs for street service this year are expected to climb about $10,000 from the annual budgeted amount of $75,000. So far, the city streets division has totaled $42,500 in fuel costs, which Ellwein says will cost about $84,000 to close the year.
In 2021, the annual fuel costs for the streets division were $69,000. In 2020, when gasoline and diesel prices hovered around $2 and $2.42, the street division ended the year with a fuel tab of $53,000, almost half of the cost planned for this year.
While it’s impossible for city leaders to predict the future of gas prices a year in advance, Ellwein said department heads have prepared well for higher gas prices. high during the budgeting process.
“Ministries have all forecast an increase in the cost of fuel and natural gas. It is always difficult to predict rising fuel costs, but we have set up our contingency funds to manage increases to achieve a structurally balanced budget,” Ellwein said.
The rising prices and inflation that have swept the country over the past year can be seen in the bids submitted for the Northern Wastewater Treatment Plant Improvement Project. Initially, engineers estimated the project to cost around $10 million about a year ago. But the three bids that were recently submitted to undertake the project were all just over $5 million above the city’s original estimated cost of the project.
To cover the additional $5 million for the $15.7 million Northern Wastewater Treatment Plant project, Schroeder proposed a 63-cent increase in sanitary sewer rates and turned to opportunities. federal grants that are not guaranteed.
Although Schroeder pointed to soaring inflation as a major factor that led to the drastic increase in costs for the North Wastewater Project and other city projects, he said the rising costs fuel also played a role.
“I’m sure higher diesel prices are part of it. A contractor recently told me he was unsure of the price of diesel and had to estimate what it would mean for the project when he went to bid,” Schroeder said.
Rising prices with minimal impact on city fuel costs
Regarding the fuel the city buys in bulk to run all vehicles and equipment, Streets and Sanitation Supervisor Kevin Roth said the recent price increases the city has experienced have been quite minimal compared to what others experience at the pump.
Like many municipal governments, the city buys its fuel in bulk through a fuel quote process that allows companies to submit quotes. As Roth put it, allowing oil companies to submit fuel quotes gives the city “bargaining power” that helps keep prices lower since multiple oil companies compete to win the city over as a customer. .
Roth said the materials and products containing petroleum the city uses each year have increased. According to Roth, chip sealant costs about $550 per ton. This year, Roth said chip seal material jumped to around $750 a ton.
“Rising prices affect the projects and some materials we use more than the city’s own fuel costs,” Roth said.