The University System of Maryland could better manage increasing energy costs by signing long-term contracts with providers, a Board of Regents panel is recommending.
"We have a huge problem with rising energy costs, just as homeowners and businesses do," said regent James C. Rosapepe, a member of the finance committee.
The committee will recommend that the full board allow the largest institution in the system, the University of Maryland, College Park, to seek out natural gas contracts that could affect all university system institutions.
The system is expected to spend at least $25 million next fiscal year on natural gas and about $20 million on electricity. Meanwhile, predictions show costs for both energy sources rising, with natural gas rates estimated at 38 percent higher than last year.
One method of curbing volatile natural gas costs that the University of Maryland, College Park included in its proposal involved buying 25 percent of all estimated gas needs in advance, through a long-term and fixed-price contract. The contract could be binding for as long as seven years.
By locking down prices, the university hopes to avoid spikes in natural gas market prices.
"The objective is to be protected," said Frank Brewer, associate vice president for facilities management. "We'll miss the peaks, but we don't take advantage of the bottoms of the valleys. Buying forward has been beneficial to the University System in the past."
Regent Richard Hug, also a panel member, said that given recent energy trends, College Park should aim to prepay up to 40 percent of estimated natural gas requirements to hedge more losses. His suggestion will be reflected in the proposal that will be brought to the full board.
Any contract that university is able to arrange would be available to other system institutions.
The university's current contract, which hedges natural gas costs through buying natural gas at market prices established by the New York Mercantile Exchange, is scheduled to expire June 30, 2007. John Pocari, vice president of academic affairs, said the university anticipates saving $7.5 million during fiscal years 2006 and 2007 through this contract.
The committee also reviewed a proposal to allow the university to seek contracts that would supply electricity to all system institutions. Using the purchasing power of the 13 member institutions, the university hopes to cut costs and get more competitive rates. Institutions could opt out of the contract bid.
The University System holds a unique position as a consumer, Pocari said, because its electricity needs are "fundamentally different" from an average business.
Kara Wedekind writes for Capital News Service.