Alternative Ways to Provide Fuel Within the Department of Defense
The Defense Logistics Agency buys fuel and charges the military services for it. But volatile fuel costs can cause changes in rates that create budgetary challenges for the services. CBO examined new ways to budget for and price fuel.
The Defense Logistics Agency (DLA), through the Defense Working Capital Fund, Energy Management Activity Group, supplies U.S. military forces with fuel for vehicles such as ships, aircraft, tanks, and trucks.
Under current policies, DLA sets the rates it charges for fuel about 18 months in advance of a fiscal year. Consequently, the rates charged to the military services are often different from DLA’s costs at the time of the transaction.
The misalignment of rates charged to the services and the costs incurred by DLA results in budget surpluses or shortfalls, which can lead DLA or the services to request more funding during a fiscal year or to reprogram surplus funds.
CBO examined alternative approaches to budgeting for and pricing fuel. The options would make the Defense Department’s budget less sensitive to changes in oil prices during a fiscal year. Each option has advantages and disadvantages.