Defense Management:

Information on Selected Aspects of DOD's Jet Fuel Program

NSIAD-96-188: Published: Jul 31, 1996. Publicly Released: Jul 31, 1996.

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Pursuant to a legislative requirement, GAO reviewed the Department of Defense's (DOD) reimbursement pricing policies for the Defense Logistics Agency's bulk and into-plane jet fuel programs, focusing on: (1) whether the pricing policies, rules, and regulations for both fuel programs are consistent with Defense Business Operations Fund (DBOF) policies; (2) changes in bulk fuel usage and into-plane sales; and (3) how into-plane jet fuel prices affect into-plane contractors' business.

GAO found that: (1) DBOF policies governed standard pricing for both the bulk and into-plane jet fuel programs; (2) while the current policies as applied to the into-plane program meet DBOF's original objectives that standard prices recover the total costs of goods and services provided to customers, they do not in the bulk fuel program; (3) in that program, the current standard price is based only on the direct costs incurred by the Defense Fuel Supply Center to supply jet fuel and, therefore, excludes the cost of fuel operations at military installations; (4) by statute, DBOF excludes such costs for installations that perform mission critical functions; (5) although most installations with training missions do not qualify for the exclusion, their number is small and inclusion of all their operation costs in the bulk fuel standard price would not materially affect the difference between bulk and into-plane fuel standard prices; (6) inclusion of these costs would only have a substantial impact on the price difference between bulk and into-plane fuel at specific locations if the installations were not part of a standard pricing system; (7) in recent years, DOD's consumption of jet fuel has declined significantly, and the reduction is consistent with force downsizing and related reductions in the number of military flying hours; (8) domestic into-plane fuel usage, however, declined only 7 percent; (9) the overall decline in jet fuel usage appears to account for much of the into-plane contractors' concerns about the effect of DOD fuel pricing policies on their businesses; (10) the implementation of separate standard prices for jet fuel in 1993 produced an into-plane price that was higher than the bulk price; (11) a number of into-plane contractors expressed concerns about the effect of the higher jet fuel prices on their businesses; however, although some military commands and units increased efforts to use bulk fuel, domestic into-plane jet fuel sales remained constant in FY 1994 and 1995, following a drop from 1993; and (12) information developed by the National Air Transportation Association and selected into-plane contractors suggested that concerns expressed about military aircraft stopping at their facilities and not buying fuel or paying for services provided were neither widespread nor systemic.

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