I n t e g r i t y - S e r v i c e - E x c e l l e n c e Headquarters U.S. Air Force UNCLASSIFIED 1 TBD – The Budget Dilemma BJ WHITE-OLSON Director, Budget Management & Execution 20 August 2008

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 2 The Budget Dilemma -- Fuel Price Volatility Background – Demand and Price Growth The Budget Dilemma The Current Solution A New Approach Other Actions We’re Taking A Final Thought in Closing

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 3 Demand Sources: U.S. DoE, Energy Efficiency and Renewable Energy, Federal Energy Management Program Preliminary Data; Defense Energy Support Center FY2007 Cost Data; AFTOC Data; Fuels Enterprise System; Federal Automotive Statistical Tool (FAST) Data; and the Defense Utility Reporting System 9.2% Other Govt 90.8% DoD 19% Navy/Marines 64% Air Force 17% Army 15% Facilities 81% Aviation 4% Vehicles & Ground Equip Aviation fuel (AVFUEL) consumption in AF aircraft In FY06, 61.0 million barrels consumed In FY07, 59.9 million barrels consumed FY08 projected fuel consumption is about 48.8 million barrels FY2007 Federal Government Consumption (% of total petroleum consumption) FY2007 U.S. Armed Forces Fuel Utilization (% of total fuel cost) FY2007 U.S. Air Force Energy Utilization (% of total energy costs) AF (as a single entity) is the largest consumer of AVFUEL in US

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 4 Price Growth -- Crude Oil Price per Barrel Monthly Average Price – As of 6 Aug 08 West Texas Intermediate $ Daily Price Every $10/Barrel Increase Drives Up AF Fuels Costs Approx $600M/Yr

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 5 Price Growth -- Jet Fuel Price per Barrel Monthly Average Price – As of 5 Aug 08 U.S. Gulf Coast $ Daily Price

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 6 The Budget Dilemma Services obtain fuel from Defense Energy Support Center (DESC) DESC establishes a standard fuel price to recover the costs of the product, transportation, overhead and recovery of losses Based on the DESC standard price projected, the services develop budget estimates for fuel The Budget Dilemma Budgeted vs. Execution Year price For FY08 DoD budgeted $ actual price $97.02 in Oct 07, then went to $ in Dec 07, and then to $ in Jul 08 Looking ahead to FY09, budgeted price was $ for FY09 President’s Budget submitted to Hill on 4 Feb 08 Crude is currently around $ so price increases are expected for FY09 execution Fuel Price Volatility creates turbulence in DoD budget execution

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 7 Budgeted PriceDESC Standard Price FY FY FY FY FY FY FY /127.68/ Budgeted vs. Standard Price There are 42 gallons per barrel, therefore $ per barrel = $4.07 per gallon

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 8 The Current Solution Supplementals have funded the majority of execution year increases: ($ in billions) Supplemental InternalTotal FY FY FY TOTAL Internal reprioritization reduces funds for BOS and FSRM projects Supplementals reduce execution year bill … but does not reduce the impact of fuel increases on the budget year What happens if Supplementals are not supported? Fuel inflation has stressed DoD supplementals and execution since FY05

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 9 A New Approach DoD has proposed an Indefinite Appropriation to cover the difference between the price budgeted for fuel and the actual purchase price Covers the dollar difference between the Budgeted price for a specified quantity of fuel and the Actual price During budget formulation, DoD would still fund projected fuel price increases During execution, funds come from Treasury when prices increase, returns to Treasury excess funding budgeted for fuel when prices drop Legislative language submitted to Congress for FY09 Supported by authorizers, however, have not been able to gain support of appropriators Protects DoD fuel budget from price inflation during execution

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 10 Other Actions We’re Taking Demand Side Efficiencies in Aviation Operations Optimized aerodynamics Advancements in materials engineering Advancements in propulsion and engine technology Improvements in mission capabilities Innovative use of flight simulators Supply Side Programs Lead to Continued Research Alternative Fuels – Synthetic Fuel Fleet Certification 50/50 Blend Certification All USAF Systems by FY11 B-52 certified in FY07, B-1 and C-17 flight tests complete Culture – Make Energy a Consideration in All We Do AF Energy Strategy: Reduce Demand - Increase Supply - Culture Change

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 11 A Final Thought in Closing Think a $4 gallon of gas is expensive? Consider the prices of other fluids people buy every day without complaint! Gatorade, 20 $1.59 = $10.17 per gallon Evian water, 9 $1.49 = $21.19 per gallon Brake fluid, 12 $3.15 = $33.60 per gallon Scope, 1.5 $0.99 = $84.48 per gallon Vicks NyQuil, 6 $8.35 = $ per gallon But here’s the kicker: HP 02 Black Ink Cartridge, 16 ml $18 online = $4, per gallon! All in favor of conserving fuel, please raise your right foot! AVFUEL, 1 $ = $4.07 per gallon Source: Pogue’sPosts, 27 May 08, by David Pogue for NYTimes.com and CNBC

I n t e g r i t y - S e r v i c e - E x c e l l e n c e UNCLASSIFIED 12 For more information on the AF Energy Program visit: