The following is an explanation of the DoD Standard Price of Fuel, how it is derived, and why it is important to military customers.
The standard price of fuel is a tool that was created by DoDs fiscal managers to insulate the Military Services from the normal ups and downs of the fuel marketplace. It provides the Military Services and OSD with budget stability despite the commodity market swings, with gains or losses being absorbed by a revolving fund known as the Defense Working Capital Fund (DWCF). In years that the market price of fuel is higher than the standard price, the DWCF loses money. In years that the market price is lower than the standard price, it makes money. This gain or loss can be made up by adjusting future standard prices or by providing our DoD customers with a refund. This decision is typically made by the Office of the Secretary of Defense, Comptroller. However, the DWCF must remain cash solvent. As a result, in rare instances such as fiscal year 05, the standard price is changed during the fiscal year so the fund remains solvent.
The standard price is established well in advance of the fiscal year it is used. It is built by assembling the following blocks:
· A projection of the price of fuel 18 months in the future. (In the late fall the standard price is determined for fuel that will be sold to our customers during the Fiscal Year. As an example in the fall of 2012 the price is set that will be in effect from October 13 through September 14.)
· The budgeted cost of transporting, storing, and managing the government fuel system, including war reserve stocks and some adjustment to these costs which reflects whether the revolving fund lost or gained money during the previous years.
The standard price of fuel is not a marketplace price. You cannot compare the standard price of fuel with the price of fuel at the service station down the block. It is not intended that the standard price of fuel be comparable with similar fuels in the commercial marketplace.