Rising gas prices add more volatility to DoD budget

Friday - 3/9/2012, 10:09am EST

Federal News Radio Executive Editor Jason Miller's report

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Jim McAleese on "In Depth" with Francis Rose

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Deputy Defense Secretary Ashton Carter's remarks

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Undersecretary of Defense (Comptroller) and CFO Robert Hale's remarks

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Air Force Chief of Staff Norton Schwartz's remarks

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The spike in gas prices is wreaking havoc, once again, on the Defense Department's budget.

DoD planned on spending about $88 for a barrel of oil in 2012, but as of Wednesday, the commodity traded at $107 a barrel.

For every dollar above $88, it costs the Pentagon $31 million.

Robert Hale, the DoD comptroller, said if the price of oil stays this high, DoD will have to dig even deeper to find the money.

"We do what's called a mid-year review. We'll look first at any operating accounts that are under executing. But frequently the sources come from the investment accounts," Hale said Thursday during the 2012 Pentagon Conference sponsored by Credit Suisse in Arlington, Va. "We look at unobligated balances, hopefully at systems where we don't do too much damage to the plan. But you don't want to do this if you can avoid it."

Hale said DoD spends about $17 billion a year on gas, and if gas continues to be 25 percent higher than it budgeted, the military will have a serious budget problem.

Moving to alternative fuels among highest priorities

The Pentagon placed moving to alternative fuels among its highest priorities. Last June, DoD sent its first operational energy strategy to Congress detailing how it will use more non-petroleum-based fuels. DoD accounts for 70 percent of all the energy purchased and used by the government. Among the goals DoD has laid out for the services is to cut fuel consumption by 50 percent at bases by 2013.

Each of the services is taking on the challenge to figure out how to reduce their fuel consumption.

The Navy is among the leaders. Secretary Ray Mabus said the service is doing several things, including expanding its test of a hybrid engine for ships.

Mabus said the USS Makin Island already has shown an electric/gas engine could work on an amphibious ship-the electric engine for speeds 12 knots per hour or below and gas for speeds above 12 knots per hour. Now the service wants to test the engine more on a Destroyer.

Mabus said the Navy also will conduct an exercise in July where the fleet and planes will be run only on alternative energy, nuclear or biofuels.

The Marines Corps also has found success by using solar energy to cut fuel consumption at forward operating bases by 25 percent in Afghanistan.

Units are also experimenting at Quantico in Virginia and 29 Palms in California with alternative fuels so the warfighter doesn't have to depend on convoys for re-supply as often. These convoys are among the most dangerous missions the military undergoes.

"When the uprising in Libya happened, the price of a barrel of oil went way up and I had only one place to go to pay for it, operational accounts which meant less training, less time patrolling and less time meeting our mission," Mabus said.

The Navy is experimenting with solar, wind, geothermal, hydrothermal and even developing a microgrid for electricity just in case there is ever a problem with the commercial grid.

Additionally, the Navy is partnering with the Energy and Agriculture departments to spend $500 million on research and development of alternative fuels.

Budget 9 percent less than planned

The move to alternative fuels still is years away so in the short term Hale and other senior leaders said DoD would double down to find savings not only to pay for the increased costs for energy, but because they have to.

Ashton Carter, the Defense deputy secretary, said the military's budget is 9 percent less than they had planned for it to be.

Carter said services have been looking and would continue to look in "every nook and cranny" for savings. DoD has committed to saving or avoiding spending $259 billion over the next five years and $489 billion over the next 10 years.

The military said a part of that $259 billion — about $60 billion — would come from efficiency savings around technology, acquisition and other back office administrative services.

Hale said each of the services have goals to reduce spending. Hale and Beth McGrath, the deputy chief management officer, oversee the process and are doing periodic reviews of military service and agency progress.

"Last year we had some things that were just plans or commitments, same thing this year," Hale said. "We've taken last year and made them specific, and we will do the same thing again. We recognize we've got to do it and I think the services are fully on board."