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Computing the Fully Burdened Cost of Fuel (FBCF) ______________ Military Operations Research Society Power & Energ

Computing the Fully Burdened Cost of Fuel (FBCF) ______________ Military Operations Research Society Power & Energy Special Meeting Tutorial. Rick Cotman 30 Nov 2009. Fully Burdened Cost of Fuel Background.

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Computing the Fully Burdened Cost of Fuel (FBCF) ______________ Military Operations Research Society Power & Energ

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  1. Computing the Fully Burdened Cost of Fuel (FBCF) ______________ Military Operations Research Society Power & Energy Special Meeting Tutorial Rick Cotman 30 Nov 2009

  2. Fully Burdened Cost of Fuel Background • The following is the approved AT&L FBCF method for all system Analysis of Alternatives (AoA) • This method is consistent with findings of the Defense Science Board 2008 Task Force on DoD energy report “More Fight – Less Fuel” • Joint Light Tactical Vehicle (JLTV) is the first acquisition program to officially apply this method for a milestone review • One on-going Navy/OSD case study assessment of this methodology

  3. Fully Burdened Cost of Fuel Significance • Assumptions: • Improved energy performance will improve force capability • Current methods based on only commodity price do not fully represent delivery costs • Delivery costs are often orders of magnitude greater than the commodity price • Enemies have greater means to disrupt BLUE logistics as US faces an “era of persistent conflict” • FBCF in trade-space analysis – understanding value of energy options on total ownership cost • Complements the Energy KPP • Informing “cost” within “cost, schedule, performance” trades

  4. Fully Burdened Cost of Fuel Methodology • Defense Acquisition Guidebook (DAG) • Primary direction in Ch 3.1.6 https://acc.dau.mil/dag • Additional details in hyperlink to DAU https://acc.dau.mil/fbcfmethod • Scenario-based analytical method • Allocate the 7 price elements within both surge and steady-state scenarios • Establish the “OPTEMPO ratio” between surge and steady-state • Compute the Assured Delivery Price for the Unit ($/gal) • Identify the Platform’s fuel demand (gal/day) • Compute the Fully Burdened Cost of Fuel ($/day) for the Platform

  5. Price versus Cost • Price: The value of a specified amount of a commodity • Assured Delivery Price (ADP) = Elements • Measured in $/gal, $/bbl • Cost: Total amount spent to purchase a commodity over a period of time or to accomplish a task • FBCF requires Platform’s fuel Demand (gal/day) • Measured in $/day, $/flying hour, $/sortie, $/mission • Price x Demand = Cost • $/gal x gal/day = $/day

  6. Fully Burdened Cost of Fuel Step-by-Step

  7. Scenarios - Selection • All price values must be tied back to scenarios • Use same scenarios used for rest of program – typically based on Defense Planning Scenarios (DPS) • Fuel delivery forces based on Platform fuel demand for chosen scenarios • Scenarios must represent both Steady-State & Surge OPTEMPO

  8. The 7 Price Elements

  9. Price Element #1Commodity Price of Fuel • Standard Price, established by USD (Comptroller), for future fuel received at a retail Point of Sale (POS) • Includes a surcharge to recover costs associated with storage and transportation of the fuel to the retail POS • DESC’s Standard Price for fuel is not a current market price for fuel

  10. Price Element #2Fuel Delivery Asset Operations & Support Price • O & S costs associated with fuel delivery assets • Navy oiler vessels • Air Force aerial refueling tanker aircraft • Army & USMC tanker trucks • Operated by the Services from the retail POS after receipt from DESC (“tactical delivery”) • Platform demand feedback influences number of fuel delivery assets

  11. Price Element #3Fuel Delivery Asset Depreciation Price • Measures the decline in capital value of the primary fuel delivery asset over time • Use straight line depreciation over the expected service life of the delivery asset • Use OMB/DoD standard method for depreciation calculation • Debate about acceleration of depreciation during Surge • As in Element #2, Platform demand will influence number of fuel delivery assets needed

  12. Price Element #4Direct Fuel Infrastructure Price • Applies only to infrastructure operated by the Services • Captures the O&S and recapitalization costs for facilities in theater and not operated by DESC • Directly related to delivery of fuel • Services maintain this data for their facilities

  13. Price Element #5Indirect Fuel Infrastructure Price • Fair share of the total indirect O&S costs attributable to base-level fuel infrastructure functions – not the base barber, but… • A method to estimate the annual indirect fuel infrastructure price • Take the total annual base-level O&S cost and divide by the total installation manpower • Apply this per capita cost factor to the manpower associated with fuel delivery • Divide this value by the gallons delivered from this installation • The above method provides an annualized, historic, aggregate estimate (this is not ideal) • It is not scenario specific • It does not use the proposed future force structure

  14. Price Element #6Environmental Price • No DoD standing policy on what to include • Others have used proxy estimates • Allocation of the costs of DoD environmental clean-up and hazardous waste control • Cost of carbon emission offsets based on European carbon trading offset prices

  15. Price Element #7Other Service/Platform Unique Price • Costs of protecting the fuel supply chain from POS • O&S costs • Direct fuel costs • Depreciation cost of those forces • Force protection for fuel delivery expected in DPS’ in the future – lessons learned from current ops, war games, emerging analysis • Expected to be the single largest element in future FBCF calculations

  16. FBCF Surge Delivery Process Demand Influence

  17. FBCF Delivery Circuit Simplified Notional Scenario Escort Oiler Tactical Delivery Circuit Combat Delivery Zone Resupply Port Point of Sale Oiler Carrier Strike Group Escort Not to Scale

  18. Summary • Establish Steady-State & Surge scenarios • Follow DAG guidance • Define OPTEMPO ratio • Compute Unit’s ADP Prices ($/gal) • Define Platform’s fuel demand (gal/day) • Compute Platform’s FBCF ($/day) Price: Value of a specified amount of a commodity ($/gal) Cost: Total amount spent to purchase a commodity ($/day) ADP * Demand = FBCF

  19. Points of Contact Mr. Chris DiPetto Acting Director, Developmental Test & Evaluation Staff: David Bak, Senior Policy Analyst Rick Cotman, Senior Operations Research Analyst Tom Morehouse, Consultant Please contact us at: (703) 412-3685 (703) 412-3673 (703) 697-0987

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