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Agencies juggle rising fuel costs with cost-cutting

Mar. 19, 2011 - 06:00AM   |  
By ANDY MEDICI   |   Comments
The U.S. Postal Service says every 1-cent increase in fuel prices costs the agency $6.5 million annually.
The U.S. Postal Service says every 1-cent increase in fuel prices costs the agency $6.5 million annually. (File photo / Getty Images)

Higher gasoline prices up 77 cents since this time last year to an average of $3.56 a gallon are squeezing federal agencies already struggling with tight budgets.

The U.S. Postal Service fleet of 215,000 vehicles logs 4 million miles per day, and every 1-cent increase in fuel prices costs the agency $6.5 million annually, according to Steve Masse, vice president of finance and planning.

"If gasoline prices were to rise 58 cents from current levels … USPS fuel costs would increase by an additional $31 million per month," Masse said in a statement. He cited an all-time high average of $4.11 in July 2008.

The Postal Service's fuel bill for 650 million gallons totaled $1.7 billion in 2010.

Higher fuel costs are one more challenge for an agency already expecting to suffer a $7 billion financial loss this year because of declining mail volume and $5.5 billion financial obligation to a health care fund for future retirees. In an effort to cut costs and rein in yearly deficits in the billions of dollars, the Postal Service has lobbied Congress to waive its requirement for six-day delivery, which would save the Postal Service $3 billion in fuel, personnel and equipment costs annually, according to its own estimates.

The Defense Department, like most agencies, is contending with 2011 prices while operating under a continuing resolution that holds funding to 2010 levels. That means its component agencies' fuel budgets are based on prices of $2.81 a gallon, compared with a standard 2011 price that Defense has pegged at $3.03 a gallon.

This leaves the department with about a $1 billion shortfall, according to a Defense spokes-woman.

The Defense Working Capital Fund sets a stabilized standard composite fuel price for the budget year based on projected market prices. The fund is able to absorb minor price fluctuations using its cash balances as a buffer against rising costs.

"While the fund can absorb temporary high prices, sustained crude oil costs in the $100 per barrel range could become problematic," the spokeswoman said.

Chris Stenrud, deputy assistant secretary for public affairs at the Health and Human Services Department, said the department's motor pool has pre-negotiated contracts with a bulk fuel supplier, which helps reduce the impact of rising gas prices.

The Commerce Department pays for increased administrative costs such as gas by reducing travel or other administrative expenses, a spokeswoman said.

Cost-saving measures such as a hiring freeze and curtailment of all nonessential spending are helping the Justice Department cope with rising gas prices, according to spokeswoman Jessica Smith.

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