Revised FY09 CRAF Proposed Fuel EPA.pdf

UNITED STATES TRANSPORTATION COMMAND

508 SCOTT DR

SCOTT AIR FORCE BASE, ILLINOIS 62225-5357

28 Mar 08

MEMORANDUM FOR ALL CARRIERS

FROM: United States Transportation Command Directorate of Acquisition 402 Scott Drive Unit 3A1 Scott AFB IL 62225-5302

SUBJECT: Notice of Revised Proposed Economic Price Adjustment (EPA) for FY09 Uniform Rates and Rules for International Service – Solicitation Number HTC711-08-R-0003

1. The revised proposed Fuel EPA for the FY09 Rates and Rules is posted for your review and comment. Our original proposed EPA fuel methodology was posted on the FBO on 8 Feb 08 and briefed at the 14 Mar 08 Pre-Solicitation Conference. A different methodology was recommended at the Pre-Solicitation Conference for which our revised proposed EPA is based on.

2. Attachments 3 and 4 are the revised CRAF Fuel Index models for passenger and cargo. The changes include removal of the adjustment factor from the CRAF Fuel Index model, monthly fuel adjustment will be based on a percentage variance verses a price variance, and the $.01 cent rule for fuel adjustments is eliminated. The higher average fuel cost for CRAF requirements will be considered in the development of the pegged fuel price. The proposed revised fuel methodology will be incorporated into the FY09 Proposed Rates where the carriers will be given an opportunity to provide comments. We anticipate posting the FY09 Proposed Rates on 25 Apr 08.

3. Please forward any questions or concerns to Bill Prather at 618-229-2463 or bill.prather@ustranscom.mil.

//SIGNED//

OLIVIA L. HITSMAN

Contracting Officer

Attachment:

CRAF Fuel Adjustment Process w/Attachments

CIVIL RESERVE AIR FLEET (CRAF) FUEL ADJUSTMENT PROCESS

SUBJECT: Proposed Economic Price Adjustment (EPA) Procedures Under FAR 12

1. Background: As a result of the recent Office of Secretarial Defense (OSD) oversight of the USTRANSCOM CRAF contract, the historical policy for reimbursing fuel based on actual cost was questioned. To eliminate this cost-based fuel adjustment, a change from the use of actual fuel data to the application of an index to determine the monthly fuel adjustment was required. This change, in conjunction with acquiring the CRAF contract under FAR Part 12, will result in a CAS exemption. USTRANSCOM’s new CRAF Fuel Index is a composite index based on two fuel market price sources.

a. Defense Energy Supply Center (DESC): The first source is the standard published fuel price for JP8 fuel managed by DESC. The DESC fuel is sold at DoD locations.

DESC’s customers not only include CRAF carriers but state and local governments, Civil Air Patrol, aircraft museums, education institutions, Red Cross, USO, humanitarian organizations, other approved Non-DoD Agencies, and customers approved by DESC Director. Since JP8 fuel is the primary source sold at military installations to the CRAF carriers it will be the single DESC fuel price source used for the CRAF Fuel Index model.

b. Energy Information Administration (EIA): The second source is the EIA Spot Price Index for Kerosene-Type Jet Fuel. The EIA Index tracts fuel prices at five major fuel markets (New York Harbor, U.S. Gulf Coast, Los Angeles, Rotterdam, and Singapore). The EIA monthly fuel price used to calculate the monthly CRAF Fuel Index is an average of the five Spot Market prices.

2. Index Development: Various fuel indexes, in addition to EIA, were considered in the development of the CRAF Fuel Index. Other indexes considered were the Producer Price Index (PPI) for jet fuel, Air Transport Association (ATA) Fuel Index, and Oil Price Information Service (OPIS). The EIA Spot Price Index was selected because it is both widely used by the airline industry in the development of fuel surcharges in their commercial business and other Government contracts where a fuel surcharge or EPA is required. Additionally, this index is updated daily and includes fuel prices from two international fuel market locations. A brief summary of how the CRAF Fuel Index is developed is discussed in the following paragraphs:

a. Fuel Database: USTRANSCOM’s historical fuel data information was reviewed to calculate an average ratio of military to commercial fuel uplifted in support of CRAF requirements. This review resulted in a historical fuel ratio (DESC versus commercial fuel uplifted) of 69 to 31 percent and 18 to 82 percent for cargo and passenger, respectively. The fuel ratios will remain constant throughout the contract year, and monitored during the rate review cycle.

Fuel price information from our fuel database along with commercial market fuel price information are sources used to develop the pegged fuel prices. The pegged prices include all associated fuel cost (taxes and into plane fees) carriers can expect to incur in performance of CRAF airlift requirements. The pegged fuel prices go into the annual CRAF Rates for fuel and are the basis for monthly fuel adjustments as outlined in paragraph 4.

For each rate review cycle the most recent historical six to eight month period from our fuel database is reviewed to confirm the fuel ratio factors and aid in the determination of projected fuel price trends for the contract performance period. An example of this process is as follows:

The monthly fuel reports for the seven month period (1 Oct 05 – 30 April 06) were reviewed for the FY07 rates review. CRAF Rates are generally finalized in June, often with April as the most current historical fuel data available from the fuel database. The data for this period revealed that cargo carriers uplifted 69 percent of their fuel for CRAF missions at military installations while passenger carriers uplifted 82 percent of their fuel at commercial locations. Military fuel prices averaged $2.37 and commercial fuel prices averaged $2.09 for this six month period. These historical fuel prices along with current commercial market fuel price sources and forecasted jet fuel prices from Global Insight Incorporated (GII) and EIA web site are sources used to estimate the pegged fuel prices for the contract performance period.

b. DESC Standard Prices: The DESC standard fuel prices are published in Sep and become effective with the beginning of the fiscal year on 1 Oct. The DESC JP8 fuel price remains fixed throughout the fiscal year until a price change is published by DESC.

Historically, the DESC standard prices have changed only once or twice during the fiscal year. However, DESC anticipates a future ability to adjust prices monthly. Attachment 1 is a published fuel price listing we receive from DESC.

c. EIA Index: The EIA Index tracks fuel prices for five spot markets (3 domestic and 2 international locations). The EIA index price used for the CRAF Fuel Index is updated monthly based on a monthly average of these five spot markets. Attachment 2 is an example of the EIA monthly commercial fuel averages.

3. CRAF Fuel Index: The weighted CRAF Fuel Index is a composite index comprised of the DESC fuel price and EIA fuel price weighted by their historical percentage fuel ratios of military and commercial fuel purchases for cargo and passenger operations. A base-line will be established for each contract performance period. Attachments 3 and 4 are examples of the CRAF Fuel Index for passenger and cargo.

4. Index Application: USRTRANSCOM will adjust each carrier’s monthly revenues upward or downward by the monthly EPA percent variance within the CRAF Fuel Index.

The CRAF Fuel Index will be posted on Fed Biz Ops and updated by the 15th of each month. Below is an example which demonstrates the application of the CRAF Fuel Index.

Cargo Carrier:

884,093 Sep 07 Pay Miles x 8.022 Gallons Per Mile (Fuel Burn Rate) 7,092,194 Total Gallons x $2.25 Pegged Price Per Gallon (Base price incorporated in the rate) $15,957,436 Total Fuel Cost In Rate

2.33 % EPA Percent Change in Fuel Index for Sep 07 $371,808.27 Sep 07 Fuel Adjustment

Adjustments for passenger carriers will be processed in the same manner with an index that tracks to passenger fuel purchases in the DOD market (weighted at 82% commercial, 18% DESC).

The new monthly fuel adjustment process will continue to require CRAF carriers to submit Monthly Fuel Reports. The Monthly Fuel Report is the formal document that provides our necessary fuel data for the annual rate reviews. During our annual ratemaking process, Defense Contract Audit Agency (DCAA) reviews the accuracy of this fuel data information. Attachment 5 is an example of the Monthly Fuel Report Summary.

Attachments:

1. DESC Fuel Prices

2. EIA Monthly Commercial Fuel Averages

3. CRAF Fuel Index for Passenger

4. CRAF Fuel Index for Cargo

5. Sample Monthly Fuel Report Summary ar07 FY2007 PWCES FOR PUBLICATION (Standard Price $96 60) xls

Prices for Publicat~on

DFAMS

PRODUCT

CATY.GORY

NATIONAL

STOCK NUMBEK

9130-01-281-5692

PRODUCT

CODE

U1.X

IPX

JtlH

JP8

n's

JTS

ITS

LSX

N2007

TOTAL PRICE

52.30 52.61

BULKsnd PC&S BULK and PCBs BULKsnd PC&S BULK and PC&S BULK and PC&S

BULK and PC&S GUM

OUR

GUS

MG7

MGX

MU1

MUM

MUM

hlUR hlUR

MUS

MU1

BULK 8nd PC&S BULK snd PC&S

BULK ond PC&S - -

BULK and PC&S BULK snd PC&S

BULK mnd PC&S BULK and PC&S

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BLIYKERS

BUNKERS

MGO

MGO

MGO

BUNKERS

BUNKERS

BLINKERS

BLINKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

1 80 I 80

BLS

BS4

BS6

FOR

NBF

$1.00 $3.13 Local Purchssc

BUNKERS

INTOPLANE

INTOPLANE

IYTOPLANE

LL

NLL

$5.70 $10.30

54.25 NonContrsct Alrcsrd Purrhales. IOOLLAvlatlon Gnsolin

$2.61 52.61 $2.61 52.61

54.03 Jet A-l wlth Addltlonsl Servke

54.03 Jet AA with Additlonll Servlcc!

54.25 LocmI PurchPsc

54.25 Local Purrhaa

54.25 Local Purrhast

52.30 Rusdm Commrrdsl Jot Fur

54.25 NonContract A l r n r d Purchases, Jet A-1 Jet Fur

S4.25 NonCoolmct A l r c ~ r d Purchases, Jet A Jet Fur

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLAYE

INTOPLANE

INTOPLANE

INTOPLANE

IYTOPLANE

IA l M

IAB

IP4

IS1

ISA

NAI

NAA

NAB

TSI

NJ I

NJA

INTOPWNE

BULK and PC= BULK and PC&S

FY2007 P R I C E S F O R PUBLICATION (April Standard Price $89 88).xls Prices for Publication

BULK and PC&S 9130-01-305-5597 lP8 9 GL $2.43 BULK snd PC&S 9130-01-423-0736 JBX 9 GL 11.84 Bosnia - -

BULKand PC&S 9130-01-031-5816 JP8 9 GL S2.14 BULK and PC&S 9130-00-543-7632 JTS 9 DR $252.86 BULK and PCBs 9130-00-543-7833 JTS 9 DR $259.09 BULK and PC&S 9130-00-551-2264 ITS 9 GL S3.90 BULK and PC&S 913041-395-0945 LS8 9 GL 12.14

BULKand PC&S 9130-01-355-2393 GUM I I GL 52.21 BULK end PC&S 9130-01-090-1093 GUR I I GL 52.09 BULK and PC&S 9130-01-090-1092 GUS I I GL 52.09

BULK and PC&S BULKand PC&S BULK snd PCBs BULK and PC&S BULKand PC&S BULK and PC&S BULK and PC&S BULK and PC&S BULK and PC&S

9130-01.289-8638 MG7 13 GL

9130-W-142-9457 MGX I3 GL

9130-01-461-2355 MU1 I3 GL

9130-01-272-0983 MUM I3 GL

9130-01-282-2844 MUM 13 DR

9130-00-148-7103 MUR I3 GL

9130-01-208-4172 MUK 13 DR

9130-W-148-7102 MUS 13 GL

9130-01-542-5289 MUJ 13 GL

BUNKERS 9130-01-499-9521 1P5 4 MT $697.25 .

BUNKERS 9130-00-273-2379 JPS 4 GL $2 16

BUNKERS 9130-01-548-7337 NJ5 4 GL 53.96 Locul Purchatl

BUNKERS 9140-01-447-1031 876 5 GL 52.13

BUNKERS 9140-01456-9443 D R 5 GL $1.92

BUNKERS 9140-01-429-5938 1.76 5 MT 1667.61

BUNKERS 9140-00-273-2377 l76 5 GL 52.13

BUXKERS 9140-01-313-7776 MOO 5 GL 51.63

BUXKERS 9140-01-417-6843 MGO 5 MT 5513.94

BUXKERS 914041-529-3268 MGO 5 MT $917.52 Lowl Purehasi

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

BUNKERS

9140-01-271-5280 I80 6 GL $1.35

9140-01-417-6645 180 6 MT $370.02

9140-01-235-2882 380 6 GL $1.35

9140-01-417-6632 3x0 6 MT 5366.73

9140-01-447-1042 BL5 6 GL S1.35

9140-01-447-1065 BS4 6 GL S1.35

914041-447-1092 BS6 6 GL 11.35

9140-01-068-6903 FOR 6 GL Sl 00 9140-01-439-2461 NBF 6 GL $2.91 L o n l Purchasi

BUNKERS 9150M)-181-8232 LO6 7 GL $6.15

INTOPLANE 9130-014-6176 113 I GL $5.30

INTOPLANE 9130-01-531-4426 LL I GL 19.58

INTOPLANE 913061-542-5956 NLL I GL 53 96 NonConlran Alrrard Purchases, IOOLL Avlatlon Gssolln

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLANE

INTOPLAXE

INTOPLAXE

INTOPLANE

INTOPLAXE

91 30-01-305-4096 IAl

9130-01-305-4097 IM

9130-01-305-5595 !A8

9130-01-305-5596 IP4

913041476-5132 IS1

9130-01-476-5350 ISA

9130-01-481-6869 NAI

9130-01-481-6836 NAA

9130-01-481-6868 NAB

9130-01-492-4931 TSI

913041-542-4041 NJI

913041-542-5969 NJA

$2.43 52.43

53.75 J r t A-1 with Additlonnl Servlerr

3 GL $3.75 Jet M tilth Addllionnl Sctvlcrr 3 GL 53.96 Lou1 Purrhast 3 GL 53.96 Local Purchua 3 GL S3.96 Lou1 Purchurc

3 GL 52.14

3 GL 13.96 XanContrsn Aircard Purchase* Jet A-l Jel Fue 3 GL $3.96 NonContrad Aircard Purchoscc, Jet A Jet Fur

INTOPLANE 9130-01-305-5597 IP8 9 GL 52 43

BULK and PC&S 9130-01-305-5596 IP4 3 GL S2.43 BULK and PC&S 9130-01-305-5597 IP8 9 GL 12 43

Energy Information Administration (EIA) Monthly Spot Market Prices

New York Harbor U.S. Gulf Coast Los Angeles, Rotterdam Singapore Monthly Date Kerosene-Type Jet Kerosene-Type CA Kerosene- (ARA) Kerosene-Type Jet Average

Notes:

1. Source: http:lltonto.eia.doe.govldnavlpet~pet~pri~~pt~sl~d.htm

2. USTRANSCOM developed this spreadsheet as EIA list spot markets separately and they do not average the markets

(a) (b) (c) (d) (e) (f) DESC Standard EIA Monthly CRAF Fuel Index 3 EPA Percent

Month Fuel Price 1 Index 2 (col b x 18%) + (col c x 82%) Index 4 Variance 5

Jun 07 214 209 209.90 100.00 0.00% Jul 07 214 215 214.82 102.34 2.34% Aug 07 214 209 209.90 100.00 0.00% Sep 07 214 225 223.02 106.25 6.25% Oct 07 220 238 234.89 111.91 11.91% Nov 07 220 272 262.64 125.13 25.13% Dec 07 220 263 255.26 121.61 21.61% Jan 08 304 261 268.74 128.03 28.03% Feb 08 304 274 279.40 133.11 33.11% Mar 08 0.00 0.00 -100.00% Apr 08 0.00 0.00 -100.00% May 08 0.00 0.00 -100.00% Jun 08 0.00 0.00 -100.00% Jul 08 0.00 0.00 -100.00% Aug 08 0.00 0.00 -100.00% Sep 08 0.00 0.00 -100.00%

Notes:

* DESC and Commercial fuel is weighted 18% and 82% respectively.

1. Source for Defense Energy Supply Center (DESC) fuel prices http://www.desc.dla.mil/DCM/DCMPage.asp?LinkID=DESCCutomerService

2. Source for Energy Information Administration's (EIA) five spot markets is http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_m.htm

3. Calculated index for adjustment of fuel prices.

4. Index is set at 100 in the month final rates are published. Fuel prices will be adjusted each month based on variance from the base month.

5. The percent variance is applied to the monthly fuel miles and fuel burn rate to calculated the monthly fuel adjustment.

FY08 CONTRACT PERIOD - PASSENGER CRAF INDEX

Atch 3

(a) (b) (c) (d) (e) (f) DESC Standard EIA Monthly CRAF Fuel Index 3 EPA Percent

Month Fuel Price 1 Index 2 (col b x 69%) + (col c x 31%) Index 4 Variance 5

Jun 07 214 209 212.45 100.00 0.00% Jul 07 214 215 214.31 100.88 0.88% Aug07 214 209 212.45 100.00 0.00% Sep07 214 225 217.41 102.33 2.33% Oct 07 220 238 225.63 106.20 6.20% Nov 07 220 272 236.12 111.14 11.14% Dec 07 220 263 233.33 109.83 9.83% Jan 08 304 261 290.67 136.82 36.82% Feb 08 304 274 294.70 138.71 38.71% Mar 08 0.00 0.00 -100.00% Apr 08 0.00 0.00 -100.00% May 08 0.00 0.00 -100.00% Jun 08 0.00 0.00 -100.00% Jul 08 0.00 0.00 -100.00% Aug 08 0.00 0.00 -100.00% Sep 08 0.00 0.00 -100.00%

Notes:

* DESC and Commercial fuel is weighted 69% and 31% respectively.

1. Source for Defense Energy Supply Center (DESC) fuel prices http://www.desc.dla.mil/DCM/DCMPage.asp?LinkID=DESCCutomerService

2. Source for Energy Information Administration's (EIA) five spot markets is http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_m.htm

3. Calculated index for adjustment of fuel prices.

4. Index is set at 100 in the month final rates are published. Fuel prices will be adjusted each month based on variance from the base month.

5. The percent variance is applied to the monthly fuel miles and fuel burn rate to calculated the monthly fuel adjustment.

FY08 CONTRACT PERIOD - CARGO CRAF INDEX

Atch 4

MONTHLY FUEL REPORT SUMMARY

DATE: 2/9/2007 MONTH: Sep-07

CARRIER: X ACFT TYPE: B-747

CONTRACT: XXXXXx TYPE OPS: CGO

1. The following amounts are certified:

Round Trip Pay Miles: 884,093 One Way Pay Miles: 0 Total Live Miles: 884,093 Flown Empty Reverse Segment: 0 Paid/Actual Flown Ferry (Whichever is Less): 0

TOTAL FUEL MILES: 884,093

2. Proposed fuel adjustment:

Total Fuel Miles: 884,093 Fuel Burn Rate: 8.022 Pegged Price of Fuel Published in the Rate: $2.25 EPA Percent Variance : 2.33%

FUEL ADJUSTMENT: $371,808.27

3. Fuel summary information:

Avg Cost /

Gallons Cost Gallon

Total Commercial fuel: 4,026,063 8,061,247.18 2.0023 Total military fuel: 1,404,181 3,229,616.30 2.3000 Total fuel purchased: 5,430,244 11,290,863.48 2.0793

Carrier Certification

Must be signed by a person authorized to legally bind company Date

BY SIGNING THIS FORM, YOU ARE CERTIFYING AS TO THE ACCURACY OF

ALL INFORMATION AND AGREE TO KEEP BACKUP RECORDS FOR A

PERIOD OF 5 YEARS. THIS INFORMATION IS SUBJECT TO AUDITS.

Contracting Officer Signature Date

Atch 5