Faced with a potential million-dollar increase in fuel costs, the Steamship Authority will rework its budget for next year, examining cost cuts, fare rises or a fuel surcharge.

Doubt was cast on the estimates for fuel costs contained in a draft budget presented to the SSA board at its meeting on Tuesday by Robert S. Marshall, the Falmouth member of the Authority board of governors, who noted the document assumed oil prices of $70 per barrel in 2008, which is about $10 lower than current world prices.

He said it would be “short-sighted” for the Authority to not to budget more conservatively for fuel, and urged the consideration of a fuel levy, such as is already imposed by many other transport operators, particularly airlines.

If oil prices stayed at current levels, the boatline would have to pay around $1 million for fuel. For each $1 rise in the cost of a barrel of oil, the fuel costs of the boat line rise about $98,000.

“We’re looking at a fuel charge here,” he said, noting such a charge was “what everyone else in the transport business is doing.”

But the treasurer of the Authority, Robert B. Davis said later that rather than a fuel surcharge he was inclined to look first at other areas to address any potential budget shortfall, including more efficient or less frequent boat movements, or possible fare increases.

In the preliminary draft of the $80 million budget presented to the board, Mr. Davis cited predictions that crude oil prices would fall during the remainder of this year, and would range between $60 and $72 per barrel in 2008.

“Currently, it is not anticipated that any rate increases will be needed . . .” his staff summary said.

But in a subsequent interview on Wednesday, he stressed that extreme volatility in oil prices made assumptions difficult. He noted that only the previous day one forecaster at Goldman Sachs had suggested the oil price could be $85 during 2008.

“The message from the board is that I need to be looking harder at the fuel numbers,” he said. “But any adjustment would not necessarily be in the form of a fuel surcharge. My inclination is to do something in another area.”

He suggested more efficient operation of the boats to save fuel — the Authority already is concerned about slowing down some boats which are consistently arriving early — and possibly reducing the number of freight trips.

Fare increases would be a last resort.

Notwithstanding the fuel problem, the boat line’s finances are in good shape. The business summary to the end of July showed a net operating income for this year to the end of July of about $3 million, which is $3 million better than was forecast in last year’s budget.

Preliminary figures for August suggested net income would be $9.7 million for the first eight months of the year, some $3.6 million ahead of forecasts.

The 2008 draft budget projected operating revenues of some $79, 844,000 — an increase of just over one per cent over this year — and a net operating income for the year of just more than $4 million.

So even in a worst-case scenario in relation to fuel costs, there would still be a cushion of about $3 million. The concern, said Mr. Davis, was that the cash flow might not come at the right time through the year to meet expenses.

The major cost increases for the coming year are depreciation, up 13.4 per cent or almost $1 million to $8.25 million, and fuel, up 9.3 per cent or $600,000 to about $7 million.

Rapidly increasing fuel and depreciation costs have been recurring themes over recent years. They rose some $900,000 and $2.6 million respectively in the 2007 budget.

At that time, the authority was forced to increase fares across the board to bring in another $4 million to $3 million of it from the Vineyard route.

Fuel costs make up nearly 10 per cent of the SSA’s total operating expenses.