BILL ANALYSIS Ó AB 1907 Page 1 Date of Hearing: April 22, 2014 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Susan A. Bonilla, Chair AB 1907 (Ridley-Thomas) - As Amended: April 3, 2014 SUBJECT : Use fuel tax: natural gas: gallon equivalent. SUMMARY : Requires that Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) sold at retail to the public for use as a motor vehicle fuel be sold in a gasoline gallon or diesel gallon equivalent, and revises the corresponding excise tax accordingly to remain revenue-neutral. Specifically, this bill : 1)Requires CNG sold at retail to the public for use as a motor vehicle fuel to be sold in a Gasoline Gallon Equivalent (GGE) that is equal to 126.67 cubic feet of CNG, or 5.66 pounds, measured at the standard pressure and temperature, as specified. 2)Requires LNG sold at retail to the public for use as a motor vehicle fuel to be sold in a Diesel Gallon Equivalent (DGE) that is equal to 6.06 pounds of LNG. 3)Requires a person selling CNG or LNG for use as motor fuel at retail to the general public to display and label in a conspicuous place on the dispensing apparatus "Gasoline gallon equivalent" or "Diesel gallon equivalent," respectively. 4)Sunsets the current excise tax calculations on January 1, 2015, and specifies that thereafter, and notwithstanding specified provisions of existing law pertaining to excise taxes for fuel, the excise tax imposed upon natural gas shall be as follows: a) A rate of $0.0887 for each 126.67 cubic feet, or 5.66 pounds, of CNG used, measured at standard pressure and temperature; and AB 1907 Page 2 b) A rate of $0.1017 for each 6.06 pounds of LNG used. 5)Specifies that no excise tax will apply to the use of CNG or LNG in a vehicle during any period of time in which the owner or operator of the vehicle has paid the annual flat rate fuel tax. 6)Specifies that an owner or operator of a vehicle shall be solely responsible for the specified excise taxes due, and that the fuel seller shall not be liable for collecting and remitting those taxes, to the extent that an owner or operator has represented in writing to the fuel seller that the owner or operator has prepaid the annual flat rate fuel tax. 7)Makes other technical and clarifying amendments. EXISTING LAW : 1)Requires that the sale, offer for sale, or advertisement for sale, at retail to the general public of CNG, be only for use as a motor vehicle fuel. (Business and Professions Code (BPC) Section 13404) 2)Prohibits a person to sell at retail to the general public, any motor fuel from any place of business, unless there is displayed on the dispensing apparatus in a conspicuous place at least one sign or price indicator showing the actual total price per gallon or liter of all motor fuel sold. (BPC 13470) 3)Specifies that the Use Fuel Tax Law imposes an excise tax upon natural gas at the rate of $0.07 for each 100 cubic feet, or 5.66 pounds, of CNG used, measured at standard pressure and temperature, and at a rate of $0.06 for each gallon of LNG used. (Revenue and Taxation Code (RTC) Section 8651.6) FISCAL EFFECT : Unknown COMMENTS : 1)Purpose of this bill . This bill establishes a gallon equivalent standard unit of measurement to simplify and AB 1907 Page 3 standardize the retail sale of CNG and LNG fuel for vehicles, and to standardize CNG and LNG fuel excise taxation rates based on the gallon standard. The standardization of CNG and LNG based on a physical gallon of motor fuel will help reduce purchaser confusion and increase convenience for the retail consumer in comparing the cost and fuel economy of a natural gas vehicle to a comparable gasoline vehicle. This bill is sponsored by the California Natural Gas Vehicle Coalition. 2)Author's statement . According to the author, "Federal and state governments traditionally apply excise tax based on a physical gallon of motor fuel. Unfortunately, these traditional taxation methods provide a tax advantage for foreign-oil based diesel and gasoline and disadvantage emerging domestic alternative fuels like LNG. A Gasoline Gallon Equivalent (GGE) or Diesel Gallon Equivalent (DGE) is the energy content in a GGE or DGE. For example it takes approximately 1.7 LNG gallons to match the same energy content of a single gallon of diesel." "When CNG was introduced as a transportation fuel in the 1990's, the National Conference on Weights & Measures adopted a gasoline gallon equivalent (GGE) unit of measurement in 1994. This unit of measurement enabled CNG to be taxed equitability with gasoline. This legislation would seek to codify within California State law the gasoline gallon equivalent for CNG and to establish a diesel gasoline equivalent for LNG to promote tax equity and the use of a cleaner alternative fuel." "Nine other states, including Arkansas, Colorado, Florida, Georgia, Indiana, Ohio, Oklahoma, Texas, [and] Virginia have adopted similar measures. Under this bill CNG will be taxed by the 'gasoline gallon equivalent' (5.66 lbs. of CNG) because it is typically used in small and medium-duty vehicles. Conversely, LNG will be taxed by the 'diesel gallon equivalent' (6.06 lbs. of LNG) because it is used in heavy-duty applications." 3)Natural gas . Natural gas can be either CNG or LNG: CNG is stored at high pressure in gas form, and LNG is stored at very low temperatures which make it a liquid. As a result, LNG has a higher cost of production and storage compared to CNG, because LNG requires an expensive cooling process and cryogenic tanks. LNG is often used for transporting natural AB 1907 Page 4 gas over large distances in trucks, ships, trains or pipelines, after which the gas is then converted into CNG before distribution to the retail fuel seller. CNG is used as a motor fuel almost exclusively by owners or operators of consumer vehicles that understand the convenience of comparing the cost and fuel economy of a natural gas vehicle to a comparable conventional gasoline vehicle or GGE. Comparatively, LNG is used as a motor fuel almost exclusively by commercial vehicles that understand diesel as the conventional alternative or DGE. 4)Fuel excise taxation . The current excise taxation of CNG recognizes a GGE of CNG as equivalent to 126.67 cubic feet or 5.66 pounds. CNG is currently taxed at $0.0007 per cubic foot which results in a tax rate of CNG at $0.0887 per GGE, which is revenue neutral. The current excise taxation of LNG recognizes a DGE of LNG as equivalent to 1.695 gallons or 6.06 pounds. LNG is currently taxed at $0.06 per 1.695 gallons which results in a tax rate of LNG at $0.1017 per DGE, which is revenue neutral. The establishment of a GGE and DGE standard seeks to alleviate buyer confusion over different CNG and LNG excise fuel taxes and provide a familiar gallon equivalent standard to simplify retail price comparisons. 5)Arguments in support . The California Natural Gas Vehicle Coalition writes in support, "AB 1907 will simplify and standardize the sale of natural gas as a transportation fuel by requiring that compressed natural gas be sold as a gasoline gallon equivalent and liquefied natural gas be sold as a diesel gallon equivalent. This bill defines a gasoline gallon equivalent (GGE) for compressed natural gas (CNG) and a diesel gallon equivalent (DGE) for liquefied natural gas (LNG). [AB 1907] would also change the unit of measure for the excise tax on natural gas but this change would be revenue neutral to the State of California." Sempra Energy Utilities writes in support, "[AB 1907] will simplify and standardize the sale of natural gas as a transportation fuel by requiring compressed natural gas (CNG) to be sold as a gasoline gallon equivalent, and liquefied natural gas (LNG) to be sold as a diesel gallon equivalent, allowing consumers to make a price comparison to a common AB 1907 Page 5 product that everyone is familiar with. [AB 1907] also changes, in a revenue neutral manner, the unit of measure for the excise tax on natural gas." 6)Previous legislation . SB 547 (Rosenthal) (Chapter 514, Statutes of 1991) exempts from regulation by the Public Utility Commission service facilities that sell CNG to the public for use as motor vehicle fuel. 7)Double-referred . This bill is double-referred to Assembly Committee on Revenue and Taxation. REGISTERED SUPPORT / OPPOSITION : Support California Natural Gas Vehicle Coalition (sponsor) Honda North America, Inc. Southern California Gas Company (SoCalGas) San Diego Gas & Electric (SDG&E) Sempra Energy Utilities Republic Services, Inc. Trillium CNG VNG.co Opposition None on file. Analysis Prepared by : Girard Kelly / B.,P. & C.P. / (916) 319-3301