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









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             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  








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            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  








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            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  








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            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