BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 1907 HEARING: 6/25/14 AUTHOR: Ridley-Thomas FISCAL: Yes VERSION: 4/3/14 TAX LEVY: No CONSULTANT: Bouaziz USE FUEL TAX: NATURAL GAS: GALLON EQUIVALENT Changes the excise tax rate for compressed natural gas and liquefied natural gas to remain revenue-neutral Background and Existing Law State law defines "fuel" to include any combustible gas or liquid, by whatever name the gas or liquid may be known or sold, used in an internal combustion engine for the generation of power to propel a motor vehicle on the highways, except fuel that is subject to the Motor Vehicle Fuel Tax Law or the Diesel Fuel Tax Law. The definition does not include any combustible gas or liquid specifically manufactured and used for racing motor vehicles at a racetrack. State law imposes an excise tax of $0.18 per gallon for use of fuels and an excise tax on compressed natural gas (CNG) at a rate of $0.07 per 100 cubic feet. An excise tax of $0.06 per gallon is imposed on liquefied natural gas (LNG). A retailer who sells or delivers fuel must collect the tax from the user and provide a receipt, unless an owner or operator of a vehicle propelled by liquefied petroleum gas, LNG, or CNG pays an annual flat rate fuel tax based on the type or weight of the vehicle instead of the per gallon or cubic foot rate. Proposed Law Assembly Bill 1907 changes the use fuel excise tax rate for CNG from $0.07 per 100 cubic feet to $0.0887 per 5.66 pounds, and for LNG from $0.06 per gallon to $0.1017 per 6.06 pounds beginning on January 1, 2015. AB 1907 -- 04/03/14 -- Page 2 Assembly Bill 1907 requires retailors to display signage stating "gasoline gallon equivalent" or "diesel gallon equivalent" when CNG or LNG is sold to the public. Under Assembly Bill 1907, fuel retailors are not responsible for any taxes due when an owner or operator has provided written representation that the annual flat rate fuel tax has been paid. State Revenue Impact None. Comments 1. Purpose of the bill . According to the author, "Traditional retail tax practices for Federal and State governments are based on a "physical gallon" of measurement versus a measurement of actual "energy content." Unfortunately, these traditional volumetric taxation methods disadvantage emerging domestic alternative fuels like CNG and LNG due to their lower energy contents. Specifically, to achieve the same British Thermal Units (BTU's) of energy, it takes approximately1.7 LNG gallons to match the same energy content of a single gallon of diesel. In an effort to solve this, state tax commissions are converting their systems from a volumetric tax to an energy equivalent tax. This ensures a smoother transaction for truck fleets and fuel station operators in purchasing and selling natural gas fuel, respectively. Nine other states, including Arkansas, Colorado, Florida, Georgia, Indiana, Ohio, Oklahoma, Texas, and Virginia, have adopted similar measures. AB 1907 would amend California's fuel excise tax code to create an alignment with the growing number of states that are modifying their tax codes to make way for the increased use of natural gas for transportation." 2. Background . In 1993, the National Conference on Weights and Measures came together to determine the way in which CNG would be sold to the public at retail. The working group focused on providing the industry a method of selling natural gas that would be familiar to consumers, providing officials with a verifiable method of determining AB 1907 -- 04/03/14 -- Page 3 the accuracy of natural gas, and providing a uniform standard of measurement. A recommendation was made to use a gasoline gallon equivalent for the sale of CNG because it would be convenient for retail customers to compare the cost and fuel economy of a natural gas vehicle to a comparable gasoline vehicle. CNG can be measured by volume in standard cubic feet (volume), by weight (pounds), or by its energy content (BTU). The conversion rate from cubic feet to pounds for CNG is not common knowledge, nor is the energy content of CNG equivalent to a gallon of gasoline. This makes it difficult for consumers to compare the cost of fuels sold using different methods of measurements. The use of a gasoline gallon equivalent and other gasoline equivalents, therefore, provides consumers with a simple way of comparing the price of energy in natural gas to a common product that consumers are familiar with. In this case, a gasoline gallon equivalent is based on the energy equivalent of a single gallon of regular gasoline and a diesel gallon equivalent is based on a single gallon of diesel. 3. Equivalent gallon units are a national trend . Since March, 2013, 11 states have passed legislation to measure or label CNG and/or LNG in equivalent gallons of gasoline or diesel. Assembly Actions Assembly Business and Professions 14-0 Assembly Revenue and Taxation9-0 Assembly Appropriations 17-0 Assembly Floor 78-0 Support and Opposition (06/19/14) Support : Bay Area Air Quality Management District; California Natural Gas Vehicle Coalition; California Trucking Association; Honda; San Diego Gas & Electric; Sempra Energy Utilities; Southern California Gas Company; Trillium CNG; United Parcel Service; VNG, Co. (based in Pennsylvania); Waste Management. AB 1907 -- 04/03/14 -- Page 4 Opposition : None received.