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. 




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          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  





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          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.






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           Opposition  :  None received.