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More States Turning to Natural Gas Vehicles

The future of natural gas vehicles (NGV) and the use of natural gas as a transportation fuel seems brighter after Utah lawmakers moved to continue an NGV-related subsidy and two other states began considering legislation to provide tax credits for NGVs.

In Utah last Wednesday Gov. Jon Huntsman signed into law a bill allowing the state Public Service Commission to continue to authorize a gas rate for NGV that is below the actual cost of service. The measure specifically stated the commission could allow costs that rose above the allowed rate to be spread to other gas customers. The Utah commission had approved a settlement in late 2008 setting an end to the near-20-year subsidy for CNG for July 1, 2009 with the rationale that the price of CNG vehicle fuel should not be subsidized by other utility customers, especially since CNG sales are not a traditional utility service (see NGI, Jan. 5).

That decision was being undermined before the ink was dry as citizens of the natural gas-rich state, who had been converting vehicles to CNG at a rapid rate to get around high-priced gasoline, immediately launched protests. The turnaround came when Huntsman announced in his January state of the state speech a plan to increase Utah's NGV fuel infrastructure, designating the I-15 highway across the state from Idaho to Arizona as an NGV corridor, with additional fueling stations and compression in existing stations to double the fueling capacity in some locations.

The legislature quickly followed up with a joint resolution calling on the state government to encourage the formation of public and private partnerships to increase the states' refueling infrastructure for natural gas-powered vehicles, and urging changes in Environmental Protection Agency (EPA) regulations to speed conversions of existing vehicles from fueling with gasoline to burning natural gas (see NGI, Feb. 2).

"It makes sense -- working with Questar, a great local company -- to encourage the use of natural gas, which emits almost no pollution, is more affordable and most importantly, is a domestic fuel found right here in our own backyard; getting Utah, and the nation, one step closer to breaking our addiction to foreign oil," Huntsman said. "This will require adding infrastructure, looking differently at our regulatory approach and demanding that we look beyond the here and now."

The legislature's EPA resolution outlined a course of action. As a start, the EPA needs to streamline its regulations for testing and certifying conversion kits, particularly for small-volume manufacturers. The conversion process itself is not difficult, but currently each vehicle converted must be individually tested and certified. EPA should allow small vehicle manufacturers to include vehicles and engines in a single engine category to improve the cost efficiency of emission testing of converted vehicles, the resolution stated.

Not to be outdone, the state commission in March announced a compromise on the subsidy question, allowing the CNG rate to go from the current 69 cents a gallon of gasoline equivalent to 97 cents effective Tuesday (April 1). Thereafter the price will float with the commodity price. Originally the Questar settlement would have allowed the price to rise July 1 to reflect the actual costs of the fuel plus infrastructure, which the commission has estimated at a gasoline-equivalent price of about $1.43 per gallon. The latest bill signed by the governor underlines the authority of the public service commission to allow other gas customers to subsidize the lower CNG rate.

It also appears that the NGV corridor will pick up some funding from the recent federal stimulus package. A Questar spokesman said they have received some inquiries from Wyoming and Colorado about the possibility of corridors in their states.

The lower CNG rate had originally been set in a 1989 case to recover some of the costs of compressing the fuel and had not been reexamined until the recent Questar rate case, which initially determined to set cost-based rates. That determination ran smack into the increased use of CNG last year to combat the high price of gasoline.

Last summer Questar, which operates 21 refueling stations (19 in Utah and two in Wyoming) had trouble providing enough fuel for the NGV fleet, which includes both legally and illegally converted vehicles. There is only one dedicated NGV, the Honda Civic GX, which is currently manufactured in limited numbers. It was recently estimated that there are 6,000 natural gas-powered cars in Utah, although it is difficult to pin the number down because of the number of vehicles that have been converted illegally, using kits that are available.

In Oklahoma lawmakers are considering legislation that would provide tax credits to Oklahomans who buy CNG, LNG and other alternative fuel vehicles and to companies building infrastructure for the vehicles.

HB 1949, passed by the Oklahoma House by a 94-4 vote earlier this month, would extend for five years an existing tax credit on the purchase of CNG, LNG and electric cars. The credit is equal to 50% of the cost of conversion of a vehicle to operate on a qualified fuel, as well as those originally equipped to do so. The bill would also add hydrogen and hydraulic hybrid vehicles to the state's list of qualified fuels. Oklahomans installing home-fueling stations for the vehicles would be eligible for $2,500 tax credits. The bill is still under consideration by the state's Senate.

Similar legislation will be considered by the Louisiana legislature when it convenes in Baton Rouge next month. It will include provisions to increase to as much as $3,000 an existing income tax credit for the purchase of qualified vehicles and to increase from 20% to 50% an existing income tax credit for the purchase of equipment to convert gasoline-powered vehicles to CNG or other alternative fuels. The legislation would also provide tax credits to companies that install equipment to fuel alternative fuel vehicles.

Oil magnate T. Boone Pickens has received mixed reviews for his Pickens Plan, which includes a call for natural gas to be widely used as a transportation fuel, particularly by the long-haul trucking industry, since he began promoting it last year (see NGI, July 14, 2008). A series of public officials have signed on to the plan and some businesses have jumped on board as well. AT&T recently said it would invest up to $565 million in an effort to deploy more than 15,000 alternative-fuel vehicles -- including about 8,000 CNG vehicles -- over the next 10 years (see NGI, March 16).

But at the same time others have balked at the massive infrastructure development required by the Pickens Plan. The trade group American Trucking Associations has said cost, infrastructure and logistics challenges make Pickens' call for wide use of natural gas as a transportation fuel highly problematic (see NGI, Feb. 23).

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