IFTA – Dual Fuel Vehicle Tax Reporting

1. IFTA – Dual Fuel Vehicle Tax Reporting August 14, 2014 Pittsburgh, PA Presented by DUAL FUEL WORKING GROUP

2. Overview • A Quick Recap on Dual Fuel Vehicles • Conversion Issue for LNG • Diesel gallon equivalents • Short-Track Ballot #05-2014 • New Fuel Types for the Clearinghouse • For reporting between jurisdictions

3. Dual FuelWorking Group IFTA: Hugh Hughson (BC) Dawn Lietz (NV) Paul Bernander (WI) Garry Hinkley (MI) Tim Ford (CA) Chuck Ulm (MD) Industry: Robert Pitcher (ATA) Gary Bennion(Con-Way) FTA: Cindy Anders-Robb IFTA, Inc. Advisors: Lonette Turner Amanda Koeller

4. Dual Fuel Vehicles - 101 • Dual fuel vehicles can use two fuels at the same time (i.e., diesel and natural gas) • Two types of natural gas are being used: • Compressed Natural Gas (CNG) • Stored as a gas in high-pressure tanks (e.g., 3,000 to 3,600 psi) • Often sold as a gaseous measure (e.g., ft3 or m3) • Liquefied Natural Gas (LNG): • Stored as a super-cooled liquid (e.g., -260°F or -170°C) • Almost always sold as a liquid measure (e.g., gallons or liters) or by weight

5. Dual Fuel Vehicles - 101 • Expect: • At least 5% of long haul vehicles will be dual fuel within the next 5 years • LNG will be used more for since the energy content comparable to gasoline and diesel fuels

6. Dual Fuel Vehicles - 101 • Ballot #03-2013: • 1 gallon of CNG equals 126.67 cubic feet, and weighs 5.66 pounds • 1 liter of CNG equals 1.0 cubic meters, and weighs 0.7316 kilograms • (Needed since jurisdictions conversion rates for CNG vary considerably)

7. CNG Conversion Rates Source – FTA

8. Conversion Factors for LNG • We told you LNG always sold as a liquid (we were right but there is still a problem) • In the United States two different methodologies exist to convert LNG to volume measures: • Straight weight - 1 gallon weighs 3.5 pounds • Energy equivalent weight - 1 DGE weighs 6.06 pounds

9. Conversion Factors for LNG • In Canada: • The Federal government determines the units of measure and is strongly opposed to energy equivalents: • The source of the raw product, the refining/manufacturing process, age of the finished product and season of use can all significantly affect the energy content of diesel and LNG • In addition, temperature and pressure greatly affect LNG energy content • The result, it is almost impossible to establish a fixed ratio to accurately compare these fuels

10. Conversion Factors for LNG • In the United States: • Retail stations want DGE so the public can compare LNG with diesel • National Conference on Weights and Measures is likely to adopt DGE • Understand 18 states have DGE legislation (with two more likely before year-end)

11. Short TrackBallot #05-2014 • As with last years CNG Ballot: • We need a consistent process for LNG reporting and disbursement of taxes between jurisdictions • There is no impact to sovereignty (a jurisdiction tax rates and units of measure are their responsibility (in the US) • Other standards exist to ensure consistent reporting and distribution of taxes between IFTA members (e.g., distances, volumes, and currency)

12. Short TrackBallot #05-2014 • Are recommending, for IFTA reporting and transmittal purposes, that LNG be reported in energy equivalent measures: • diesel gallon equivalent weighs 6.06 pounds; and • diesel liter equivalent weighs 0.7263 kilograms • As an example: • If this ballot does not pass; and • I post an LNG tax rate of $0.29 per “gallon” is it…..

13. Short TrackBallot #05-2014 $0.29 / straight gallon (3.5 pounds) ? ? $0.29 / Diesel Gallon Equivalent (6.06 pounds)

14. Short TrackBallot #05-2014 • At a high level: • Jurisdictions will send LNG tax rates to IFTA which convert: • $C/litre to $US/gallon (for US jurisdictions - but is it a straight gallon or DGE?) • $US/gallon to $C/litre (for Cdn jurisdictions - but is it based on a straight gallon or DGE?) • IFTA and jurisdictions post LNG tax rates for carriers (straight gallon or DGE?) • Carriers submit tax returns, base jurisdiction process and then send to Clearinghouse (straight gallon or DGE?)

15. Short TrackBallot #05-2014 • Base jurisdictions get Clearinghouse data from other jurisdictions and try to compare with Funds Netting (but will find that difficult because they don’t know if a straight gallon or DGE are being used?)

16. Short TrackBallot #05-2014 • Proposing: P1320 - FUELS NOT MEASURED IN LITERS OR GALLONS For IFTA reporting and transmittal purposes, the use of liquefied natural gas shall be reported in energy equivalent measures (i.e., a diesel gallon equivalent in U.S. jurisdictions weighs 6.06 pounds, and a diesel liter equivalent in Canadian jurisdictions weighs 0.7263 kilograms).

17. Short TrackBallot #05-2014 • Proposing: • An effective date of July 2015 but comfortable moving out to July 2016, if additional time is needed to make system changes • Key issue is that we: • Think about the impact of dual fuels; and • Get a consistent unit of measure for LNG reporting and disbursement of taxes between jurisdictions

18. Questions / Discussion

19. Dual Fuel Reporting for IFTA • Last year we proposed a methodology for accurately reporting dual fuel activity using the existing IFTA return concept • This year I’d like to provide some further thoughts on how carriers, jurisdictions and IFTA could more easily communicate dual fuel activity

20. Dual Fuel Reporting for IFTA • As background: • Dual fuel vehicles must be treated and reported separately (e.g., pure diesel fuel fleet, the Diesel /LNG fleet, and the pure LNG fleet) • In addition, each dual fuel fleet must be treated as if two vehicles, separately reporting the: • Distances travelled (after pro-rating to void double counting distance travelled); and • Fuels purchased (e.g., pure diesel fleet vs. the diesel used in the dual diesel/LNG fleet)

21. Duel Fuel Reporting for IFTA • This reporting has the potential to create significant problems/complexities for: • Carriers reporting to base jurisdictions • Base jurisdictions: • Processing carrier tax returns; • Transmitting data via the Clearinghouse (and non-Clearinghouse jurisdictions), and • Desk/field audit activities • Think simplest solution is to create several new fuel types to keep dual fleet activity separate

22. Duel Fuel Reporting for IFTA • Recommending four new fuel types so everyone can better understand/see dual fuel activity • End result is 3 for Diesel, 2 for LNG, and 2 for CNG as outlined below: • D - for pure diesel vehicles (existing) • LNG - for pure LNG vehicles (existing) • CNG - for pure CNG vehicles (existing) • DDL and DLNG - for diesel/LNG vehicles (two new) • DDC and DCNG - for diesel/CNG vehicles (two new)

23. Duel Fuel Reporting for IFTA

24. Duel Fuel Reporting for IFTA • Clearinghouse Advisory Committee: • Is aware of the additional fuel types concept; • Clearinghouse can accept the additional fuel types; but • Based on recent CAC survey 14 jurisdictions have system limitations (i.e., no more than two characters for fuel types) • I’m not sure two characters are sufficient but I’d like to leave that for CAC

25. General Thoughts • From a tax reporting/transmittal process dual fuel technology is: • A significant change in how we operate and will require system changes; and • Also places a significant burden on carriers and auditors • Assuming everyone is in agreement it will take time for jurisdictions to make system changes to accept/correctly process the incoming dual fuel returns • Future Program Compliance Reviews should “note” but not “cite”

26. General Thoughts • Lastly: • Natural gas use is growing; and • Jurisdictions that currently exempt or tax natural gas at lower rates will likely see a reduction in overall fuel tax revenues as consumers convert to natural gas (e.g., private and commercial vehicles including marine applications etc.)

27. Questions / Discussion

28. Thanks!

29. FYI - Following slides are from last year’s presentation for reference purposes only/in case questions come up.

30. Recommended Reporting Process • At a high level: • Dual fuel vehicles must be treated and reported separately (e.g., gasoline fleet, diesel fuel fleet, LNG fleet, dual fuel fleet) • Duel fuel vehicles must be treated and reported as two vehicles: • Separately reporting the distances travelled and fuel purchased • Pro-rating the distances to avoid double counting

31. Recommended Reporting Process • Dual vehicle distances are pro-rated based on their fuel purchases: dD Distance = Total Distance Travelled * Diesel purchase Total (Diesel + LNG) purchases dL Distance = Total Distance Travelled * LNG purchases Total (Diesel + LNG) purchases

32. Recommended Reporting Process

33. Recommended Reporting Process • Pro-rating more complicated if a carrier has exempt distances • Developed and tested worksheet which can be used to accurately prorate the “Total Distance” and “Taxable Distance” between fuel types.

34. Recommended Reporting Process

35. General Thoughts • Worst Case - US carrier with a dual fuel vehicle in Canada • Buys: • Diesel in Canadian currency and litres; and • LNG in Canadian currency and kilograms • Separately track all fuel purchases (e.g., D, DDL, DLNG, DDC, and DCNG): • Convert to US currency and converts: • Diesel liters to gallons • LNG kilograms toa straight gallon or DGE…? • Combines with all US activity • Then pro-rates distances travelled by dual fuel vehicle to avoid double counting • Then completes tax separate tax returns/schedules for each fuel type: • DDL - diesel portion of the dual fuel vehicle; and • DLNG - LNG portion of the dual fuel vehicle