Fuel's Gold

Consumers clamor for big state bucks under alternative-fuel incentive program

"There is no way of knowing exactly what the cost will be," says an analyst with the Joint Legislative Budget Committee.

Hull's budget analysts also are just beginning to scour the data to try to anticipate the impact on this year's and next year's budget.

"Obviously, the marketplace has responded in a way that was not anticipated when this legislation was passed," says Tom Betlach, director of the governor's Office of Strategic Planning and Budgeting.

Not everyone is surprised by the public reaction to the program.

"We all anticipated a very strong reaction from the public," says Southwest Gas lobbyist Dick Foreman. "That was the purpose of the sponsor of the bill. The sponsor wanted to create demand."

The bill's chief sponsor was Groscost, a Republican from Mesa who two years ago held a consulting contract with a wholly owned subsidiary of Southwest Gas. The contract was worth more than $10,000 a year. Under the contract with LNG Energy Inc., Groscost worked in neighboring states promoting the use of natural gas to cities and towns.

Groscost did not return several calls placed to his office. Foreman says Groscost no longer works for LNG Energy.

Foreman says the Arizona law is an important first step in getting alternative-fuel vehicles on the highway and creating a demand for alternative fuels that will lead to more natural gas and propane fueling stations. (Foreman says Southwest Gas has no investments in natural gas fueling stations. Southwest Gas, however, is a distributor of natural gas.)

While public fueling stations are limited, the state is also providing financial incentives for Arizonans to install natural gas refueling stations at their homes. The state -- once again, through a tax credit -- will pay 100 percent of the cost to install a low-pressure, natural gas compressor that will refill a vehicle's tank overnight. The system -- manufactured by a Canadian company called Fuelmaker -- costs about $7,000 to install and can be used in any home that receives natural gas or is within 100 feet of a natural gas line.

Fuel from the home station costs only about 60 cents a gallon.

The state also is providing up to $400,000 in tax credits to businesses that construct natural gas or propane refueling stations open to the public.

There is no question that natural gas vehicles have fewer emissions than even the best gasoline-powered engines. Honda claims that its natural-gas-powered Civic will reduce emissions by 98 percent versus the cleanest-burning gasoline engines.

The law requires the state to pay up to 50 percent of the sales price of a "super ultra low emissions vehicle" -- such as a natural-gas-powered Honda Civic. The payment is made either through a grant, if the money is available from a $4 million fund at the state Department of Commerce, or a tax credit that can be collected on next year's taxes or applied to future state tax liability.

In addition, the state will provide a tax credit to cover 100 percent of the cost of the alternative-fuel system installed in the vehicle -- either by the manufacturer or with an after-market conversion.

That's not all. The state sales tax is waived and license plate fees slashed to $8 per year. The purchaser also receives up to a $2,000 income-tax deduction on federal taxes. Finally, the vehicles are allowed in freeway car-pool lanes while carrying only one occupant.

A $21,000 Honda Civic would cost only about $6,000 after the tax credits and rebates, says Jerry Polick, alternative fuel manager at Honda Cars of Mesa.

The sweetheart deals also are offered on large vehicles, with tax credits of more than $30,000 on Ford's F-450 -- a 12-ton behemoth flatbed truck.

A wide array of vehicles is eligible for the program, including, from Dodge, the Club van and wagons; from Ford, Crown Victoria, F-150 series, Ranger pickups and Econoline vans and wagons; from Chevrolet, Silverado, medium-duty pickups and Cavalier; and from GMC, Sierra pickup.

The tax credits and rebates range from 30 percent to 50 percent of the purchase price of the vehicles, depending on the emissions and whether the vehicle can also run on gasoline.

A $25,000 F-150 equipped with a bi-fuel system would receive a 40 percent tax credit or a grant worth $10,000 plus the amount equal to the cost to add the alternative-fuel system -- or around $7,000. This brings the total state rebate to $17,000. In addition, no sales tax would be paid.

There are a few drawbacks to the program. The state only has about $4 million a year available for grants, so most participants will get their refunds in the form of tax credits, which can be collected as refunds on state income taxes.

Heavy demand is pushing back delivery dates for most vehicles into next year. Honda Cars of Mesa, for example, is taking orders for 2001 natural-gas-powered Civics that would not be delivered until March, Polick says.

Prospective buyers must make a 10 percent cash down payment on the full price of the vehicle, even if delivery is months away. Vehicles delivered after January 1, 2001, won't be eligible to receive income-tax credits until 2002. Therefore, buyers of these vehicles must be able to pay the full purchase price of the vehicle and be willing to wait about a year before receiving the state funds.

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