What a Gas!

The cost of Arizona's alternative-fuel vehicle rebate bonanza has topped $220 million. And, despite questionable efforts by Governor Jane Hull to stymie the wildly popular program, the cost will continue to soar far beyond what the state expected when Hull signed the bill into law last April.

Two weeks ago, Hull unilaterally imposed an October 11 deadline if taxpayers want a lump-sum cash refund on next year's taxes. People who buy cars or sign up for the program after the deadline will receive their rebates over five years, although the state will pay 6 percent interest on the balance of funds over the repayment period.

Officials at the state Department of Commerce's Energy Office last week were swamped by more than 100 phone calls an hour from anxious consumers wanting to cash in on the program. The ill-conceived legislation, championed by Speaker of the House Jeff Groscost, allows rebates for "bi-fuel" vehicles that run on unleaded gasoline and alternative fuels such as propane and natural gas. There is no requirement that owners of the bi-fuel vehicles actually use alternative fuels ("Fuel's Gold," John Dougherty, September 28).

The program is providing an average of $22,000 in cash rebates per vehicle. The commerce department has received more than 10,000 applications for refunds, and thousands more were expected to be filed before the October 11 deadline.

"People are physically coming in and dropping them off," says Jack Haenichen, commerce department deputy director. "They don't have to turn these in by the 11th. They just have to have a [purchase] contract signed by the 11th."

Panic-stricken over the astounding fiscal impact of the program that government economists estimated would cost the state about $10 million, Hull imposed the deadline to keep from wrecking the state's $6 billion annual budget.

Although Hull hasn't ended the program -- the lucrative tax incentives will stay in place until at least January when the Legislature reconvenes -- some question whether the governor's move is legal.

"The governor has tried to cancel the program by executive order," Prescott Mayor Sam Steiger wrote in a column last week in the Prescott Courier. "She cannot amend the statute the Legislature approved and she signed with her own hand, in this kind of unilateral fashion."

The alternative-fuel program is attracting a wide array of consumers -- from businesses that plan to convert entire fleets to cleaner-burning propane-only vehicles, to retirees capitalizing on $30,000 cash rebates to purchase new motor homes.

Late-night television ads are drawing hordes of customers to RV dealers where cash rebates slash the cost of a new, $60,000 motor home that runs on gasoline and propane to about $27,000. As an added bonus, the state has waived sales taxes on alternative-fuel vehicles, which saves another $3,000 on a $60,000 motor home.

The state giveaway also is bringing reports of price gouging. State officials say some alternative-fuel conversion companies are jacking up the cost of installing equipment by thousands of dollars -- knowing that consumers are unlikely to balk at the higher price because the state will cover 100 percent of the cost. Meanwhile, consumers are demanding fully loaded vehicles because the state is covering anywhere from 30 percent to 50 percent of the sticker price.

The law also is giving corporations a golden opportunity to revamp fleets for a fraction of the normal cost. More than 40 companies have taken advantage of the program to purchase alternative-fuel vehicles in bulk.

Arizona Checker Leasing leads the way with plans to convert 459 taxicabs from gasoline to propane. State officials estimate Checker Leasing will receive at least $4 million in cash tax incentives to do the conversion on existing Ford Crown Victorias and Tauruses. The cost to the state could easily double depending on how many new vehicles Checker purchases.

"It's a type of conversion that if we didn't have the state aid on it, we couldn't afford to do it," says Checker president Bill Arnett. "The advantage to the state is that we sure are going to take a lot of the pollution out of the air."

Arnett expects the conversion to propane will reduce maintenance costs, extend the life of the vehicles and save money on fuel. "We are going to use more propane than all the rest of the cars in Arizona," Arnett says.

EV Rental Cars also is taking advantage of the state program, purchasing 50 natural-gas-powered Honda Civics and Crown Victorias and renting the cars to the public in a partnership with Budget Rent A Cars.

"The mission behind the company is to provide the most environmentally friendly vehicles to the public as quickly as possible," says EV Rental Car manager Bob Kelley. "Arizona is very progressive in the way the state deals with alternative-fuel vehicles, and it certainly made it very easy for EV to come to Arizona."

Especially when the state contributes an average of $22,000 per car -- or about $1.1 million for the 50 vehicles purchased by EV Rental Cars.

The state also is offering to pay 100 percent of the cost to purchase and install a natural gas home refueling system.

Bruce Rayner, vice president for U.S. sales for Toronto-based FuelMaker Corporation, says his company sold more than 100 of the systems last week, after averaging about 30 sales per month since the law went into effect last spring. He attributes the spike in sales to consumers seeking to beat the October 11 deadline.

The home refueling systems cost about $7,800 plus another $2,000 to install; the state will refund the entire cost. The system taps into the natural gas line running into the home, and, through the use of a compressor, will refuel a natural gas vehicle at the rate of one gallon per hour.

The cost of natural gas under the FuelMaker system works out to about 94 cents a gallon, including taxes and maintenance expenses. In addition, Southwest Gas charges $18.50 a month for the use of a special meter.

The FuelMaker systems are distributed in Arizona by AZ Star, located at 3820 East Winslow in Phoenix. Rayner says the company requires a $6,175 deposit for the system. The systems have been especially popular with purchasers of the natural-gas-powered Honda Civics, says Rayner.

"People are taking out home equity loans to cover the cost knowing they will get the money back from the state," Rayner says.

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John Dougherty
Contact: John Dougherty