[Senate Hearing 113-655]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-655

NATURAL GAS VEHICLES: FUELING AMERICAN JOBS, ENHANCING ENERGY SECURITY, 
                                  AND
                      ACHIEVING EMISSIONS BENEFITS

=======================================================================

                                HEARING

                               before the

     SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

                                 of the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 3, 2014

                               __________

   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                                  
                                     

            Printed for the use of the Committee on Finance
                                   ______

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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida                 JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia

                    Joshua Sheinkman, Staff Director

               Chris Campbell, Republican Staff Director

                                 ______

     Subcommittee on Energy, Natural Resources, and Infrastructure

                 MICHAEL F. BENNET, Colorado, Chairman

RON WYDEN, Oregon                    JOHN CORNYN, Texas
JOHN D. ROCKEFELLER IV, West         CHUCK GRASSLEY, Iowa
Virginia                             MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
MARIA CANTWELL, Washington           RICHARD BURR, North Carolina
BILL NELSON, Florida                 JOHNNY ISAKSON, Georgia
THOMAS R. CARPER, Delaware

                                  (ii)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     1
Bennet, Hon. Michael F., a U.S. Senator from Colorado, chairman, 
  Subcommittee on Energy, Natural Resources, and Infrastructure, 
  Committee on Finance...........................................     2
Cornyn, Hon. John, a U.S. Senator from Texas.....................     3
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     4
Isakson, Hon. Johnny, a U.S. Senator from Georgia................     5

                               WITNESSES

Carrick, Robert, sales manager, natural gas, Daimler Trucks North 
  America, Portland, OR..........................................     7
Whitlatch, Mike, vice president, global energy and procurement, 
  UPS, Atlanta, GA...............................................     8
Calabrese, Joseph A., CEO, general manager, and secretary-
  treasurer, Greater Cleveland Regional Transit Authority, 
  Cleveland, OH..................................................    10
Jibson, Ronald, chairman, president, and CEO, Questar, Salt Lake 
  City, UT.......................................................    12
Kassel, Rich, senior vice president, east coast operations, 
  Gladstein, Neandross, and Associates, New York, NY.............    14
Clay, Harrison, president, Clean Energy Renewable Fuels, Newport 
  Beach, CA......................................................    16

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bennet, Hon. Michael F.:
    Opening statement............................................     2
    Prepared statement...........................................    27
Calabrese, Joseph A.:
    Testimony....................................................    10
    Prepared statement...........................................    29
Carrick, Robert:
    Testimony....................................................     7
    Prepared statement...........................................    32
Clay, Harrison:
    Testimony....................................................    16
    Prepared statement...........................................    34
Cornyn, Hon. John:
    Opening statement............................................     3
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
Isakson, Hon. Johnny:
    Opening statement............................................     5
Jibson, Ronald:
    Testimony....................................................    12
    Prepared statement...........................................    48
Kassel, Rich:
    Testimony....................................................    14
    Prepared statement...........................................    51
Whitlatch, Mike:
    Testimony....................................................     8
    Prepared statement...........................................    62
Wyden, Hon. Ron:
    Opening statement............................................     4

                             Communications

American Chemistry Council.......................................    69
Diesel Technology Forum..........................................    70
Natural Gas Vehicles for America.................................    74

 
                         NATURAL GAS VEHICLES:
                    FUELING AMERICAN JOBS, ENHANCING
                     ENERGY SECURITY, AND ACHIEVING
                           EMISSIONS BENEFITS

                              ----------                              


                      WEDNESDAY, DECEMBER 3, 2014

                           U.S. Senate,    
                Subcommittee on Energy, Natural    
                     Resources, and Infrastructure,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:34 p.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Michael F. 
Bennet (chairman of the subcommittee) presiding.
    Present: Senators Wyden, Stabenow, Hatch, Cornyn, Thune, 
and Isakson.
    Also present: Democratic Staff: Sean Babington, Senior 
Policy Advisor; Laura Sherman, Legislative Fellow; and Andrew 
Siracuse, Legislative Assistant.
    Senator Bennet. So I am going to gavel this meeting to 
order with my hand, because I have no gavel. I do have a thing 
up here that says ``Mr. Bennet, Chairman,'' but that is not 
going to be true for very long. So I want to thank my 
colleagues for not making it ``temporary.''
    In the interest of time, we are going to start with Senator 
Hatch, who has a witness to introduce, and then I will do my 
opening statement and turn it over to Senator Cornyn, and then 
we will introduce the rest of the witnesses, if that is okay 
with everybody. Great.

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. It is a 
pleasure to be here today. I can only be here for a minute or 
two to introduce a fellow Utahan.
    Ron Jibson is the chairman, president, and CEO of The 
Questar Corporation, one of the largest natural gas companies 
in the country. Mr. Jibson has been with Questar for over 30 
years. He started as a design engineer and has served as 
director of engineering, operations manager, general manager of 
operations, vice president of operations, and executive vice 
president.
    Just prior to his current role with the company, he was the 
president and CEO of a subsidiary, the Questar Gas Company. Mr. 
Jibson has been very involved in the natural gas industry at 
large, having served as chairman of both the American Gas 
Association and the Western Energy Institute.
    He graduated from Utah State University. Go Aggies. BYU was 
very unkind to them the other night, but they are doing pretty 
good. He has a degree in civil engineering and has an MBA from 
Westminster College in Salt Lake City.
    Welcome, Ron, and we want to thank you for your 
participation today. I am sure the subcommittee will benefit 
greatly from your knowledge and your expertise in this 
important area. I cannot stay, but I did want to get here and 
introduce you so they realize how important you really are to 
all of us in Utah and really across this country. So I 
appreciate having you here, and I am sure these fellows are all 
going to treat you very, very well.
    Senator Bennet. We will.
    Senator Hatch. Plus Senator Stabenow. She can be a little 
rough from time to time, but----
    Senator Bennet. Not today.
    Senator Hatch [continuing]. Not today. [Laughter.]
    Senator Bennet. Thank you, Senator Hatch. Thank you very 
much for coming by.

  OPENING STATEMENT OF HON. MICHAEL F. BENNET, A U.S. SENATOR 
   FROM COLORADO, CHAIRMAN, SUBCOMMITTEE ON ENERGY, NATURAL 
      RESOURCES, AND INFRASTRUCTURE, COMMITTEE ON FINANCE

    Senator Bennet. Good afternoon to everybody, and thank you 
to Senator Cornyn and to our distinguished panel and to our 
colleagues for being here today. The Subcommittee on Energy, 
Natural Resources, and Infrastructure will now come to order.
    I want to thank our witnesses for traveling here today. We 
have convened to discuss an incredibly important topic, natural 
gas, and specifically the use of natural gas as a 
transportation fuel in the United States. As most know, the 
country has undergone a dramatic change in our domestic energy 
picture over the last decade. Thanks to innovations in the 
drilling processes, our domestic production of natural gas has 
quadrupled since 2005. That is good for jobs, good for energy 
security, and, when natural gas is produced responsibly, it 
also can be good for the environment.
    I want to spend just a moment on that at the outset, 
because it is an important point. I am a firm believer that we 
can produce natural gas safely and in a way that protects 
drinking water, air quality, and adjacent communities. The 
State of Colorado has led the way in establishing a robust 
regulatory regime for natural gas production.
    From first-in-the-Nation standards that dramatically reduce 
fugitive methane emissions all the way to the innovative Clean 
Air, Clean Jobs Act, it has led to increased natural gas usage 
in Colorado's power plants. This law and the associated fuel 
switching and efficiency targets will lead to sizable 
reductions in both criteria emissions and carbon pollution, 
which are two of the biggest environmental advantages of using 
more natural gas in power generation and transportation.
    More important, these initiatives were broadly supported 
both by the industry and by the environmental community. On 
this topic, like many others, I think that Washington would do 
well to learn a lesson from how we work together in Colorado.
    While various aspects of natural gas have been discussed in 
front of the Energy and Environment Committees, we are here 
today to discuss natural gas as a transportation fuel. There is 
a huge opportunity to grow this market. It is amazing to me 
that over 40 percent of the country's public buses are 
currently powered by alternative fuels or blends. We have seen 
this happen in Colorado: Weld County Public Works has recently 
converted many of their cargo vans, snowplows, and school buses 
to natural gas. They predict this will save the school district 
$100,000 a year and will reduce emissions of smog-producing 
pollutants.
    As we will hear today, this committee can do more to help 
this growing industry. Specifically, we can level the playing 
field on excise taxes on natural gas so that it is not taxed at 
a higher rate than diesel. Senators Burr, Hatch, and I have a 
bill that will do just that. It passed this committee and the 
full Senate during our consideration of the highway bill. It 
was stripped out of the House bill before final passage.
    The Finance Committee also has jurisdiction over a variety 
of alternative fuel tax credits, specifically the 50-cent per-
gallon equivalent credit for selling natural gas as a 
transportation fuel--a credit that has expired--and the 30-
percent credit for the installation of new natural gas 
refueling equipment, which also has expired. Our tax laws are 
critical to the development of the new infrastructure needed to 
aid the growth of these vehicles and to exploit the potential 
of this domestic resource. Both of these credits were included 
in the EXPIRE Act that passed the Finance Committee with 
bipartisan support.
    I would prefer, and I know that many in the Senate would 
too, that we move back to the bipartisan legislation that moved 
through this committee over 6 months ago. But in the meantime, 
we should pass the Senate Finance Committee bill, including the 
natural gas vehicle provisions, and get down to the hard work 
of tax reform.
    As we do this, it is important that Congress understands 
the growing natural gas vehicle industry and its positive 
effect on our economy, national security, and our environment.
    [The prepared statement of Senator Bennet appears in the 
appendix.]
    Senator Bennet. Once again, I want to thank our panel for 
being here and to tell you that we are looking forward to your 
testimony. I will now turn it over to Senator Cornyn for his 
opening remarks. Thank you.

            OPENING STATEMENT OF HON. JOHN CORNYN, 
                   A U.S. SENATOR FROM TEXAS

    Senator Cornyn. Well, thank you, Mr. Chairman, and thanks 
to each of the witnesses for being here today. Listening to 
Senator Bennet's opening statement, I find that there is much 
that I agree with--not all, but most, which is a good start.
    Obviously, coming from States like Colorado and Texas, we 
are no strangers to energy and the natural gas renaissance that 
we have seen in this country--and its impact not only on low-
cost energy, but also on the promise to perhaps help us with 
the geopolitics of energy, as well as job creation, which is so 
important at home. We know the key in my State to the energy 
sector and producing a growing economy is a stable and secure 
supply of affordable energy. We, of course, have a diverse 
array of energy sources and industries that provide solid 
employment not just in Texas, but around the country, at the 
same time that they provide for the energy needs of working 
families across the country.
    I think one of the big challenges we are going to have is 
trying to figure out how to reconcile our tax policy with 
energy policy. It is no secret to any of us here that, while we 
all support an all-of-the-above approach, not all energy 
sources are treated the same. Indeed, many of the energy 
sources, like the oil and gas industry, pay vast sums of money 
in taxes to the Federal Treasury.
    Other forms of energy depend on generous subsidies from the 
Federal Government, and obviously that is something we need to 
continue to study as we try to solve this puzzle of our tax 
code, which is so important. But we also need to remember and 
remind ourselves that a regulatory regime that makes it more 
difficult to produce and deliver affordable energy and to 
sustain and create jobs here at home is a recipe for more 
dependence and less independence. It can lead to more 
volatility and be a threat to our economy.
    I continue to be concerned about the administration's 
pursuit of regulatory policies that will end up increasing the 
cost of energy for families and small businesses and, in the 
end, dampen the potential growth of our economy. Americans 
understand that raising taxes and piling on more regulations 
will translate into higher prices. Although I find myself in 
agreement again with Chairman Bennet's comments, this is not to 
suggest we proceed ignorant or unaware or unconcerned about 
impact on the environment. That remains a common concern.
    I commend the chairman for holding today's hearing and look 
forward to the testimony from the witnesses.
    Senator Bennet. Thank you, Senator Cornyn. We appreciate 
very much your leadership on this panel. And with that, we are 
blessed to be joined by our chairman, Ron Wyden, who is here to 
introduce the first witness.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    Senator Wyden. Thank you very much, Chairman Bennet and 
Senator Cornyn. I very much appreciate both of you tackling 
this on a bipartisan basis, and I just have a couple of points 
to make.
    We are so glad to have Mr. Carrick here. It seems like eons 
ago when you participated in our natural gas roundtable, when I 
was chair of the Energy Committee. So we are very pleased you 
are here.
    So just a couple of quick points, and then I want to talk 
about his important work at Daimler, which, of course, is 
headquartered in my hometown.
    First, this is an especially important hearing, Chairman 
Bennet and Senator Cornyn. It is important that we tackle this 
in a bipartisan way, because the reality is that natural gas, 
particularly because of what has happened in the Bakken, is 
advantage America. Natural gas is, of course, the cleanest of 
all the fossil fuels. It is 50-percent cleaner than the other 
fossil fuels, and we have it, and the rest of the world wants 
it. It seems to me that this effort to look at how safely and 
efficiently we can use natural gas is especially important 
because of what is going on right now in discussions back and 
forth between the House and the Senate.
    This committee, on a bipartisan basis back in April, passed 
a 2-year extension of the 30-percent investment tax credit for 
refueling infrastructure and a 2-year extension of the 50-cent 
per-gallon tax credit for natural gas transportation fuel. 
Right now--certainly in the absence of an alternative--the 
House is about to vote on providing what Senator Cornyn and I 
talked about this morning: essentially 4 weeks, a grand total 
of 4 weeks of certainty, at a time when our economy--and 
particularly for business decisions and matters that are so 
important to working-class families--hungers for certainty and 
predictability. So my view is--and what I have spent most of my 
day on and what I will be walking out of here in a minute to do 
is--I think the American people deserve an upgrade on that kind 
of approach. They deserve a bipartisan alternative, and my hope 
is--and Senator Cornyn and I have been talking about this 
through the day, a number of colleagues have--that we can do 
that.
    Also, before we get to Mr. Carrick, I want to mention 
another bipartisan effort, which is Chairman Bennet and Senator 
Burr's effort to equalize the tax treatment of liquefied 
natural gas with diesel fuel. This passed as part of the 
highway bill, as colleagues will recall, and I very much hope 
that what Senator Bennet and Senator Burr are trying to do, 
again on a bipartisan basis, will become law in the very near 
future.
    Mr. Carrick, you, of course, and Daimler are very much a 
part of Oregon's economic future. We are glad you are in my 
hometown, manufacturing natural gas vehicles and supplying 
those trucks that are used for regional and short-haul 
applications, but are especially valuable for utility 
companies, for municipal solid waste companies, and for pickup 
and delivery. So to have you, Mr. Carrick, as a representative 
of Daimler, which consistently provides vehicles that are 
reliable, powerful, and clean, I guess I am glad you are a 
recidivist. You came to the Energy Committee, and now you are 
here at the Finance Committee.
    My apologies for having to go back to the extenders fray, 
but, colleagues, I think you are really going to enjoy his 
presentation, because this is the face of what the two of you 
are trying to do on a bipartisan basis, and I commend you for 
it and look forward to visiting with you at home as well, Mr. 
Carrick.
    Senator Bennet. Thank you very much, Mr. Chairman. I think 
Senator Isakson is going to introduce our next witness.

           OPENING STATEMENT OF HON. JOHNNY ISAKSON, 
                  A U.S. SENATOR FROM GEORGIA

    Senator Isakson. Thank you very much, Chairman Bennet. I 
commend you on calling this very important hearing on a very 
important subject. It is really a pleasure for me to introduce 
Mr. Mike Whitlatch of the UPS Corporation in Atlanta, GA.
    As I think all of the committee knows and the audience 
knows, UPS is a preeminent logistics company, internationally 
and worldwide, in the delivery of packages. If anybody knows 
trucks, fuel, and logistics, it is UPS Corporation.
    Mike is vice president of global energy and procurement for 
UPS and is responsible for the energy strategy and energy 
supply chain that supports UPS in its worldwide enterprise. He 
is a 27-year veteran of UPS Corporation, and we are delighted 
to welcome you here today, Mr. Whitlatch.
    I am going to take liberty with your introduction by making 
two other acknowledgments. Half the panel has a Georgia tie. 
Mr. Carrick ships all of his trucks in the Port of Brunswick, 
if I am not mistaken, on the southeast coast of the State of 
Georgia. We appreciate that business.
    Mr. Harrison Clay's father, Steve, is one of the most 
prominent attorneys in the city of Atlanta. I met him when he 
came in this afternoon, and I had worked with him and Boone 
Pickens on other projects before.
    We welcome you to the committee, and we welcome all of the 
panel members and their testimony today. Thank you, Mr. 
Chairman.
    Senator Bennet. Thank you, Senator Isakson. In fact, this 
entire effort was just a way to showcase Georgia. So I am glad 
you are here. [Laughter.]
    I know that Senator Portman wanted to introduce our next 
witness. He is not here, so I am going to take the liberty of 
introducing Joseph Calabrese. He is the CEO, general manager, 
and secretary-treasurer for the Greater Cleveland Regional 
Transit Authority. Mr. Calabrese was appointed to represent the 
public transit industry on the U.S. Department of 
Transportation's Intelligent Transportation Systems Advisory 
Committee. Under his leadership, the Greater Cleveland Regional 
Transit Authority is now converting its fleet of diesel buses 
to natural gas. We look forward to hearing your testimony.
    Our next witness, Rich Kassel, is the senior vice president 
of east coast operations for Gladstein, Neandross, and 
Associates. He is an environmental policy advisor to 
governments, international organizations, nonprofits, and 
funders. Mr. Kassel is an expert in transportation, air 
pollution, clean energy, and climate change policy. In this 
capacity, he has played a major role in the development of 
government programs to reduce vehicle emissions, including new 
regulations and a set of programs. We are very glad that you 
are here as well.
    Our final witness, Harrison Clay, is the president of Clean 
Energy Renewable Fuels, which is a division of Clean Energy 
Fuels Corporation. Clean Energy Renewable Fuels is dedicated to 
the production of renewable natural gas and organic waste. Mr. 
Clay has expertise in the financing and development of 
renewable energy products as well as the sale of renewable 
energy and carbon credits. Prior to joining Clean Energy, he 
served as director of corporate development and general counsel 
to the San Francisco investment bank, WR Hambrecht and Company.
    We are delighted that all of you are here, and I think we 
will start, Mr. Carrick, with you and just go across. If you 
could try to keep your comments to about 5 minutes or so, that 
will leave more time for questions, but we certainly want to 
hear your point of view.

   STATEMENT OF ROBERT CARRICK, SALES MANAGER, NATURAL GAS, 
           DAIMLER TRUCKS NORTH AMERICA, PORTLAND, OR

    Mr. Carrick. Thank you. My name is Robert Carrick, and I am 
the sales manager for natural gas for Daimler Trucks North 
America. We appreciate Chairman Bennet and Ranking Member 
Cornyn for holding this important hearing on the role of 
natural gas in the transportation sector.
    Daimler Trucks North America is headquartered in Portland, 
OR, as Senator Wyden mentioned, and we are a leader among U.S. 
truck manufacturers in introducing natural gas technology to 
the transportation sector.
    Since 2008, Daimler has sold and delivered over 5,000 
natural gas heavy-duty trucks, Class 7 and 8 trucks, as well as 
thousands of school buses and step vans through our Thomas 
Built Buses and Freightliner Custom Chassis organizations. The 
Freightliner Business Class M2 112 has been ideal for 
utilities, refuse, municipalities, and other short- and 
regional-haul applications.
    Our Freightliner Cascadia Natural Gas has been on the road 
for just over a year. It offers the next step in super-regional 
haul and lane applications. Freightliner now offers natural gas 
technology in nearly all of its truck applications, including 
the Vocational 114SD.
    While DTNA is headquartered in Portland, much of our truck 
manufacturing is in North Carolina. DTNA operates four 
manufacturing plants in the State. Thomas Built Buses is 
headquartered in High Point; our parts manufacturing facility 
is located in Gastonia; the Freightliner truck manufacturing 
plant is in Cleveland, where we produce the Cascadia Natural 
Gas Truck; and in Mount Holly we manufacture our Freightliner 
Business Class M2 trucks, including the M2 and 114SD, powered 
by natural gas.
    With record order intake so far this year, DTNA is adding 
capacity and jobs in North Carolina. Daimler is committed to 
natural gas because of customer demand for high-performing, 
reliable trucks that run with near zero emissions. With natural 
gas, greenhouse gas emissions are reduced by at least 20 
percent versus comparable diesel engines. And because the 
United States has an abundant supply of natural gas, the fuel 
supply is less constrained by overseas developments.
    As I travel around the country, I get asked a lot of 
questions from perspective truck buyers whether natural gas is 
right for their business. For some, the decision to go with 
natural gas makes sense, but for others, natural gas is not the 
best, most economical choice.
    For example, natural gas-powered trucks are perfect for 
short- and regional-haul trucking. Today's natural gas trucks 
are ideally suited for 300 to 500 miles per day usage. For 
companies that operate in that environment, for example at 
ports and in regional hub-and-spoke distribution, natural gas 
is both economical and efficient.
    Good examples of what I mean are delivery companies like 
UPS here on the panel with me today, food and beverage 
distributors, utility vehicles, and refuse and public transit 
vehicles that stay within a relatively compact radius and 
return to a dedicated depot or station to fill up daily.
    Although natural gas trucks have distinct advantages, 
challenges do exist, particularly for long-haul trucking. The 
lack of a national network of natural gas stations is a leading 
obstacle facing natural gas long-haul trucking. Less than 1,500 
CNG natural gas stations exist in the U.S., and only about half 
are publicly available. On the LNG side, there are 
approximately 100 retail stations in operation today. By 
comparison, there are about 168,000 gas and diesel stations out 
there.
    Technology costs also remain high. The incremental cost of 
a typical natural gas truck is $45,000 to $60,000 more 
expensive than a comparable truck with a conventional diesel 
engine. And do not forget to add the Federal Excise Tax on top 
of that figure as well.
    Engine technology is still a work in process, but the good 
news is that there are some new engine products on the market 
that have the potential to deliver game-changing results, 
particularly in the long-haul truck segment.
    Thank you for this opportunity to participate on this panel 
today, and we look forward to addressing all of your questions.
    Senator Bennet. Thank you, Mr. Carrick.
    [The prepared statement of Mr. Carrick appears in the 
appendix.]
    Senator Bennet. Mr. Whitlach?

         STATEMENT OF MIKE WHITLATCH, VICE PRESIDENT, 
        GLOBAL ENERGY AND PROCUREMENT, UPS, ATLANTA, GA

    Mr. Whitlatch. Thank you, Senator, for the introductions. 
Thank you for the kind words. Chairman Bennet, Ranking Member 
Cornyn, and members of the subcommittee, thank you for allowing 
me to testify in front of you today.
    I think he referred to it, Senator Cornyn, as a renaissance 
in the U.S. with natural gas, and we do believe that, in fact, 
natural gas is revolutionizing transportation within the United 
States, especially for heavy-duty trucking--UPS included and 
the rest of the industry.
    I have submitted my prepared testimony, and I would like to 
make three points to you today.
    First, UPS is absolutely committed to developing 
transportation alternatives that reduce our dependence on 
petroleum-based fuels. In fact, UPS operates over 4,700 
alternative fuel vehicles. Natural gas is a key part of that 
strategy. In fact, we operate over 100,000 pieces of equipment 
worldwide. Seventeen thousand of those pieces of equipment are 
heavy-duty, Class A over-the-road trucks that operate on diesel 
fuel. Out of those, 1,243 are LNG or CNG long-haul trucks that 
we have added to our fleet.
    In fact, all of the heavy-duty trucks that we are buying 
this year, 2014, for a domestic U.S. small package operation 
which is the core of our business, will run on natural gas. The 
natural gas supply situation in the U.S. provides a tremendous 
opportunity to adopt a cleaner-burning alternative fuel, and 
removing barriers will be the key to this transformation.
    My second point is, although UPS has tested virtually every 
type of alternative fuel technology in our fleet, we have found 
that natural gas is one of the best alternatives for long-haul 
heavy-duty trucks. Natural gas heavy trucks are ideal because 
heavy trucks simply burn the most fuel. In fact, if you look at 
it, to put this into perspective, there are 2.4 million heavy-
duty trucks on the road today. They only account for 1 percent 
of the vehicles on the road, but they consume 17 percent of the 
transportation fuel.
    There is also a price for technology. Mr. Carrick just 
referred to that in his opening statement. Each natural gas-
powered alternative vehicle costs significantly more than a 
conventional diesel truck, and it requires investment in 
infrastructure.
    This incremental up-front cost for a Class A tractor can 
run between $60,000-$70,000 per unit depending on how it is 
equipped. But in addition to the investment risk, we face a 12-
percent excise tax that is applied to the total purchase price. 
This simply means that we pay extra taxes for purchasing 
alternative fuel vehicles.
    So for example, 12 percent on an incremental investment of 
$70,000 is $8,400 in extra taxes when compared to a diesel 
truck, all for investing in a vehicle that uses domestic fuel, 
creates jobs here in America, and makes for cleaner air.
    My third point is, the biggest impediment to greater 
adoption of LNG trucks in the U.S.--in the heavy-duty truck 
market--is a very simple glitch in how the Federal excise tax 
is applied to fuel. So you may ask what is the glitch--and I 
think everyone in this subcommittee understands the glitch very 
well. Today the Federal excise tax on both diesel and LNG fuel 
is 24.3 cents per gallon. This is a volumetric tax. I think it 
was mentioned earlier that not all of these fuels are equal in 
their energy content, and this is definitely not the case with 
LNG.
    So, to illustrate this, a gallon of LNG only has 58 percent 
of the energy content when compared to a gallon of diesel fuel. 
This requires you to burn 1.7 gallons of LNG for the same work 
that 1 gallon of diesel fuel would require. So in short, we are 
effectively taxed at 170 percent of the rate of an equivalent 
diesel fuel gallon on an equivalent energy basis. So this means 
that LNG is disadvantaged from the start, costing 17 cents more 
for every diesel gallon equivalent. So another way to look at 
this is that the effective tax rate on an LNG-equivalent gallon 
is 41.3 cents compared to 24.4 cents on diesel.
    Seventeen cents does not sound like a lot, but it adds up 
over the life of the vehicle. In fact, for a company like UPS, 
the extra LNG fuel tax will cost more than the incremental 
investment of that vehicle over the life of the truck. So in 
short, the glitch with this LNG excise tax is probably the 
biggest impediment to the general adoption of LNG trucks.
    If the Congress wants to accelerate the adoption of 
alternative fuels, fuels like LNG, increase the use of domestic 
natural gas to enhance our energy security, and clean the air, 
then we must start with just fixing the LNG glitch in the tax 
code. That is my primary message here today. Let us just 
provide simple parity for this fuel.
    Consequently, UPS is pleased to support Senate Bill 1103, 
the LNG Excise Tax Equalization Act of 2013, which Chairman 
Bennet--we thank you very much--sponsored and Senator Burr of 
this subcommittee cosponsored. We commend you for your 
leadership on this matter and hope that we can get LNG taxed at 
the same rate as diesel fuel.
    Again, I would like to thank the subcommittee for allowing 
me to testify. Thank you.
    [The prepared statement of Mr. Whitlatch appears in the 
appendix.]
    Senator Bennet. Mr. Calabrese?

  STATEMENT OF JOSEPH A. CALABRESE, CEO, GENERAL MANAGER, AND 
    SECRETARY-TREASURER, GREATER CLEVELAND REGIONAL TRANSIT 
                    AUTHORITY, CLEVELAND, OH

    Mr. Calabrese. Yes. Thank you very much. I thank the 
chairman and the committee for giving me this opportunity to 
talk and testify on the importance of continuing the 
alternative fuels tax credit.
    Public transit ridership is growing, and projections are it 
will continue to grow at an increasing rate. Our cities are 
growing in population, our seniors are getting older and 
relying on public transportation both in our urban and our 
rural areas, and the younger generation is using public transit 
much more than their parents and even their grandparents.
    While public transit is important for both rural and urban 
areas, certainly the bulk of it is in the urban areas where 
environmental concerns are the greatest. I think that is a very 
important point. Without public transit, an additional 4.2 
billion gallons of gasoline will be burned in the Nation--4.2 
billion. Now I think that is a very important service we 
provide. And my agency, the Regional Transit Authority in 
Greater Cleveland--we are a multi-modal agency with heavy rail, 
light rail, bus, Bus Rapid Transit, and paratransit service--we 
serve about 200,000 customers on a typical weekday and, as in 
other cities, the appreciation and value of public transit is 
growing, not just in terms of mobility, but also in terms of 
economic development.
    If the first thing RTA is about is mobility, the second 
thing it is about is sustainability. During our mission in 
greater Cleveland, we remove about 50,000 cars each day from 
the streets and the congestion and pollution associated with 
that.
    I am pleased to talk about two programs that are underway 
in greater Cleveland in terms of alternative fuels. The first 
relates to our paratransit service, which is designed to serve 
people with disabilities. We have 20 propane-powered 12-
passenger vehicles that run on propane, modified by Rousch 
Corporation. These cutaways travel about 150 miles a day 
serving, again, exclusively people with disabilities.
    The cost of these vans is more than the cost of the diesel 
vehicles they replaced. We think over the life of the vehicle--
about 6 or 7 years--that up-front capital cost will be 
addressed through a lower fuel cost; however, we still have the 
up-front cost of the infrastructure to deal with. The good news 
is, over the same life cycle of the vehicles, we will 
drastically reduce particulate matter and eliminate 20 percent 
of the NOX compared to the diesel vehicles they have 
replaced. We hope this pilot is successful. If it is, we will 
replace all of our vehicles in that fleet with propane 
vehicles.
    In our big bus fleet, we just received a delivery of the 
first of 240 CNG 40-foot transit buses. They are being produced 
in California by Gillig Corporation. We hope to eventually 
replace the other 500 vehicles with CNG. Again, the capital 
costs for the CNG buses were more than the diesel buses they 
replaced--about a $40,000 differential. We feel that, over the 
life of the vehicle, that $40,000 would be more than offset by 
lower fuel costs.
    And again, the great news is that one diesel coach emits 
170 tons of CO2 annually, but one CNG coach emits 
only 4 tons of equivalent CO2 annually. When we 
transition the entire fleet to CNG, we will save over 41,000 
tons, really a tremendous improvement in air quality.
    For both projects, in addition to the increased capital 
costs, really the big thing is increased infrastructure costs. 
With stagnant, at best, Federal investments, allocating 
discretionary funds for the purchase of vehicles that are more 
expensive, and then investing in infrastructure needed to fuel 
and maintain the CNG vehicles, is a real, real challenge. We 
are investing right now between $15 million and $20 million in 
the two facilities that we are upgrading so the CNG vehicles 
can be serviced and operated.
    So the good news is, alternative fuel is cleaner. The good 
news is, it is being produced locally, it is helping American 
jobs, and there is significant interest--as you are hearing 
here at this table--by fleet operators to go to CNG.
    The bad news is, the vehicles cost more. There is an issue 
in the public transit industry--in the State of Ohio, for 
example, 1,000 of the 3,000 vehicles, or over one-third, right 
now are already beyond their useful lives. So we are having a 
difficult time replacing buses of any type, let alone buses 
that cost more up front.
    The third and probably the biggest challenge is the cost of 
the infrastructure, as I have mentioned. In making our 
decision, we relied on the alternative fuels tax credits, and 
we hope to rely on them to finance some of the infrastructure 
investments that we are going through right now.
    Transit has been moving to alternate fuels in big numbers, 
as the chairman mentioned. Over 40 percent of the Nation's 
buses now operate on alternative fuels or blends, over 20 
percent on CNG or LNG. For many, what made that possible was 
the alternative fuels tax credit, and many systems are weighing 
the alternatives right now. And the future of the alternative 
fuels tax credit is going to be the make-or-break in those 
decisions. So there is a real opportunity to expand the use of 
CNG buses in public transit, but the alternative fuels tax 
credit is so very important to make that happen, especially in 
times of very critical funding.
    I strongly request that the alternative fuels tax credit be 
extended. I certainly also have to say that we encourage a 
bipartisan approach to the mass transit and transit bill in 
general because, without that bill, we really cannot move 
forward on this or any other important project.
    Thank you very much.
    Senator Bennet. Thank you very much.
    [The prepared statement of Mr. Calabrese appears in the 
appendix.]
    Senator Bennet. Mr. Jibson?

             STATEMENT OF RONALD JIBSON, CHAIRMAN, 
        PRESIDENT, AND CEO, QUESTAR, SALT LAKE CITY, UT

    Mr. Jibson. Thank you and good afternoon.
    Senator Bennet. Good afternoom.
    Mr. Jibson. Chairman Bennet, Ranking Member Cornyn, thank 
you for this opportunity. I am pleased and appreciate the 
opportunity to appear before you today.
    I would like to begin by thanking the committee for holding 
today's hearing. It is critical that Congress remains current 
on the dynamic discussion regarding natural gas brought about 
by the obvious shale gas revolution. The new abundance of 
natural gas reserves in our country has fundamentally shifted 
our energy landscape.
    A decade ago it seemed inevitable that the United States 
would become a major importer of natural gas, yet today we are 
the world's leading producer of natural gas, with over 100 
years of supply of natural gas right here at home. We have made 
great strides in turning down the curve of petroleum imports 
through increased domestic petroleum production and landmark 
fuel economy standards for light-duty vehicles.
    But energy security means more than reducing our petroleum 
imports below the 50-percent mark. In past decades, we have 
successfully reduced or virtually eliminated petroleum use in 
other sectors, such as in electrical generation and in home 
heating. Yet our transportation sector depends on petroleum for 
94 percent of its primary energy.
    Our singular dependence on oil for transportation fuel 
makes us vulnerable to economic and national security risks. 
Every American recession over the past 4 decades has been 
preceded by or occurred concurrently with an oil price spike, 
including the most recent.
    Our armed forces expend enormous financial and human 
resources ensuring that oil transit routes remain open and 
critical infrastructure is protected. Our relations with 
foreign governments are too often influenced by our need to 
minimize disruptions to the flow of oil.
    The path that we are on is not sustainable, and it is not 
smart. The smart path forward includes diversifying our 
transportation energy mix and seeking to displace high-cost 
imports with lower-cost domestic alternatives. Greater use of 
natural gas as a transportation fuel delivers on both of these 
objectives. While natural gas provides 24 percent of the 
primary energy used to drive our economy, only 0.1 percent is 
currently being used for transportation.
    Natural gas has tremendous potential for the transportation 
sector, and many nations are ahead of the United States in 
grasping this opportunity. There are currently over 18 million 
natural gas vehicles in use worldwide today. That is up from 
over 4 million over a decade ago. Yet only about 150,000, less 
than 1 percent of the global total, are on U.S. roadways.
    There is good news, however, and this is that the market is 
recognizing that switching from gasoline to diesel to natural 
gas, as has been discussed by other witnesses today, can mean 
significant costs savings. Major fleet operators, like Swift 
Trucking, obviously UPS, Waste Management, Verizon, Ryder, and 
many others are switching to natural gas vehicles because of 
the business case that is obviously there.
    But good policy choices can support the adoption of natural 
gas vehicles by leveling the playing field with other fuels. 
Currently, liquefied natural gas is taxed at a higher rate than 
the diesel fuel it competes with, working against NGV adoption 
in the heavy truck market. Resetting the tax rate so that it is 
applied on an 
energy-content basis is a common-sense measure that would 
remove an artificial barrier from the market.
    The alternative fuels tax credit should also be reset to 
apply on an energy-content basis for natural gas fuels like LNG 
and CNG and for all other alternative fuels. Weight 
restrictions on trucks using natural gas also work against NGV 
adoption in the heavy-truck market because of the weight of 
storage tanks and the lower energy density of the fuel compared 
to a diesel. To comply with Federal highway weight 
restrictions, NGV operators must compensate with smaller 
payloads. Allowing an adjustment for these vehicles would 
remove an unfairly imposed market disadvantage. As this market 
continues to grow, natural gas utilities will play a key role 
in supplying the fueling infrastructure needed to support these 
vehicles.
    The gas utilities in our membership maintain over 2 million 
miles of natural gas distribution pipelines nationwide. This 
distribution network means that we can place compressed natural 
gas fueling stations around the country without the need to 
truck that fuel. Currently, there are over 1,400 compressed 
natural gas stations in the United States, and many of these 
are owned and operated by our gas utilities.
    Natural gas utilities like Questar can help greatly in 
building a national fueling infrastructure for natural gas 
vehicles. Working with their regulators, a number of natural 
gas distribution companies are exploring many innovative 
methods for supplying this gas infrastructure for participation 
in this market.
    Research to develop affordable, reliable home refueling for 
natural gas vehicles could greatly expand the appeal for 
natural gas vehicles to residential customers. As that 
technology matures, companies again, like ours and others, will 
be involved in ensuring the safe and reliable operation of 
home-refueling appliances, just as we have ensured safe and 
reliable natural gas services to homes and businesses today.
    The attractive price of natural gas is creating momentum in 
the market that is translating into growth in our fueling 
infrastructure for natural gas vehicles. Since 2008, the number 
of CNG stations has grown by over 11 percent per year. This 
sustained growth has occurred even as we have weathered one of 
the worst economic recessions our Nation has seen in decades.
    Our domestic abundance of natural gas and the fact that, 
unlike petroleum, its price is not set on a global market, 
means that we are likely to see low and stable prices for 
natural gas for many years to come. To stay on the smart path 
forward, we need policies that help us sustain the momentum we 
are seeing in the adoption of natural gas vehicles and fueling 
infrastructure. The most important component of this is 
maintaining a level playing field that allows natural gas 
vehicles to compete fairly in the market.
    Developing the market for natural gas vehicles enhances our 
energy security and our competitiveness and encourages the 
expansion of transportation fueling infrastructure and 
technological advances. The American Gas Association, with 
member companies like Questar, urges the Congress and 
appreciates what you are doing in regards to this important 
issue.
    Senator Bennet. Thank you very much, Mr. Jibson.
    [The prepared statement of Mr. Jibson appears in the 
appendix.]
    Senator Bennet. Mr. Kassel?

  STATEMENT OF RICH KASSEL, SENIOR VICE PRESIDENT, EAST COAST 
 OPERATIONS, GLADSTEIN, NEANDROSS, AND ASSOCIATES, NEW YORK, NY

    Mr. Kassel. Chairman Bennet, Ranking Member Cornyn, members 
of the committee, thank you for the opportunity to testify 
today. My name is Rich Kassel, and I am a senior vice president 
with Gladstein, Neandross, and Associates or GNA.
    For more than 20 years, GNA products around the country 
have helped to demonstrate the feasibility of natural gas 
vehicles. More personally, I have been involved with natural 
gas vehicles since the mid-1990s when I was working with the 
Natural Resources Defense Council and we put together a project 
to bring hundreds of natural gas buses to New York City.
    For more than 30 years, I have worked in a variety of 
capacities to reduce emissions from vehicles across a range of 
fuels and vehicle types. From this work, we know that natural 
gas vehicles can provide clean, safe, cost-effective 
transportation, while reducing our dependence on oil and 
creating American jobs.
    In my remarks, I am going to limit my focus to the air 
quality and the energy side of this discussion. But in brief, 
as we have already heard, here is the challenge: converting 
operations to natural gas pairs up-front capital costs with 
considerable savings in fuel costs. For many fleets, these up-
front costs are a barrier that keeps them invested in older, 
dirtier diesel trucks.
    All new truck engines are at least 90 percent cleaner than 
the ones they replace, regardless of the fuel they use. So our 
main challenge is to create mechanisms that accelerate the 
replacement of today's legacy fleet of roughly 7 to 8 million 
so-called ``dirty diesels'' with cleaner engines in the most 
cost-effective manner possible.
    We will not be able to use natural gas everywhere cost 
effectively. We know that. But using natural gas in those 
niches where it is most cost-effective to do so will reduce 
costs for operators and thereby accelerate the overall cleanup 
of our transportation sector.
    Switching to natural gas tends to be most cost-effective, 
as you have already heard, as the engine gets larger or its 
fuel consumption goes up. Thus, the most cost-effective natural 
gas applications are found among truck and bus fleets that use 
a great deal of fuel or in high-horsepower applications like 
mining and locomotives and marine engines.
    From an air quality and an energy perspective, this 
approach also yields the greatest benefits. I would like to 
share with you a couple of quick examples. On the energy side, 
switching to natural gas for a long-haul truck can displace 
20,000 gallons of diesel fuel each year. Using it in a 
locomotive can displace 250,000 gallons each year. Using it in 
a ferry vessel can displace 800,000 gallons, more than 40 
trucks, in a single year. And converting a small container ship 
to liquefied natural gas or LNG can displace more than 35 
million gallons of fuel each year. That is a lot of petroleum 
displaced.
    In a moment, you will hear about renewable natural gas or 
RNG. RNG moves us off of fossil fuels entirely and emits 90 
percent less greenhouse gases than diesel. That is the energy 
side.
    Now I would like to shift to the air quality perspective 
and provide a few examples there as well. A recent California 
and West Virginia University study found that natural gas 
trucks used in port drayage--one of the areas of most concern 
about dirty diesels--emitted 91 percent less smog-forming 
nitrogen oxide emissions than comparable trucks. Just to be 
clear, these are diesel and natural gas trucks that are 
certified at the exact same emission levels by the EPA in the 
State of California. What happens in the real world, as this 
study shows, is that the natural gas trucks in real hard-duty 
applications, are emitting much less nitrogen oxides.
    Second example: by 2017, we should see new direct-injection 
technologies that will enable natural gas engines to meet not 
only EPA's upcoming Tier 4 emission standards, but also create 
the potential for up to 25 percent lower greenhouse gas 
emissions.
    Third example: container ships and cruise lines are 
increasingly looking at liquefied natural gas as a 
significantly less expensive way to comply with the fuel and 
emission requirements of the emission control area that is 
being put into effect on our coastlines. With LNG currently 
roughly 25 to 35 percent lower than diesel on an energy-
equivalent basis--that is about $1 a diesel gallon equivalent--
we can see why there is so much interest in the marine sector 
in liquefied natural gas. In fact, there are 19 different 
projects around the country that are investing in LNG on the 
marine side.
    Fourth and last, natural gas engines are already on the 
path to meeting California's optional low NOX 
emission standards for highway truck and bus engines. These are 
engines that will be up to 90 percent lower than even EPA's 
cleanest in the world standard.
    To put it into perspective, these are what we call in our 
world ``power plant equivalent emissions levels.'' In other 
words, they are competitive with what we see from fuel cell 
vehicles and electric vehicles, yet with the mileage range and 
the cost-competitiveness of natural gas that we do not yet see 
on the fuel cell and electric side. These are the kinds of 
numbers that are necessary for sustainable, cost-effective 
goods movement.
    To close, at GNA we believe that well-framed tax policy, 
such as basing the highway excise tax on the energy content of 
the fuel, is necessary--as Senator Cornyn said in his opening 
remarks--to conform our tax policy with our energy policies. 
Taking these kinds of steps can help end-users accelerate the 
positive return on their investments, and they are going to be 
more likely to make those investments.
    That is great for individual companies for sure, but from a 
broader perspective, doing so will accelerate the overall 
cleanup of the transportation sector, the legacy fleet of 7 to 
8 million dirty diesels that are still out there. Doing so will 
translate into increased economic benefits, increased energy 
security, reduced oil consumption, and less air pollution for 
everybody.
    Thank you for the opportunity to testify.
    Senator Bennet. Thank you, Mr. Kassel.
    [The prepared statement of Mr. Kassel appears in the 
appendix.]
    Senator Bennet. Mr. Clay, you are going to bring us home 
here. The testimony has just been excellent. Thank you. Not to 
put any pressure on you. [Laughter.]

            STATEMENT OF HARRISON CLAY, PRESIDENT, 
        CLEAN ENERGY RENEWABLE FUELS, NEWPORT BEACH, CA

    Mr. Clay. Mr. Chairman, members of the committee, thank you 
for inviting me to testify before you today. I work for Clean 
Energy Fuels. We are the largest LNG and CNG fuel provider in 
North America today.
    Within Clean Energy, I am responsible for leading our 
efforts to produce and sell renewable natural gas, or 
biomethane, that is derived from the decomposition of organic 
waste such as that found in landfills or in wastewater 
treatment plants.
    By fully utilizing the enormous natural gas resources that 
are just below our feet and developing the inexhaustible 
potential of renewable natural gas, this Nation has the 
building blocks for a cleaner, greener future with more jobs 
and opportunities, less reliance on foreign oil imports, and a 
healthier environment than we have seen in generations.
    Natural gas is an increasingly important vehicle fuel for 
heavy-duty trucks, taxis, transit vehicles, airport shuttles, 
and fleets. Clean energy fuels fleets at airports and cities 
across the country, and we have built a network of fueling 
stations within 43 States to allow heavy-duty trucks to travel 
coast-to-coast fueled entirely by natural gas.
    We have also innovated in renewable natural gas. Renewable 
natural gas is the only alternative fuel available in 
commercial quantities today that can meet 100 percent of the 
fuel requirements of an 18-wheeler, achieve a 90-percent 
reduction in greenhouse gas emissions, compared to diesel, 
leverage existing infrastructure, and be cost effectively sold 
at a substantial discount to current diesel prices.
    We have a branded biomethane vehicle fuel product we call 
Redeem. We are the largest producer and marketer of renewable 
natural gas as a vehicle fuel in North America. We sold 14 
million gallons last year. We expect to sell 20 million this 
year and 45 million next.
    When the EPA classified renewable natural gas as a 
cellulosic biofuel earlier this year under the renewable fuel 
standard, it was really a game changer for us and our industry. 
It is really an important program for those of us producing 
low-carbon alternative fuels, and I am asking that you ensure 
the long-term viability of the renewable fuel standard. Any 
efforts to gut it will derail the promise of viable fuel 
solutions like Redeem that are just coming to market today.
    Bringing stability to the RFS and the Renewable 
Identification Number market will spur further development with 
a commitment to long-term investment and innovation. I urge 
every member of the committee to consider standing up for what 
is becoming an amazing opportunity for our Nation's energy 
future. I also believe that adopting a performance-based, 
technology-neutral renewable energy tax incentive would be a 
game changer.
    We recognize the importance of current and expired tax 
incentives to our businesses. We believe that a permanent long-
term incentive can provide the kind of business certainty that 
would supercharge the industry.
    In addition, correcting the highway excise and fuel tax 
treatment of LNG and addressing other barriers currently 
hindering LNG adoption are important. LNG competes directly 
with diesel in heavy-duty vehicles. The Federal highway excise 
tax credit on diesel and LNG is set at 24 cents per gallon. LNG 
effectively pays 170 percent of the diesel rate, since it has 
less energy per liquid gallon. This applies to every gallon of 
Redeem LNG we sell as well.
    So our renewable, low-carbon, domestically produced, and 
cleaner fuel is being taxed at a higher rate than diesel. The 
proposal we support, promoted by Senators Bennet and Burr, 
would change the excise tax on LNG so that it is imposed on the 
energy content of a gallon of diesel fuel or a diesel gallon 
equivalent.
    There is also the Federal highway excise tax credit of 12 
percent on heavy-duty trucks and tractors and interstate weight 
limits, both of which put LNG and Redeem-powered heavy-duty 
trucks at a competitive disadvantage compared to diesel-fueled 
counterparts. We are asking for a level playing field for LNG, 
whether it comes from renewable or conventional natural gas, 
and we appreciate the leadership that so many of you have shown 
to address it.
    Lastly, I want to stress the importance of enacting a 
retroactive reinstatement and expansion of the expired 
alternative fuels tax credit as well as the alternative fuel 
vehicle refueling property credit. These important 
infrastructure and alternative fuels tax credits provide 
critical incentives for individuals and businesses to increase 
their use of natural gas as an alternative transportation fuel. 
Both of these provisions were proposed for retroactive 
reinstatement, as well as extension, in Chairman Wyden's EXPIRE 
Act of 2014 and the Bridge to a Clean Energy Future Act of 2014 
in the House.
    We joined more than 30 others, from the American Trucking 
Association and Cummins Westport to UPS and Waste Management, 
to ask for consideration of the LNG fix and several tax-based 
actions in a recent letter that I hope you will consider, which 
was included with my written testimony.
    Congress has a key role to play in ensuring that the 
journey that we have started, leading to a cleaner future using 
domestic renewable energy, does not get derailed. I hope you 
will consider taking action on these important regulatory 
matters, tax incentives, and extensions, as well as addressing 
the technical corrections I have outlined.
    Thank you for your leadership in the area and the time and 
attention you have dedicated to it. I will be more than happy 
to answer any questions or provide any further information you 
might need.
    Senator Bennet. Thank you, Mr. Clay.
    [The prepared statement of Mr. Clay appears in the 
appendix.]
    Senator Bennet. Thank you, again, to all of the witnesses 
for your great testimony. It is down to the two of us, and we 
are going to go in 5-minute rounds. Thank you, Senator Cornyn, 
for hanging in there.
    I think what is clear, if you listen to this, is that there 
is a revolution going on out there, the beginnings of one 
anyway, that American entrepreneurs are figuring out how to 
invent the future when it comes to driving our fleets. But 
there are some things Congress can do to help along the way to 
create an ecosystem that 
actually gets us to a place where maybe we can get off refined 
petroleum imported from other places and on to our own cleaner-
burning natural gas.
    In that spirit, I would like to start with you, Mr. Jibson. 
You mentioned in your testimony that other countries have moved 
ahead of where we are in terms of their implementation of 
natural gas as a transportation fuel. I wonder if you could 
talk a little more about that: the conditions that have allowed 
that to happen and what you think the hang-up has been here.
    Mr. Jibson. Yes, thank you, Chairman Bennet. I appreciate 
the question.
    I think it is something that we have wrestled with for a 
long time. I think it has a lot of dynamics associated with it. 
Back in the mid-1990s, when we were starting to see more 
vehicles being converted to natural gas, I think we were 
keeping up a little bit better at that time with the rest of 
the world.
    What we saw was that engines became very model-specific, 
very computerized, requiring specific kits for each engine. We 
also, I think, had a time period there where we saw gasoline 
prices being much lower, and I think, as a Nation, we probably 
did not see the need to go to smaller vehicles or more 
efficient-type vehicles. That is, obviously, open for debate, 
but I think at that point, we saw a lot of different models of 
vehicles being introduced throughout the world, certainly in 
South America, Europe, and some other countries, where 
economics was emphasized more, but also there was the 
willingness to have a smaller-type vehicle.
    I think that is the point where we started to see that 
divergence, and we are now seeing that turn around. I think, as 
far as the growth we are seeing in the U.S., including 
infrastructure as well as the move to natural gas by so many 
tremendous companies that you have heard from today and 
referenced today, that we are starting to obviously catch up.
    But I think cost is a big issue. I talked about home 
refueling units. In other parts of the world, we are seeing 
home refueling units in the $1,000 to $1,200 range. That is 
making it more possible for those personal vehicles.
    I also think air standards, other things maybe, are of 
greater importance than they are in the U.S. I think that has 
also fueled that conversion.
    Senator Bennet. Thank you. Mr. Whitlatch, you were kind 
enough to mention the bill that I have with Senator Burr that 
would tax natural gas and diesel by energy content instead of 
by volume. I wonder if you could talk a little bit about what 
that would mean economically to UPS or to others in your 
industry and what kind of effect that might have on the 
adoption of vehicle technology across the country. How big a 
deal is it?
    Mr. Whitlatch. Sure. So I think we heard that a Class 8 
vehicle can burn 20,000 gallons-plus of fuel per year. So, if 
you do the math, and, at the end of the day, you are operating 
a fleet of, say, 1,000 Class 8 vehicles, that is 20 million 
gallons of fuel. A 17-cent conversion on that is almost $4 
million--$4 million to the bottom line just in excise tax when 
compared to diesel.
    So when this scales, you can see this is a recurring tax 
forever. So, getting back to your leadership on this bill here, 
this equalizes this and makes it on parity with diesel fuel, 
which is what we need.
    Senator Bennet. I will turn it over to you, Senator Cornyn.
    Senator Cornyn. Well, thank you all for your testimony. 
This has been very encouraging, but it seems to me--and I would 
like to have you comment on this--it boils down to four 
different points. I would like to get your advice, because I 
think this is something we are going to need your help to 
figure out.
    First of all, these vehicles are more expensive than 
traditional diesel vehicles, and the question is, do the 
advantages of natural gas provide enough benefit to the owner 
of the vehicle that they are going to pay the extra money 
without some additional help from the Federal Government in 
terms of tax credits and subsidies? I know when the Pickens 
Plan was being proposed, that was one of the hang-ups because, 
frankly, while everybody thought it was a good idea, at the 
same time that we are talking about flattening the tax code and 
doing tax reform, we are, on the other hand, talking about 
adding additional credits and subsidies.
    The second thing is, obviously, there need to be refueling 
stations. I was interested, Mr. Jibson, in what you had to say 
about the role of natural gas utilities and the capacity there.
    Third, we basically have a tax code problem that I alluded 
to a moment ago, and, of course, every tax deduction, subsidy, 
and the like essentially comes from the taxpayer. And when you 
start thinking about tax expenditures with our $18 trillion in 
debt, you can see how this starts to get to be pretty 
complicated.
    And then there is the Highway Trust Fund. If we do what Mr. 
Whitlatch and Senator Bennet have proposed, it cries out as a 
fair resolution, but at the same time, that is less money going 
into the Highway Trust Fund, which is already operating at a 
deficit.
    Maybe you will start, Mr. Clay, and I will give other 
people a chance to comment, but you mentioned a performance-
based, 
technology-neutral tax policy, and that that would be a game 
changer. What would that look like?
    Mr. Clay. We would be supportive of something comparable to 
what Senator Baucus introduced, last year I believe. That was a 
really, I thought, interesting idea. It provided long-term 
incentives for renewable energy production--without regard to 
whether it was solar, wind, or biofuels--entirely based on the 
performance, based on the greenhouse gas emission reductions 
that that particular renewable fuel or energy would provide.
    And we have something comparable to that in California with 
a low-carbon fuel standard as a technology-neutral, 
performance-based carbon credit generation program, which I 
think is very effective. It really gets the government out of 
the game of trying to figure out what the solution will be, but 
rather just saying, these are the qualities of the renewable 
energy that we want to incentivize, whether it is reduction of 
carbon or fuel diversity or moving away from petroleum, to get 
to more domestic fuel sources. We can set those kinds of 
guidelines out there and then let the industry figure out what 
the most cost-effective solution is.
    A perfect example is what we produce: biomethane. It was 
not even on the radar when the renewable fuel standard was put 
together 5 years ago, and now we are the largest generator of 
cellulosic biofuel RINs by a wide magnitude of any biofuel. 
That was not something anyone anticipated, but it is something 
we have been able to accomplish.
    I think that incentivizes the industry. And programs that 
do not pick the fuels but rather provide technology-neutral 
incentive programs are the most effective in stimulating that 
kind of activity.
    Senator Cornyn. Mr. Whitlatch, do companies like UPS need 
tax benefits to make this commercially viable?
    Mr. Whitlatch. Yes. I think you saw in our prepared remarks 
that incentives have played a key role in the initial adoption. 
I think what we would like to stress is that, when you have a 
new technology, getting to scale, getting to the tipping point, 
is absolutely critical.
    I think what you have seen with the folks on this panel is, 
when you have incentives, they can make a marginal business 
case attractive. Once you get to that level of scale, it brings 
the cost down for everyone across the board. Infrastructure 
comes down, cost per unit comes down, which leads to widespread 
adoption, which leads to greater scale.
    So initially we believe, like any other alternative fuel 
that we have seen, you need to have some sort of incentives, 
and they do help. You get to scale. It is just a matter of how 
you achieve that.
    Senator Cornyn. I was smiling as you were making those 
remarks. I agree with your analysis. The problem Congress has 
is, for example, in the case of the Production Tax Credit for 
wind, I think it is 20 years old, and we are still having a 
debate about whether this is a mature enough industry to not 
require Congress to provide additional subsidies. We all see 
the benefits of it, but that is the challenge.
    Mr. Carrick, let me just close with you, in the time I 
have, and just ask, in terms of your business and producing 
these engines and these trucks, how critical is the tax 
treatment?
    Mr. Carrick. Thank you for the question. It is a very good 
one and there are a lot of different answers to it.
    Senator Cornyn. Okay.
    Mr. Carrick. Our customers today that we are selling larger 
volumes of product to, like UPS--and I could go down a list of 
them--probably 80 percent of them have installed their own fuel 
stations and operate in applications where they are running 
very high mileages, turning the vehicles 100,000 to 200,000 
miles a year, burning a lot of fuel, and they are making this 
work. They are making this pencil out.
    So where incentives may be needed or tax credits may be 
needed is with the smaller customers; 30,000 miles a year 
beverage distributors want to be green but cannot afford to 
because they do not burn enough fuel to make the return on 
investment. When we meet with CFOs in these different 
companies, they do very, very extensive business plans to make 
sure that this is going to work for them.
    The 50-cent tax credit, if you look at that--these CFOs 
want certainty. I think Senator Wyden brought that word up. It 
is a great word. They want certainty. What is this 50 cents 
going to entail? Is it going to be here for the next 3 years, 
or is it going to be here for a year and they might get 
something retroactive? So really what we need to do is--we 
certainly appreciate what is going on right now and the chance 
of getting it extended--if we could come out with a plan that 
was 3 years in duration and said, until 2018, you have this, I 
think it would make a remarkable difference in some of the 
adoption rates of some of these big fleets.
    Senator Cornyn. Okay.
    Senator Bennet. Thank you, Senator Cornyn, very much for 
being here.
    I just have a few more questions, although I want to say, 
for the record, that the bill I have with Richard Burr is not 
one that would create a tax credit for anything. What it is 
doing is removing a disincentive that is making people make a 
choice they would not make if the Congress were allowing the 
market to work properly. And that is what we are trying to do. 
We are going to get through it one of these days, but, in the 
meantime, you are going to have to stick with us.
    Mr. Calabrese, would you talk a little bit more about the 
development of the fueling infrastructure in the Cleveland 
Transit Authority and how your decisions would have been 
different--this is actually apropos the conversation we were 
just having--if the alternative fuels tax credit for natural 
gas financing had not been in place?
    Mr. Calabrese. Yes, thank you. When I went from New York to 
Cleveland in 2000, Cleveland really had a CNG-only policy on 
diesel buses and full-size transit buses. When we looked at 
that--we had about 400 buses that needed to be replaced--I just 
could not come up with the money to replace the diesel buses 
with CNG buses because, number one, it was $70,000 additional 
per unit and, number two, because of the additional 
infrastructure costs we would incur.
    So I really went to my board and said, ``We really cannot 
afford this.'' We went away from CNG back to diesel because I 
felt that the best thing we could do as an organization was to 
be sustainable, and the best thing we could do in terms of 
sustainability was to put as much high-quality public transit 
on the road as possible, as opposed to a cleaner versus a less-
clean bus.
    So we went away from it. The bottom line is, what I said to 
the community was, at a time in the future when the incentives 
were different or when the technology had improved, when the 
differential cost between the CNG and diesel buses had come 
down, we would reevaluate that.
    That is what we did 2 years ago. Part of that evaluation 
was the alternative fuels tax credit, and we made the decision 
to go back to CNG in a very big way. Number one, the tax credit 
was important. Number two, the cost of diesel fuel had risen 
significantly from 2002 to 2012. We did the analysis, and Mr. 
Clay's organization helped us with the analysis, by the way, 
really to make the decision.
    And that tax credit was a very important piece of it, not 
just for us, but for my counterparts in the industry. I think 
that credit is, in many cases, a deciding factor.
    Senator Bennet. So how do you think your counterparts in 
the industry are thinking about this now?
    Mr. Calabrese. Well, I think that the American Public 
Transportation Association in a very strong way is supporting 
the continuation. When we make a decision to buy a CNG bus, 
that is probably a 14-year decision, so that consistency and 
continuity, I think, are very important. I think there are a 
number of people in my industry who are waiting on the fence 
right now to see if that tax credit is there and makes it 
financially worthwhile to go ahead with the increased cost of 
the vehicle and the increased costs necessary for the fueling 
infrastructure.
    Senator Bennet. Thank you. Mr. Kassel, could you talk a 
little bit more, elaborate a little bit about the technological 
changes that you are seeing in these engines? I was curious 
about that, just because that also is going to contribute to 
adoption rates, I think, going forward. Do you think, 
ultimately, this could end up going as far as passenger cars? 
You had mentioned railroads and marine craft as well. Where are 
we on the technology curve, and what does the future look like?
    Mr. Kassel. I think there are three different things going 
on that I would like to touch on. The first is, we are in a 
moment where there is finally some regulatory certainty in some 
of these high-horsepower applications that is driving 
investment in new technologies, whether it is high-pressure 
direct-injection for large natural gas engines or other 
technology pathways that companies are taking on. What is 
driving it is, on both the locomotive side and on the marine 
side, there is regulatory certainty.
    So on the marine side, we now are implementing the emission 
control area, which requires low-sulfur fuels and much lower 
emissions from ships. We are essentially going from a world of 
35,000 parts per million sulfur bunker fuel and no emission 
controls to a world of a low-sulfur distillate fuel combined 
with some form of scrubbers or selective catalytic reduction or 
LNG.
    So that regulatory certainty is driving everybody to say, 
``How am I going to comply? What is the most cost-effective way 
for me to do that? And I am going to have to invest in 
something, so what will I invest in?''
    It changes completely the analysis from where the shipping 
industry would have been, which is: we have our stock. We are 
continuing to use it for as long as we were going to use it, 
and we are not looking to make major capital investments. 
Everybody has to do something because of this. What will they 
do?
    On the locomotive side, it is the EPA Tier 3 regulations 
that, again, are driving towards much, much cleaner low-sulfur 
fuels and emissions that are 90 percent or more, depending on 
the pollutant, lower than where they are. That gets the 
operators to say, ``What am I going to do?'' That, in turn, 
gets the engine makers, everybody involved in the chain of 
companies that produces the locomotive or a piece of mining 
equipment or a ship, to ask, ``How are we going to provide what 
our customers need, which is a fuel-efficient vessel, an 
energy-efficient vessel, that meets these standards and is 
cost-effective?''
    With car buyers, we buy our cars because we like the car. 
Most people do not walk in to the dealer and say, the only 
thing I care about is energy efficiency or the lifetime fuel 
costs of my vehicle. In the trucking sector, in the mining 
sector, in locomotives and marine applications, we are talking 
about asset turnover that is very, very slow and companies and 
operators that are facing that sort of life cycle.
    So regulatory certainty is number one. That is what is 
driving it.
    Two is, of course, the race to figure out how you create a 
product that is going to meet not just the regulatory goals, 
but the operating goals of your customers, which include 
maintenance and durability and low cost of energy, because, 
after all, energy is a huge, huge variable. Think of a 
container ship; there are not a lot of labor costs, but there 
are a lot of fuel costs. So I think that is the second 
attribute.
    I think the third is, really, that the word is getting 
around. When we did a study recently of what is happening in 
the marine sector, we looked at 19 different projects around 
the country. And really, wherever you are in that sector, if 
you are operating ferries, if you are operating cruise ships, 
if you are operating container vessels, if you are operating 
dry bulk vessels in the Great Lakes, you can save a million 
dollars a year by converting, so everybody is looking at these 
different issues. I think that is what is really driving it.
    Senator Bennet. Mr. Carrick, do you have anything you would 
like to add? You talked about potential game-changing 
technology changes.
    Mr. Carrick. Well today, on the transportation side, there 
really is nothing new on the horizon. There is no silver 
bullet. Cummins just came out with the 12-liter engine. It came 
out about a year ago and has made a big change in the 
applications we were able to take from a 9-liter engine to a 
12-liter engine, which is now up in the 400 horsepower, 1,450 
torque range, which is required by most heavy customers.
    So they were looking at a 15-liter engine. They put that on 
the back burner for the time being, and I think it is really 
because the adoption rate has slowed down. It is still growing 
at about 40 or 50 percent a year, which is not bad except that 
it is from a very, very low base, and, until we start to get 
more adoption of these vehicles, I do not think you are going 
to see any engine manufacturers step in at this time.
    Senator Bennet. So that is the problem of scale that we 
talked about earlier?
    Mr. Carrick. That is right.
    Senator Bennet. I have two more questions, and we are 
done--one for Mr. Whitlatch and one for Mr. Clay.
     UPS's commitment to this has been really very strong, and 
you had to make a business case--or somebody had to make a 
business case--to build the infrastructure that is required. A 
lot of the fueling stations are yours, right? They are not 
commercial. There are more than 1,100 natural gas fueling 
stations in the United States. In Colorado, we have 21 
compressed natural gas fueling stations, which is obviously a 
tiny number compared to more than 100,000 traditional gas 
stations across the country.
    So could you talk a little bit about your approach, why it 
made sense in your context, if it did, and then any other 
thoughts you have about our trying to get to scale, other than 
the stuff we have already talked about? What have we left out?
    Mr. Whitlatch. I think you have covered it. From our 
perspective, we are kind of in a unique situation. We have a 
very large home base where we domicile vehicles, and those 
vehicles go out and they drive a lot of miles and they come 
back to the same refueling point. So for us, we have a very 
captive network.
    So you asked how we got there. It is really based upon the 
cost of the technology, the spread of the fuel prices, and how 
many miles do you run it. So in our case, how we make it pencil 
out is--and we do make it pencil out--it makes absolute sense 
for us to do this. We run a lot of miles, and we refuel back at 
one main station. And for us, that allows us to amortize the 
cost of this over that network. So having a captive network is 
one of the keys, as is running lots of miles and having the 
right equipment density to do that.
    So we are fine. We are finding LNG works. Now we will see 
where CNG works. In our network, our scale allows us to do that 
and for it to pencil out.
    Senator Bennet. Mr. Clay, you have a very different kind of 
network that you are thinking about, including a station at 
Denver International Airport.
    Mr. Clay. Yes.
    Senator Bennet. Can you talk about that and what that 
buildout looks like?
    Mr. Clay. Sure. So we supply renewable natural gas to clean 
energy stations, and the decision to build those stations is 
somewhat independent of the buildout of our renewable and 
natural gas production facilities.
    As a company, when we are looking to build CNG or LNG 
stations, typically what we look for is an anchor tenant. So we 
will go out and build a station anywhere where there is a fleet 
that is willing to commit to convert their vehicles over time 
to run on natural gas and has enough fuel demand to justify the 
capital investment in the station so that we can get a minimal 
level of capital return on that station.
    Then, over time, we market the availability of that station 
to other fleets in the area and build demand on the station. So 
today, our most successful and largest sales stations are three 
that we have at the Los Angeles International Airport, at LAX. 
We sell 20,000 gallons a day from those facilities to shuttles 
and fleets, but it sure did not start out that way.
    We had to go out and find the customers, create programs 
for them to finance vehicles, and look for creative ways to get 
them into natural gas vehicles that could fuel at those 
stations. With the over-the-road trucking----
    Senator Bennet. What kind of customers are those?
    Mr. Clay. So it is typically return-to-base fleets; high 
fuel consumers are really the kind of customers you are looking 
for, people who purchase a lot of gas because they are going to 
get the most economic benefit, produce the most environmental 
benefit, per customer. If you look at a heavy-duty truck 
burning 20,000 gallons a year, versus a passenger car burning 
500, it is pretty clear you can get a lot more bang for your 
buck building a station for 20 heavy-duty trucks than trying to 
build one for the passenger car market.
    So it is high fuel consumers, return-to-base fleets where 
they can fuel at one centralized fueling infrastructure. So 
airports are great markets for us. The station you see in 
Denver has fueling for taxis that come to the airport 
regularly, airport shuttle buses, airport service vehicles, 
small trucks, those kinds of light-duty and 
medium-duty refuse trucks, which are another great market for 
us.
    This year, 60 percent of the trash trucks that will be 
bought in North America will run on natural gas. It is perfect 
for refuse trucks. They are return-to-base fleets, they can 
fuel overnight, they can get enough fuel onboard to run their 
route during the day, and they can see significant savings on 
the fuel that they are buying.
    Senator Bennet. When I interrupted you, you were going to--
--
    Mr. Clay. With the over-the-road trucks in the long-haul 
trucking industry, we did, as a company, make a decision to go 
out and vary from our usual strategy of building stations only 
where there was already a committed customer or one that would 
be at that station. We went out and did build those stations 
for LNG and CNG heavy-duty trucking because we felt, with the 
introduction of the Cummins Westport 12-liter engine and the 
availability of that vehicle, that in order to get those 
vehicles out on the road, somebody had to build the stations.
    We had to kind of solve the chicken-and-egg question. So we 
did. We went out and built the stations to enable over-the-road 
trucks to run from coast to coast fueling on natural gas.
    Senator Bennet. Thank you, everybody. I really appreciate 
the thoughtfulness. The testimony will help us as we try to 
make the case moving forward.
    I am also a strong believer that we ought to be moving 
toward technology-neutrality in our tax code. How we do that 
and what that transition looks like is going to be very 
complicated, but I think it is essential that we do it, for a 
lot of reasons.
    One of the reasons is that, every time I hear somebody on 
the television say that the government should not pick winners 
and losers, that is when I hold onto my wallet, because they 
say it as if the government has not already made decisions to 
pick winners and losers. If you happen to be in the winning 
category, you happen to be an incumbent interest that earned 
something deep in the last century in our regulatory code, our 
tax code, that is great for you, but it is not great for 
innovation in this country. That is why I think this set of 
issues is so critical, beyond even the discussion of natural 
gas.
    So I thank you all for what you do, for being here, for 
being willing to take time out to come here, and I give you an 
open invitation on behalf of the entire committee that, as we 
go forward, please do not be shy about coming to us with your 
ideas or suggestions for how we can actually get this stuff 
done.
    Thank you. We are adjourned.
    [Whereupon, at 3:50 p.m., the hearing was concluded.]
    
    
    
    
    
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