1. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting IFTA – DUAL FUEL VEHICLE TAX REPORTING August 14, 2014 Pittsburgh, PA Presented by DUAL FUEL WORKING GROUP

2. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Overview A Quick Recap on Dual Fuel Vehicles Conversion Issue for LNG – Diesel gallon equivalents – Short-Track Ballot #05-2014 New Fuel Types for the Clearinghouse – For reporting between jurisdictions

3. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Dual Fuel Working Group IFTA: Hugh Hughson (BC)Dawn Lietz (NV) Paul Bernander (WI)Garry Hinkley (MI) Tim Ford (CA)Chuck Ulm (MD) Industry: Robert Pitcher (ATA) Gary Bennion (Con-Way) FTA: Cindy Anders-Robb IFTA, Inc. Advisors: Lonette TurnerAmanda Koeller

4. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Dual Fuel Vehicles - 101 Dual fuel vehicles can use two fuels at the same time (i.e., diesel and natural gas) Two types of natural gas are being used: Compressed Natural Gas (CNG) Stored as a gas in high-pressure tanks (e.g., 3,000 to 3,600 psi) Often sold as a gaseous measure (e.g., ft3 or m3) Liquefied Natural Gas (LNG): Stored as a super-cooled liquid (e.g., -260°F or -170°C) Almost always sold as a liquid measure (e.g., gallons or liters) or by weight

5. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Dual Fuel Vehicles - 101 Expect: At least 5% of long haul vehicles will be dual fuel within the next 5 years LNG will be used more for since the energy content comparable to gasoline and diesel fuels

6. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Dual Fuel Vehicles - 101 Ballot #03-2013: 1 gallon of CNG equals 126.67 cubic feet, and weighs 5.66 pounds 1 liter of CNG equals 1.0 cubic meters, and weighs 0.7316 kilograms (Needed since jurisdictions conversion rates for CNG vary considerably)

7. CNG Conversion Rates Source – FTA

8. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Conversion Factors for LNG We told you LNG always sold as a liquid (we were right but there is still a problem) In the United States two different methodologies exist to convert LNG to volume measures: – Straight weight - 1 gallon weighs 3.5 pounds – Energy equivalent weight - 1 DGE weighs 6.06 pounds

9. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting In Canada: – The Federal government determines the units of measure and is strongly opposed to energy equivalents: The source of the raw product, the refining/manufacturing process, age of the finished product and season of use can all significantly affect the energy content of diesel and LNG In addition, temperature and pressure greatly affect LNG energy content The result, it is almost impossible to establish a fixed ratio to accurately compare these fuels Conversion Factors for LNG

10. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting In the United States: – Retail stations want DGE so the public can compare LNG with diesel – National Conference on Weights and Measures is likely to adopt DGE – Understand 18 states have DGE legislation (with two more likely before year-end) Conversion Factors for LNG

11. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 As with last years CNG Ballot: – We need a consistent process for LNG reporting and disbursement of taxes between jurisdictions – There is no impact to sovereignty (a jurisdiction tax rates and units of measure are their responsibility (in the US) – Other standards exist to ensure consistent reporting and distribution of taxes between IFTA members (e.g., distances, volumes, and currency)

12. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 Are recommending, for IFTA reporting and transmittal purposes, that LNG be reported in energy equivalent measures: diesel gallon equivalent weighs 6.06 pounds; and diesel liter equivalent weighs 0.7263 kilograms As an example: – If this ballot does not pass; and – I post an LNG tax rate of $0.29 per “gallon” is it…..

13. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 ? ? $0.29 / straight gallon (3.5 pounds) $0.29 / Diesel Gallon Equivalent (6.06 pounds)

14. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 At a high level: – Jurisdictions will send LNG tax rates to IFTA which convert: $C/litre to $US/gallon (for US jurisdictions - but is it a straight gallon or DGE?) $US/gallon to $C/litre (for Cdn jurisdictions - but is it based on a straight gallon or DGE?) IFTA and jurisdictions post LNG tax rates for carriers (straight gallon or DGE?) – Carriers submit tax returns, base jurisdiction process and then send to Clearinghouse (straight gallon or DGE?)

15. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 – Base jurisdictions get Clearinghouse data from other jurisdictions and try to compare with Funds Netting (but will find that difficult because they don’t know if a straight gallon or DGE are being used?)

16. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 Proposing: P1320 - FUELS NOT MEASURED IN LITERS OR GALLONS For IFTA reporting and transmittal purposes, the use of liquefied natural gas shall be reported in energy equivalent measures (i.e., a diesel gallon equivalent in U.S. jurisdictions weighs 6.06 pounds, and a diesel liter equivalent in Canadian jurisdictions weighs 0.7263 kilograms).

17. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Short Track Ballot #05-2014 Proposing: – An effective date of July 2015 but comfortable moving out to July 2016, if additional time is needed to make system changes Key issue is that we: – Think about the impact of dual fuels; and – Get a consistent unit of measure for LNG reporting and disbursement of taxes between jurisdictions

18. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Questions / Discussion

19. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Last year we proposed a methodology for accurately reporting dual fuel activity using the existing IFTA return concept This year I’d like to provide some further thoughts on how carriers, jurisdictions and IFTA could more easily communicate dual fuel activity Dual Fuel Reporting for IFTA

20. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting As background: Dual fuel vehicles must be treated and reported separately (e.g., pure diesel fuel fleet, the Diesel /LNG fleet, and the pure LNG fleet) In addition, each dual fuel fleet must be treated as if two vehicles, separately reporting the: Distances travelled (after pro-rating to void double counting distance travelled) ; and Fuels purchased (e.g., pure diesel fleet vs. the diesel used in the dual diesel/LNG fleet) Dual Fuel Reporting for IFTA

21. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting This reporting has the potential to create significant problems/complexities for: Carriers reporting to base jurisdictions Base jurisdictions: Processing carrier tax returns; Transmitting data via the Clearinghouse (and non- Clearinghouse jurisdictions), and Desk/field audit activities Think simplest solution is to create several new fuel types to keep dual fleet activity separate Duel Fuel Reporting for IFTA

22. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Recommending four new fuel types so everyone can better understand/see dual fuel activity End result is 3 for Diesel, 2 for LNG, and 2 for CNG as outlined below: D - for pure diesel vehicles (existing) LNG - for pure LNG vehicles (existing) CNG - for pure CNG vehicles (existing) DDL and DLNG - for diesel/LNG vehicles (two new) DDC and DCNG - for diesel/CNG vehicles (two new) Duel Fuel Reporting for IFTA

23. Final Tax Return and Transmittal Data AB C DEFGH Fuel TypeJurisdictionTotal Distance Taxable Distance Taxable Fuel Volume Tax Paid Volume Net Taxable Volume Tax RateTax Due Pure Diesel Fleet DJ1 1,600,000 440,000 500,000- 60,0000.2000-12,000.00 DJ2 400,000 110,000 50,000 60,0000.15009,000.00 DDL-DLNG Fleet DDLJ1 48,000 9,600 12,000- 2,4000.2000-480.00 DDLJ2 12,000 2,400 - 0.1500360.00 DLNGJ1 32,000 6,400 0.0500320.00 DLNGJ2 8,000 1,600 8,000- 6,4000.2000-1,280.00 DDC-DCNG Fleet DDCJ1 10,667 3,200 2,000 1,2000.2000240.00 DDCJ2 2,667 800 0.1500120.00 DCNGJ1 5,333 1,600 0.2500400.00 DCNGJ2 1,333 400 2,000- 1,6000.1000-160.00 Duel Fuel Reporting for IFTA

24. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Clearinghouse Advisory Committee: Is aware of the additional fuel types concept; Clearinghouse can accept the additional fuel types; but Based on recent CAC survey 14 jurisdictions have system limitations (i.e., no more than two characters for fuel types) – I’m not sure two characters are sufficient but I’d like to leave that for CAC Duel Fuel Reporting for IFTA

25. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting General Thoughts From a tax reporting/transmittal process dual fuel technology is: – A significant change in how we operate and will require system changes; and – Also places a significant burden on carriers and auditors Assuming everyone is in agreement it will take time for jurisdictions to make system changes to accept/correctly process the incoming dual fuel returns – Future Program Compliance Reviews should “note” but not “cite” 25

26. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting General Thoughts Lastly: Natural gas use is growing; and Jurisdictions that currently exempt or tax natural gas at lower rates will likely see a reduction in overall fuel tax revenues as consumers convert to natural gas (e.g., private and commercial vehicles including marine applications etc.) 26

27. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Questions / Discussion

28. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting Thanks!

29. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting FYI - Following slides are from last year’s presentation for reference purposes only/in case questions come up.

30. Recommended Reporting Process At a high level: – Dual fuel vehicles must be treated and reported separately (e.g., gasoline fleet, diesel fuel fleet, LNG fleet, dual fuel fleet) – Duel fuel vehicles must be treated and reported as two vehicles: Separately reporting the distances travelled and fuel purchased Pro-rating the distances to avoid double counting Fleet TypeFuel Type IFTA Return or Return Line Actual Distance Travelled Distances Reported Pure DieselDiesel “D”Return #1100 Dual Fuel Diesel “dD”Return #2100 (pro-rated) 25 LNG “dL”Return #3 (pro-rated) 75

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

32. Recommended Reporting Process AssumptionsTotal Distance * dD (gallons)dL (gallons)Total Fuel J1 8,000 500 - J2 2,000 - 1,000 Total 10,000 500 1,000 1,500 * No exempt distances were traveled in either jurisdiction. 32 Calculate MPGTotal DistanceTotal FuelMPG 10,000 1,5006.67 Prorate Distances by Jurisdiction Between Fuel Types Total Fuel Fuel by TypeRatio dD 1,500 5000.3333 dL 1,0000.6667 Total DistanceRatioProrated Distance J1 8,000 0.3333 (dD) 0.6667 (dL) 2,667 5,333 J2 2,000 0.3333 (dD) 0.6667 (dL) 667 1,333 Total 10,000

33. Recommended Reporting Process Pro-Rating Worksheet These fields auto-populate and then transferred to the appropriate dD and dL form/return for each jurisdiction TOTAL DISTANCE TRAVELLED EXEMPT DISTANCE TRAVELLED Total Distance dD Portion Exempt Distance Txbl Distance dD Portion Total Distance dL Portion Exempt Distance Txbl Distance dL Portion J18,00002,6670 5,3330 J22,00006670 1,3330 Total Miles 10,00003,3330 6,6670 Pro-rating more complicated if a carrier has exempt distances Developed and tested worksheet which can be used to accurately prorate the “Total Distance” and “Taxable Distance” between fuel types.

34. Recommended Reporting Process Dual Fuel Vehicles – Diesel Average MPG 6.67 Fuel Type Jurisdiction Total Distance Txbl Distance Txbl Volume Tax Paid Volume Net Txbl Volume Tax Rate Tax Due dD J12,667 400500-1000.2000-$ 20.00 dD J2667 1000 0.1000 $ 10.00 Sub-total 3,333 500 0 -$ 10.00 Dual Fuel Vehicles – LPG Average MPG 6.67 Fuel Type Jurisdiction Total Distance Txbl Distance Txbl Volume Tax Paid Volume Net Txbl Volume Tax Rate Tax Due dL J15,333 8000 0.0500$ 40.00 dL J21,333 2001,000-8000.1000- $ 80.00 Sub-total 6,667 1,000 0 -$ 40.00 TOTAL DUAL-FUEL VEHICLES 10,000 1,500 -$ 50.00

35. August 13-14Pittsburgh, Pennsylvania 2014 Annual Business Meeting General Thoughts Worst Case - US carrier with a dual fuel vehicle in Canada Buys: Diesel in Canadian currency and litres; and LNG in Canadian currency and kilograms Separately track all fuel purchases (e.g., D, DDL, DLNG, DDC, and DCNG): Convert to US currency and converts: Diesel liters to gallons LNG kilograms to a straight gallon or DGE…? Combines with all US activity Then pro-rates distances travelled by dual fuel vehicle to avoid double counting Then completes tax separate tax returns/schedules for each fuel type: DDL - diesel portion of the dual fuel vehicle; and DLNG - LNG portion of the dual fuel vehicle 35