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114 APPENDIX A Oregon VMT Pay-at-the-Pump System Case Study A.1 Objectives of the Pay-at-the- stations, or they sent receipts for gas purchases in Oregon to Pump System ODOT for a refund of the Oregon gas tax paid. There was no mileage charge for travel outside of Oregon, nor were there The 2001 Oregon legislature authorized the creation of the any refunds for taxes paid to other states. Oregon Road User Fee Task Force (RUFTF) to examine alter- The second type of mileage fee tested charged a premium for natives to the existing gas tax as a funding mechanism. RUFTF travel in congested zones at peak periods and offered a discount selected a user fee, or mileage-based charge, for further study for other travel in Oregon relative to the gas tax. Vehicles in this as an alternative to the gas tax. FHWA sponsors the Value Pric- category were charged 10 cents per mile for peak period travel ing Pilot program, which seeks to change road usage behavior in the congested zone but only 0.43 cents per mile for other through the use of pricing. The Value Pricing Pilot program travel in Oregon. provided additional funding to the project to gain information The Oregon experiment was a test of the equipment and on how vehicle users may change their behavior in response to business model for a system to transition from state fuel taxes price differences. to state mileage fees. The basic system simply kept a total of Oregon conducted a pilot test to evaluate an electronic mileage driven in Oregon and mileage outside of the state. alternative to the state fuel tax where on-vehicle devices were The mileage total was retained in the vehicle. When a vehicle used to collect mileage information. With the aid of GPS participating in the system purchased fuel at a participating technology, the system was capable of allocating mileage to station, the system would transfer the mileage information to specific zones based on where and when vehicles were oper- the station's POS system. The POS would communicate with ated. Information on mileage by zone was then transmitted a central computer and provide the current mileage total. The to a centralized computer that interacted with the POS sys- central computer would calculate the mileage driven since the tem to charge the VMT fee and deduct the gas tax when a last reading and inform the POS of this total. The POS would vehicle was fueled at a participating station. The system was then add the mileage fee and subtract the state gas tax for the designed to be compatible with the gas tax and to be phased in fuel purchase. Vehicles not equipped with the system would over time. Under this system, vehicles with appropriate tech- continue to pay the fuel tax. nology would pay the mileage fee instead of the gas tax while The system was designed to provide a transition from fuel vehicles not equipped with this technology would continue to taxes to mileage fees. New vehicles equipped with the system pay the gas tax. would pay mileage fees while older vehicles would continue A pilot test was used to test two types of mileage fees. The first to pay state fuel taxes. The system has several other desirable was a simple replacement of the gas tax with a per-mile charge characteristics as well. Most of the revenue would continue to (VMT fee) that generates approximately the same amount of be collected at the distributor level from fuel sellers. The state revenue as the gas tax. For example, for a vehicle that gets reconciled differences between mileage fees collected and fuel 20 miles per gallon of gas (the approximate statewide average), tax refunds with the service stations. Although the state main- a charge of 1.2 cents per mile would be exactly equal to the tained accounts for each vehicle, the state did not have to col- state gas tax of 24 cents per gallon. The pilot system charged lect revenue from each driver. The system could be extended to the same fee per mile for miles traveled in Oregon for all alternative vehicles by requiring the owners to upload mileage vehicles in this part of the experiment. The vehicles then either data on a regular basis, although this procedure would also did not pay the Oregon gas tax when fueling at participating expand the collection requirements for the state.

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115 The system tested also allowed for additional mileage charges be equipped with the appropriate hardware, software, and to be levied by other jurisdictions or for variation of charges by communication capabilities before the start of the system. time of day. This capability allows multiple jurisdictions to col- Major oil companies have not so far been willing to participate, lect mileage fees with the same system and the imposition of and there is some uncertainty about the cost and other issues congestion pricing within specific areas. related to equipping all stations. Further, the technology needs improved reliability to be used for revenue collection. One A.2 Specifications of the System problem noted was an apparent difference between the odome- ter readings and calculated mileage in a number of vehicles. The system tested used a GPS unit to determine the time Another was a relatively large number of vehicles detected at and location of operation of the vehicle. Speed information participating stations for which there was no fuel transaction. from the OBDII port was then used to calculate miles driven This may have occurred because no fuel was purchased, but it by time and location. Information in the test was collected for also occurred if the radio signal between the car and the pump 31 different time and location combinations. When the vehi- was not sufficiently strong to clearly determine that a partici- cle was driven to a participating station, radio communica- pating vehicle was purchasing fuel. Improvements in the relia- tion was used to identify a participating vehicle. At the fueling bility of detecting all relevant transactions are required before pump, the level of the signal was used to identify a transac- implementation. tion requiring a mileage fee calculation. For a mileage fee calculation, the POS sent the mileage data and received information relating to the mileage charge. The A.4 Potential to Become an mileage charge was added to the fuel bill, and the state gas tax Alternative Revenue- was subtracted. Generation System The central computer kept a record of mileage and fuel pur- The system has considerable potential for a gradual phase chases by vehicle and calculated the new mileage by category in of mileage fees. The ability to allow multiple jurisdictions whenever the vehicle was fueled at a participating station. to charge separate fees and the potential to add time-of-day Only two stations participated in the experiment, so vehi- pricing make the system attractive. In addition, the ability to cles could be fueled at nonparticipating stations in Oregon. In collect most of the revenue without collecting directly from this case, the next fueling at a participating station resulted in the drivers greatly reduces the collection and enforcement mileage charges based on the last fueling at a participating sta- cost relative to most other systems. tion, but the state gas tax was only subtracted based on the cur- rent fuel purchase. Therefore, ODOT allowed participants to send receipts for fuel purchased in Oregon at nonparticipat- A.5 Cost ing stations for a refund of the state gas tax. The refund process was also necessary when the system failed to recognize that a ODOT has generated estimates for some of the major cost vehicle was participating. In that case, the state gas tax was not components of implementing the system (see Table 46). The subtracted and no mileage fee was added; however, at the next cost estimates for implementation are based on the best fueling, the mileage fee for all miles was charged and the tax available information, but the specific systems would require was only reduced for the current purchase. There was no refund additional development and testing. The cost elements are for taxes paid when fueling in other states. described in Table 47. A.3 Status of the System A.6 Alternative Cost Estimate The proposed system is based on the installation of the Peters and Gordon (2009) used information from Oregon as required GPS and related equipment in all new vehicles a basis to generate estimates for the VMT system for New York. operated in the state. Thus, the transition to complete use of The following estimates are from their report (see Table 48). mileage fees is expected to require substantial time. At some Their estimate uses a 6-year expected lifespan for the collection point, retrofitting of vehicles may become cost-effective, but technology based on 5 to 8 years of useful life. it is not expected to be so in the near future. Implementation They report their key assumptions as: of the equipment requirement requires careful specification of the system characteristics and agreement by manufactur- VMT is projected at 136,740,000,000 (based on 2007 ers to equip new vehicles to be used in the state. reported VMT); It is intended that all fueling stations in Oregon would par- Vehicle count based on NY State DMV is 10,697,644; ticipate so as to eliminate the need for refunds of taxes paid at Onboard system costs estimated at $125 per unit to fur- nonparticipating stations. Therefore, all stations would have to nish, install, and tamperproof;

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116 Table 46. Oregon VMT pay-at-the-pump system cost estimate. Initial Capital Costs On-Going Operating Costs ($ Million) ($ Million Per Year) Service station equipment hardware 28.6 N/A Service station software 2.7 N/A Onboard equipment OEM gradual fleet replacement [the most likely alternative] 0 to ? N/A Onboard equipment retrofit [the least likely ? to 1,179.0 N/A alternative] Potentially $0 with a service Onboard equipment service provider contract for other mobility related services 0.0 for VMT fee portion State back office capital 1.2 N/A Service station communications 0.3 0.6 Additional service station accounting ? ? Refund processing N/A Minor State administration, auditing, enforcement, back office operations, etc. 0.2 1.8 Table 47. Oregon VMT cost category descriptions and explanations. Cost Category Description Amount needed to add the necessary hardware and upgrade POS systems to 1,800 modern service stations, assuming an average of 1.5 sets of dispensers per service station. Oregon's pilot test replaced Service station antiquated pumps/dispensers at one of the two participating service stations. Very few of this kind of equipment hardware dispenser remain. Estimate is slightly updated from Tables 4.1 and 4.2 of FHWA-OR-VP-03-07, "Technology Evaluation for Implementation of VMT Based Revenue Collection Systems" (2002), which was a part of the project. This is the software needed to run the additional hardware of the 1,800 service stations. POS system Service station software (hardware, software, and installation) expense is included with hardware, above. Onboard equipment Equipment would integrate existing systems (e.g., On-Star, onboard computer, communications). It would OEM gradual fleet need to add additional memory and RFID/DSRC components, which are inexpensive. OEM equipment is replacement [the most designed to last the life of the vehicle in which it is installed. This is the most likely alternative for likely alternative] implementing the Oregon concept. Onboard equipment $1.179 billion is the maximum cost of retrofitting 3,000,000 vehicles. It represents the cost of purchasing and retrofit [the least likely installing a limited run of custom-made onboard equipment in 2006. Improved technology and mass alternative] production could lower this cost by an order of magnitude. Onboard equipment If necessary data is collected and transmitted by equipment providing similar but different fee-based service provider services, then capital cost could be zero. This is the cost of purchasing two high-end servers, locating them in two different cities, and linking them State back office capital electronically. The pilot test purchased one computer and housed it in an Oregon State University laboratory. These are the capital and annual operating costs of having dedicated telephone lines from 1,800 service Service station stations to the back office. Separately, there would be opportunities to piggyback this service on existing communications Internet lines, existing credit card lines, and existing POS lines. The pilot test used digital subscriber lines (telephone-to-Internet connections), one of which was not completely reliable. A cost incurred by service stations to make sure ODOT's back office processes are correct. Source data involving gallons purchased, gallons sold, and VMT fee collections should be the same for both ODOT and service stations and would mostly come from service station equipment (hardware and software). Data Additional service would need to be entered into bookkeeping systems. As the data is part of the electronic POS system, this station accounting process is reasonably assumed to be automated (this could require some initial set-up effort). Accounting staff would need to either send or receive one additional check per month to/from ODOT. These costs were not measured by the pilot test but are believed to be minor. (continued)

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117 Table 47. (Continued). Cost Category Description If all service station participation begins on one date, then refund processing is only necessary to adjust for equipment malfunctions. That would be the preferred alternative. If service station participation is phased in, Refund processing for then much larger refund processing expense for vehicle operators would be incurred. This would be a vehicle owners temporary expense. The cost of refund processing during Oregon's pilot test was not tracked and has not been estimated. The time involved was incorporated into pilot test management. Base data to conduct pre-audits (vehicle identification, vehicle type, gallons purchased, VMT, etc.) is automatically collected at the pump and is automatically screened and flagged as part of data processing. This data would also be used for service station auditing. Data collection for these purposes was State administration, successfully accomplished as a part of the pilot test. A small staff of auditors, clerks, and IT specialists would auditing, enforcement, be needed to administer the system. The operation is assumed to be about the size of the current fuel-tax- back office operations, collection operation, but this is a rough estimate open to further analysis and discussion. Note that lower- etc. than-average-MPG vehicles would have a strong incentive not to attempt VMT fee evasion, and the incentive for other vehicles to evade is weak. Also note that adding congestion pricing or green fee overlays would increase amounts needed for auditing and enforcement. Source: Oregon Department of Transportation. Table 48. Total annual cost for NY State VMT charge system in-state vehicles only. Vehicle transponders $222,667,583 (Based on NY State vehicle count and 6-year exp) Gas station equipment $17,416,750 (Based on $15,000 per station for 6,966 stations) Operating costs $4,075,048 (Based on Oregon plan cost estimates scaled) Total annual cost $244,359,381 (Sum) Expected revenue at $1,367,400,000 (Based on VMT estimates) $.01 charge per mile Net revenue $1,123,040,619 (Net revenue) Cost of collection % 17.87% (Collection costs as a share of revenue) User compliance costs 2% (Based on limited consumer interaction) Social cost of system 0% (No expected environmental or traffic delay) Source: Gordon and Peters, 2009 Fuel station count is 6,967; The revenue stated is the revenue realized after six years of Cost of station equipment is $15,000 per station; deployment with all vehicles equipped with transponders. To Useful life of technology is 6 years; realize this amount of revenue during the initial year, the cap- System is phased in over a 6-year period; and ital costs to fully deploy the system would require $1.337 bil- Annual operating costs are prorated from the Oregon study lion for the onboard systems and $104.5 million for fuel based on vehicle counts. station equipment.