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114 A.1 Objectives of the Pay-at-the- Pump System The 2001 Oregon legislature authorized the creation of the Oregon Road User Fee Task Force (RUFTF) to examine alter- natives to the existing gas tax as a funding mechanism. RUFTF selected a user fee, or mileage-based charge, for further study as an alternative to the gas tax. FHWA sponsors the Value Pric- ing Pilot program, which seeks to change road usage behavior through the use of pricing. The Value Pricing Pilot program provided additional funding to the project to gain information on how vehicle users may change their behavior in response to price differences. Oregon conducted a pilot test to evaluate an electronic alternative to the state fuel tax where on-vehicle devices were used to collect mileage information. With the aid of GPS technology, the system was capable of allocating mileage to specific zones based on where and when vehicles were oper- ated. Information on mileage by zone was then transmitted to a centralized computer that interacted with the POS sys- tem to charge the VMT fee and deduct the gas tax when a vehicle was fueled at a participating station. The system was designed to be compatible with the gas tax and to be phased in over time. Under this system, vehicles with appropriate tech- nology would pay the mileage fee instead of the gas tax while vehicles not equipped with this technology would continue to pay the gas tax. A pilot test was used to test two types of mileage fees. The first was a simple replacement of the gas tax with a per-mile charge (VMT fee) that generates approximately the same amount of revenue as the gas tax. For example, for a vehicle that gets 20 miles per gallon of gas (the approximate statewide average), a charge of 1.2 cents per mile would be exactly equal to the state gas tax of 24 cents per gallon. The pilot system charged the same fee per mile for miles traveled in Oregon for all vehicles in this part of the experiment. The vehicles then either did not pay the Oregon gas tax when fueling at participating stations, or they sent receipts for gas purchases in Oregon to ODOT for a refund of the Oregon gas tax paid. There was no mileage charge for travel outside of Oregon, nor were there any refunds for taxes paid to other states. The second type of mileage fee tested charged a premium for travel in congested zones at peak periods and offered a discount for other travel in Oregon relative to the gas tax. Vehicles in this category were charged 10 cents per mile for peak period travel in the congested zone but only 0.43 cents per mile for other travel in Oregon. The Oregon experiment was a test of the equipment and business model for a system to transition from state fuel taxes to state mileage fees. The basic system simply kept a total of mileage driven in Oregon and mileage outside of the state. The mileage total was retained in the vehicle. When a vehicle participating in the system purchased fuel at a participating station, the system would transfer the mileage information to the stationâs POS system. The POS would communicate with a central computer and provide the current mileage total. The central computer would calculate the mileage driven since the last reading and inform the POS of this total. The POS would then add the mileage fee and subtract the state gas tax for the fuel purchase. Vehicles not equipped with the system would continue to pay the fuel tax. The system was designed to provide a transition from fuel taxes to mileage fees. New vehicles equipped with the system would pay mileage fees while older vehicles would continue to pay state fuel taxes. The system has several other desirable characteristics as well. Most of the revenue would continue to be collected at the distributor level from fuel sellers. The state reconciled differences between mileage fees collected and fuel tax refunds with the service stations. Although the state main- tained accounts for each vehicle, the state did not have to col- lect revenue from each driver. The system could be extended to alternative vehicles by requiring the owners to upload mileage data on a regular basis, although this procedure would also expand the collection requirements for the state. A P P E N D I X A Oregon VMT Pay-at-the-Pump System Case Study
115 The system tested also allowed for additional mileage charges to be levied by other jurisdictions or for variation of charges by time of day. This capability allows multiple jurisdictions to col- lect mileage fees with the same system and the imposition of congestion pricing within specific areas. A.2 Specifications of the System The system tested used a GPS unit to determine the time and location of operation of the vehicle. Speed information from the OBDII port was then used to calculate miles driven by time and location. Information in the test was collected for 31 different time and location combinations. When the vehi- cle was driven to a participating station, radio communica- tion was used to identify a participating vehicle. At the fueling pump, the level of the signal was used to identify a transac- 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 mileage charge was added to the fuel bill, and the state gas tax was subtracted. The central computer kept a record of mileage and fuel pur- chases by vehicle and calculated the new mileage by category whenever the vehicle was fueled at a participating station. Only two stations participated in the experiment, so vehi- cles could be fueled at nonparticipating stations in Oregon. In this case, the next fueling at a participating station resulted in mileage charges based on the last fueling at a participating sta- 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- ing stations for a refund of the state gas tax. The refund process was also necessary when the system failed to recognize that a vehicle was participating. In that case, the state gas tax was not subtracted and no mileage fee was added; however, at the next fueling, the mileage fee for all miles was charged and the tax was only reduced for the current purchase. There was no refund for taxes paid when fueling in other states. A.3 Status of the System The proposed system is based on the installation of the required GPS and related equipment in all new vehicles operated in the state. Thus, the transition to complete use of mileage fees is expected to require substantial time. At some point, retrofitting of vehicles may become cost-effective, but it is not expected to be so in the near future. Implementation of the equipment requirement requires careful specification of the system characteristics and agreement by manufactur- ers to equip new vehicles to be used in the state. It is intended that all fueling stations in Oregon would par- ticipate so as to eliminate the need for refunds of taxes paid at nonparticipating stations. Therefore, all stations would have to be equipped with the appropriate hardware, software, and communication capabilities before the start of the system. Major oil companies have not so far been willing to participate, and there is some uncertainty about the cost and other issues related to equipping all stations. Further, the technology needs improved reliability to be used for revenue collection. One problem noted was an apparent difference between the odome- ter readings and calculated mileage in a number of vehicles. Another was a relatively large number of vehicles detected at participating stations for which there was no fuel transaction. This may have occurred because no fuel was purchased, but it also occurred if the radio signal between the car and the pump was not sufficiently strong to clearly determine that a partici- pating vehicle was purchasing fuel. Improvements in the relia- bility of detecting all relevant transactions are required before implementation. A.4 Potential to Become an Alternative Revenue- Generation System The system has considerable potential for a gradual phase in of mileage fees. The ability to allow multiple jurisdictions to charge separate fees and the potential to add time-of-day pricing make the system attractive. In addition, the ability to collect most of the revenue without collecting directly from the drivers greatly reduces the collection and enforcement cost relative to most other systems. A.5 Cost ODOT has generated estimates for some of the major cost components of implementing the system (see Table 46). The cost estimates for implementation are based on the best available information, but the specific systems would require additional development and testing. The cost elements are described in Table 47. A.6 Alternative Cost Estimate Peters and Gordon (2009) used information from Oregon as a basis to generate estimates for the VMT system for New York. The following estimates are from their report (see Table 48). Their estimate uses a 6-year expected lifespan for the collection technology based on 5 to 8 years of useful life. They report their key assumptions as: â¢ VMT is projected at 136,740,000,000 (based on 2007 reported VMT); â¢ Vehicle count based on NY State DMV is 10,697,644; â¢ Onboard system costs estimated at $125 per unit to fur- nish, install, and tamperproof;
116 Initial Capital Costs On-Going Operating Costs ($ Million) ($ Million Per Year) Service station equipment hardware 28.6 N/A Service station software 2.7 N/A Onboard equipment â OEM gradual fleet replacement [the most likely alternative] 0 to ? N/A Onboard equipment â retrofit [the least likely alternative] ? to 1,179.0 N/A Onboard equipment â service provider Potentially $0 with a service 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 46. Oregon VMT pay-at-the-pump system cost estimate. Cost Category Description Service station equipment hardware 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. Oregonâs pilot test replaced antiquated pumps/dispensers at one of the two participating service stations. Very few of this kind of dispenser remain. Estimate is slightly updated from Tables 4.1 and 4.2 of FHWA-OR-VP-03-07, âTechnology Evaluation for Implementation of VMT Based Revenue Collection Systemsâ (2002), which was a part of the project. Service station software This is the software needed to run the additional hardware of the 1,800 service stations. POS system (hardware, software, and installation) expense is included with hardware, above. Onboard equipment â OEM gradual fleet replacement [the most likely alternative] Equipment would integrate existing systems (e.g., On-Star, onboard computer, communications). It would need to add additional memory and RFID/DSRC components, which are inexpensive. OEM equipment is designed to last the life of the vehicle in which it is installed. This is the most likely alternative for implementing the Oregon concept. Onboard equipment â retrofit [the least likely alternative] $1.179 billion is the maximum cost of retrofitting 3,000,000 vehicles. It represents the cost of purchasing and installing a limited run of custom-made onboard equipment in 2006. Improved technology and mass production could lower this cost by an order of magnitude. Onboard equipment â service provider If necessary data is collected and transmitted by equipment providing similar but different fee-based services, then capital cost could be zero. State back office capital This is the cost of purchasing two high-end servers, locating them in two different cities, and linking them electronically. The pilot test purchased one computer and housed it in an Oregon State University laboratory. Service station communications These are the capital and annual operating costs of having dedicated telephone lines from 1,800 service stations to the back office. Separately, there would be opportunities to piggyback this service on existing 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. Additional service station accounting A cost incurred by service stations to make sure ODOTâs 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 would need to be entered into bookkeeping systems. As the data is part of the electronic POS system, this 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. Table 47. Oregon VMT cost category descriptions and explanations. (continued)
117 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 Table 48. Total annual cost for NY State VMT charge system â in-state vehicles only. Cost Category Description Refund processing for vehicle owners 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, then much larger refund processing expense for vehicle operators would be incurred. This would be a temporary expense. The cost of refund processing during Oregonâs pilot test was not tracked and has not been estimated. The time involved was incorporated into pilot test management. State administration, auditing, enforcement, back office operations, etc. 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 successfully accomplished as a part of the pilot test. A small staff of auditors, clerks, and IT specialists would be needed to administer the system. The operation is assumed to be about the size of the current fuel-tax- collection operation, but this is a rough estimate open to further analysis and discussion. Note that lower- 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 47. (Continued). â¢ Fuel station count is 6,967; â¢ Cost of station equipment is $15,000 per station; â¢ Useful life of technology is 6 years; â¢ System is phased in over a 6-year period; and â¢ Annual operating costs are prorated from the Oregon study based on vehicle counts. The revenue stated is the revenue realized after six years of deployment with all vehicles equipped with transponders. To realize this amount of revenue during the initial year, the cap- ital costs to fully deploy the system would require $1.337 bil- lion for the onboard systems and $104.5 million for fuel station equipment.