Navigant Research Blog

Oregon Boldly Enters the Road Tax Debate

— May 21, 2015

 The decaying road infrastructure in the United States is obvious to everyone, yet state and federal legislators have done nothing for decades. Despite the constant threat of injury due to failing roads and bridges, hiking the federal gas tax is viewed as a death sentence for politicians, who have not raised the levy since 1993. Back then the gas tax represented 17.1 % of the total retail price of gas; in 2014, it constituted only 5.3%.

Gas tax revenue has not kept up with inflation, which has resulted in tax revenue for the federal Highway Trust Fund to be taken from other revenue sources to remain solvent. The Fund, which is $52 billion in the red over the past decade, will run out of money at the end of May unless Congress acts to reauthorize funding.

The lack of federal funds is squeezing states to do more on their own to repair their infrastructure, and Oregon is one of at least 10 states that are attempting to raise revenue. In July, Oregon will test moving from a fixed per-gallon tax to a per-mile-driven fee. The challenge with testing the program with 5,000 volunteers is that the self-selecting audience is likely to save money since drivers with low fuel economy vehicles are unlikely to join, knowing that they would pay more by participating. However, if those who do participate react positively, then Oregon is more likely to move to implement the plan for all drivers.

Fee Hikes

The move to a per-mile fee is in response to decreasing use of fuel (and therefore tax revenue) per mile driven due to increasing fuel economy and the arrival of plug-in electric vehicles (PEVs). Some states have considered adding an annual registration fee for PEVs, which don’t pay road taxes on the electricity that powers the vehicles.
While this would raise revenue, it could reduce sales of PEVs if the overall fuel savings were then reduced. A more equitable solution would be to combine a per-mile-driven tax with annual registration fees that consider another negative impact of driving—greenhouse gas emissions. Having more costly registration fees for vehicles with higher emissions (i.e., low fuel economy) could keep the overall cost of driving a PEV, hybrid, or other fuel efficient vehicle sufficiently cheaper to encourage their purchase.

Other states considering changes to gas and road taxes to increase revenue include Illinois and Nebraska. The Nebraska legislature on May 14 overrode the governor’s veto of a law that would raise the gas tax.

Bridges Out Ahead

“Once again, the Legislature has chosen to prioritize tax hikes over tax relief measures that Nebraskan need and deserve,” Nebraska governor Pete Ricketts said, as quoted by the Associated Press.

On the federal level, Rep. Peter DeFazio, a Democrat who is also from Oregon, has proposed redirecting funds from the estate tax to the Highway Trust Fund rather than repealing it. This initiative, like most other bills related to infrastructure funding, has little chance of passing despite the considerable benefits, including creating 13,000 jobs per $1 billion spent.

Sadly, it will likely take a series of bridge collapses such as what happened recently in Jacksonville, Florida or other such calamities for the public to pressure state and federal legislators to take serious action on infrastructure.

 

Social Ridesharing Looks to Avoid Legal Issues

— May 13, 2015

Ridesharing companies like Uber and Lyft have grown quickly despite resistance from some local governments over their legality of operation. To avoid the legal morass, new services, such as BlueNet-Ride, are leveraging social networks and avoiding directly competing with taxi and limousine services.

BlueNet-Ride

Based in Taipei, Taiwan, BlueNet-Ride uses Facebook to connect people interested in attending events. Attendees can carpool or group together to rent a taxi as a means of reducing the cost and emissions of traveling to concerts, sporting, or other events. Created by National Taipei University of Technology Associate Professor of Electronic Engineering Shih-Chia Huang and his students, the service connects Facebook users with friends or friends of friends as a safer alternative to traveling with unknown drivers.

Searching for Riders and Drivers

During an interview in Shenzhen, China, Huang said the backend to the mobile application is an algorithm that searches for people who plan to attend events and maps the distance between driver and passengers, as well as distance to the location. Cab companies participate and offer to drive the groups of acquaintances, or people can offer to drive for free, which avoids the legality of operating an unlicensed taxi service. Ride sharers can volunteer to chip in for gas, and the app has a chat feature so that people can discuss when and where to meet.

Through the free app, commercial drivers can opt to maximize their revenue or drive the shortest distance to be able to serve more customers. A fee of $0.10 is charged by BlueNet-Ride to passengers when they find a ride via a taxi service, and they pay the normal tax fees. Huang received a patent in the United States in 2014 for the ridesharing idea. He has received more than 30 patents in the United States, Europe, Taiwan, and China for a variety of technologies, including mobile applications for gesture recognition, image processing, and liquid crystal display (LCD) modules.

Regulation Woes

The onslaught of ridesharing services such as Uber and Lyft has many state regulators and legislators scrambling on how to regulate the new services. For example, pending bills in Wisconsin and Tennessee would establish rules for companies to pay license fees, as well as background checks for drivers or setting a minimum for liability insurance to be held.

Huang isn’t the only entrepreneur making the friends-to-rides connection. Hitch A Ride is a similar application that connects passengers with drivers via social networks in Australia.

 

Washington Encourages Utilities to Deploy EV Chargers

— May 13, 2015

On May 11, Washington Governor Jay Inslee signed into law a bill titled “Encouraging utility leadership in electric vehicle charging infrastructure build-out.” The law encourages public utilities commissions (PUCs) in the state to set rules for passing along the cost of electric vehicle (EV) charging to all ratepayers if they are requested to do so by investor-owned utilities.

The legislation enables utilities to pass on the cost of EV charging infrastructure as long as the rate increase does not exceed one-quarter of 1 percent. PUCs in other states have varied in their willingness to allow the cost of EV chargers to affect the rate base. For example, in Indianapolis, EV car share service Blue Indy is months behind the original launch date because the PUC there denied a similar request for EV infrastructure investments by the utility.

Washington State Representative Chad Magendanz (R-Issaquah), who sponsored the legislation, said in an email to Navigant that the law was created so that the upfront cost of charging equipment could move from the consumer to the utility. “My vision is for utility customers to be able to simply request an EV Level 2 charging station for their garage, just like they’d request a cable modem installation from the cable company … many of the current obstacles to charging at home or work will disappear.”

Restored Incentive

Washington is expected to have the fourth-most EVs on the road in 2015, according to Navigant Research’s recently published report, Electric Vehicle Geographic Forecasts.

Utilities are well-positioned to own and operate EV charging infrastructure since it increases the market for their product (electricity), and they also need to manage the impact of EV charging on grid stability. However, in many states, laws have prevented them from owning EV chargers, and some states, such as California, have had to revise laws to allow utility involvement.

“HB 1853 essentially restores the incentive a power company would normally have to invest in equipment that would increase its sales, but that we’ve eliminated through conservation programs,” said Magendanz. “Utilities have the expertise and purchasing power to dramatically reduce costs of this essential infrastructure build-out, and can break down barriers to EV ownership in high-density regions.”

The challenge has been for states that are pushing utilities to reduce energy consumption to recognize that transferring oil consumption from transportation into electricity delivered by utilities is economically and environmentally sound policy. States such as Washington that have low carbon intensity for producing energy (only Vermont has a lower carbon intensity, according to the U.S. Energy Information Administration) can see the greatest greenhouse gas savings by encouraging EV adoption.

 

Automakers Turn to OSs to Add Revenue

— April 8, 2015

Automakers looking to continue their revenue growth are challenged by the diminishing prospects for post-sale revenue from replacement parts. Conventional cars are becoming increasingly reliable and electric vehicles (EVs) need little servicing due to their reliance on electronic rather than mechanical components.

Meanwhile, connected vehicle technologies are enabling automakers to remotely deliver software for entertainment, safety, and performance upgrades. Central to this new revenue stream are vehicle operating systems (OSs) that can receive content from automakers or stream it from mobile phones.

Google’s Android Auto and Apple’s CarPlay software platforms are starting to take over, according to auto executives who spoke on a panel during the recent South by Southwest conference.

A Flat World

“Android and CarPlay have made a flat world” for app developers looking for space inside vehicles, said Nick Sugimoto, senior program director at Honda. Google’s Play Store, a popular service for downloading music, videos, and games, currently is not being used for sales within cars today, added Sugimoto, but Honda is working with the company to define an automotive platform.

Jenny Kim of Hyundai Ventures said that while her company also supports Android and CarPlay, Hyundai has its own offerings for music and mirroring mobile phone applications. Its Blue Link is used to connect to the car to the home and networked home devices. Hyundai subsidiary SoundHound, which provides the platform for the Hyundai Sonata, announced that it can also identify the music being played on wearable devices.

Moving control of popular applications from the mobile phone to the dashboard enhances safety, according to Sugimoto. Instead of looking at the phone on your lap, drivers can be looking forward at the display, he said.

Beyond Honda and Hyundai, Android and CarPlay are becoming the default automotive OS on many other models, such as the recently announced Volkswagen Passat Alltrack that supports both platforms. Conversely, Ford has switched to BlackBerry’s QNX OS for its in-vehicle platform.

In the Air Tonight

Connected vehicle technology is being leveraged most in EVs, which include wireless connectivity so that drivers can monitor the state of the battery charge, find charging stations, and perform other functions. Tesla Motors has been the most aggressive in over-the-air upgrades to vehicles to boost performance or enhance safety remotely rather than having to recall vehicles to be serviced. Tesla recently issued a remote upgrade for the Model S that will alert drivers if they stray out of range of one of the company’s Supercharger stations when driving on a low battery.

“There’s no question, over the air is coming” as a mechanism for issuing fixes and adding new features, said Hyundai’s Kim. Over-the-air distribution costs less and allows automakers to keep up with the advances in software outside of their normal 5-year or more development cycle.

For details on the varied initiatives that car companies are exploring to boost revenue, see Navigant Research’s report, Alternative Revenue Streams for Automakers.

 

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