On Alternate Fuel Regulations

The EPACT regulations of the early 1990’s were a major attempt by the Department of Energy to encourage, if not direct, adoption of alternate fuel sources. Impacted business sectors were required to purchase and run alternate fuel vehicles if they fell within certain parameters. Enter Dan, stage left. I was in natural gas utility fleet management, one of the most stringently impacted private business sectors. The act required that if we were to run more than 19 light-duty units in our regional metropolitan statistical area, and if they could be centrally fueled, a certain percentage of them had to be alternate fuel capable. Dependent on the year in question you were also required to prove that you were running this equipment on alternate fuel. Sounds good on paper, but in application it left things to be desired.

You see, alternate fuels are fuels of scale. Equipment and infrastructure add to your overheads and in some cases significantly. Let’s examine compressed natural gas.

When the legislation came out, a typical industry work-truck would have cost the average fleet buyer let’s say $15-18K ready to roll. The refit to CNG was another $8-10K or so. So you now had a $28K service truck, but you still had no way to fuel it. Smaller compressors were marketed which had a service life of about ½ the expected lifespan of the truck, could fill two units or so at a time (overnight), and cost $4-6K. Add all that up and you have a $34K cap cost for a truck to displace an $18K conventional truck.

If you were building a lot of these, you could improve on the per-truck price and also spring for bigger infrastructure to fuel them. This would tighten up the costs some, but as used CNG vehicles had virtually no resale value, and at that time the cost-of-fuel differential was virtually non-existent, it was a significant losing proposition. You would have paid more for the equipment and the privilege to run it, lost money on resale and not saved money while you ran it.

Out of this mandate grew several industry solutions: Exchanges where alternate fuel credits were sold and traded; revised deployment to avoid overnights on company property; and limiting ownership of the type of equipment which fell under this requirement. In essence, the fleet industry was forced to come up with alternatives to alternative fuel, as running it wasn’t financially feasible.

That was then, this is now. Fleet operators of all industries are now jumping on alternate fuel, talking about it enthusiastically, looking for answers and partners with whom to share infrastructure. So what has changed? Alt fuel is now becoming significantly cheaper than the conventional fuels it is displacing, so in effect in now “pays” to run it. So simple market economics both limited alt-fuel acceptance and spurred interest in it. It would appear that the free market has successfully steered acceptance in an area where regulations alone couldn't.