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A.

FEBRUARY 13, 2015 APPLICATION AND SUPPORTING DOCUMENTS

B.

MARCH 18, 2015 GDOT REVIEW LETTER

C.

APRIL 8, 2015 SUPPLEMENTAL INFORMATION LETTER

D.

PROJECT OVERVIEW

Palmetto is a wholly owned subsidiary of Kinder Morgan, which is incorporated in


Delaware and has its principal place of business in Houston, Texas. Palmetto is authorized to do
business in Georgia, South Carolina, and Florida, and has an office in Alpharetta, Georgia.
Kinder Morgan is the largest energy infrastructure company in North America, and it owns an
interest in or operates approximately 80,000 miles of pipelines, transporting natural gas, refined
petroleum products, crude oil, and carbon dioxide. Kinder Morgan also stores and handles a
variety of products and materials at its over 180 terminals, such as gasoline, jet fuel, ethanol,
coal, and steel. Specifically, Kinder Morgan is the largest independent transporter of petroleum
products, transporting about 2.3 million barrels of product per day. Kinder Morgan currently
owns an interest in or operates over 3,000 miles of pipelines in Georgia alone.
To build on this infrastructure and meet a critical need, Kinder Morgan, through
Palmetto, has developed a pipeline project that will provide significant benefits to Georgia by
providing an additional source of supply of refined petroleum products and ethanol to
consumers. Once operational, the pipeline will be capable of transporting refined petroleum
products, including gasoline, petroleum oil distillates, biodiesel blend, and renewable diesel
blend, from origin points located in Baton Rouge, Louisiana, Collins and Pascagoula,
Mississippi, and Belton, South Carolina to destination points located in North Augusta, South
Carolina, the Savannah area, and Jacksonville. The pipeline will also be capable of transporting
denatured fuel ethanol as a purity product, on a batched basis, from the Belton origin point to
each of the destination points. Palmetto anticipates beginning construction of the pipeline in
April, 2016, to complete that construction in advance of the pipeline being placed in service by
July, 2017. Palmetto intends to comply with all applicable federal and state laws regarding the
siting, construction, and operation of the pipeline.
The pipeline will enter Georgia south of Augusta, and route through Richmond, Burke,
Screven, Effingham, Chatham, Bryan, Liberty, Long, McIntosh, Glynn, Camden, and Charlton
counties before crossing into Florida. In Georgia, approximately 86 percent of the route is along
existing easements and public utility corridors. This route is designed to minimize, as much as
possible, the impact of the pipeline.
The pipeline would carry refined petroleum products such as gasoline, diesel fuel, jet fuel
and ethanol, at 150,000 barrels per day (bpd), with an ultimate capacity of 167,000 bpd. This
product will be delivered through the pipeline to terminal locations located in North Augusta,
South Carolina, Richmond Hill, Georgia, and the Jacksonville, Florida area.

E.
1.

THE NEED FOR THE PALMETTO PIPELINE

Palmetto Is Needed to Meet Growth In Fuel Usage

Over the next 25 years, Georgias population will grow by about 49%, and the population of the 12
counties on the pipeline route, plus their 11 neighboring counties in Georgia, will grow by 43%. These 23
counties (and others) will benefit from being able to receive gasoline, ethanol and diesel fuel from the
Palmetto Pipeline. The basis of these population projections and the list of counties are found in Table E1.
The 23 East and Coastal Georgia counties used 778 million gallons of motor fuel in 2014 or 50,000
barrels per day (bpd), not counting the large quantities of motor fuels used at Fort Gordon, Fort Stewart,
Hunter Army Air Base, and for off-road purposes. The basis of this fact is found in Table E-2.
Motor fuel usage will closely track population growth, even with improving car and truck
efficiency, according to a 2010 report by the Carl Vinson Institute. The Motor Use Fuel Tax in Georgia:
Collection Efficiency, Trends, and Projections, Wes Clarke, Warren Brown, and Matt Hauer, Carl Vinson
Institute of Government (December 2010), attached as Appendix 3. Tables 10 and 13 in the Vinson
Institute report contain, respectively, statewide population projections and statewide gasoline and diesel
fuel use projections. Projected population increase from 2011 to 2020 is 12.6%. Projected gasoline and
diesel use from 2011 to 2020 is 15.4%. The conclusion drawn is that statewide motor fuel consumption
was projected to increase faster than the states population (even considering improved fuel efficiencies in
newer cars and trucks).
Assuming this trend continues, a 43% increase in the motor fuel use to 72,000 bpd in the 23 East
and Coastal Georgia counties (matching their projected 43% population increase by 2040) is a
conservatively low projection of 2040 motor fuel needs in that narrow section of Georgia.
2.

Palmetto is Needed for Capacity Expansion and Choice

East and Coastal Georgia are pipeline constrained. In Middle and South Georgia, existing
petroleum products pipelines deliver fuel only to Macon, Columbus, Albany and North Augusta. Palmetto
will provide the first direct petroleum pipeline to the Savannah area and to Jacksonville, and will
supplement the North Augusta pipeline capacity. Some fuel is brought by marine vessels to Savannah and
Jacksonville. The vast majority of the fuel used in Coastal Georgia is transported by tanker truck from
petroleum terminals at Macon and North Augusta that are served by pipelines. The Palmetto Pipeline will
provide infrastructure needed for the continued healthy growth of East and Coastal Georgia, without any
state incentives or other public investment.
3.

Palmetto is Needed for Highway Safety

Assuming 80% of the motor fuel in the 23 counties is delivered to the wholesale and retail outlets
by 10,000 gallon capacity tanker trucks, and that these trucks can haul maximum loads of 8,800 gallons of
gasoline or 7,500 gallons of diesel, it takes 198 truck-loads of motor fuel and 198 return trips, 365 days per
year, to serve these counties. Without this pipeline, it will take 43% more trucks in 2040.
The Savannah area alone has about 15,000 bpd of motor fuels trucked to it from Macon and North
Augusta. (About 5,000 bpd may get to the Savannah area by marine vessel.) These 15,000 barrels per day

require 74 truck trips per day, or about 27,000 trips per year and 7.8 million highway miles per year by
truck.
If the Palmetto Pipeline supplies just half of the current 15,000 bpd of fuel to the Savannah area, it
will eliminate 13,500 tanker truck trips and 3.9 million miles driven by those trucks annually.
The pipeline will significantly reduce the number of truck miles driven to get fuel to customer
outlets. A new pipeline terminal near Savannah will put at least 17 Southeast Georgia counties closer to a
pipeline sourced terminal than they are now, which will reduce tanker travel miles driven. A terminal at
Jacksonville will put at least 7 other Southeast Georgia counties closer to a pipeline sourced terminal.
Fewer truck miles driven means lower probability of traffic accidents, decreased traffic congestion, and
less wear and tear on Georgias highways. See Table E-3 for list of counties benefitted.
4.

Palmetto is Needed to Reduce Fuel Transportation Costs to Consumers

Pipeline transport is the safest and most cost efficient way to move large quantities of motor fuel.
Trucking a gallon of fuel from Baton Rouge to Savannah costs about 30 cents/gallon. The cost of marine
transport for a gallon of motor fuel from Baton Rouge, LA to Savannah is about 50% less than trucking it
between those same points. The cost to send a gallon of fuel by pipeline from Baton Rouge to Macon or
North Augusta, and then truck it to Savannah, is about 36% less than marine transport. The cost to send a
gallon of fuel from Baton Rouge all the way to Savannah by pipeline is about 25% less than the current
method of pipeline plus trucking.
5.

Palmetto Is Needed to Increase Healthy Competition

Competition is good for the economy. Georgia encourages competition among its manufacturers,
food processors, timber and mining industries, telecom and natural gas utilities, farmers, retailers, and
small businesses. The Palmetto Pipeline will not only help serve Georgias growing population, it will also
provide competition for the very limited motor fuel choices in East and Coastal Georgia.
As a general proposition, additional sources of supply will lower motor fuel prices. There is
currently only one independent supplier to the Savannah area, and the free enterprise system has
demonstrated over and over that competition reduces prices and/or increases choices. The market will
support as many suppliers as needed to provide good service at a reasonable rate. Note: Palmetto will not
own the product transported in the pipeline and will not set the price of gasoline at the pump, and therefore
has no ability to raise or lower fuel prices.
6.

Much of the Fuel Carried by Palmetto Will Be Used in Georgia

Kinder Morgan estimates that at least 50-60 percent of the pipeline capacity will transport refined
products to consumers in the Augusta and Savannah areas. Additionally, the close proximity of
Jacksonville (the third terminal market for Palmetto Pipeline) to coastal Georgia communities suggests that
much of the additional product shipped through the Palmetto Pipeline to Jacksonville will ultimately enter
markets in South Georgia. Kinder Morgan estimates that the following quantities of barrels per day (bpd)
will be offloaded from the pipeline:

North Augusta area: 40,000-50,000 bpd


Savannah area: 20,000-25,000 bpd
Jacksonville area: 70,000-80,000 bpd

7.

Product on the Pipeline Is Not For Export

Neither the existing terminal in North Augusta, nor the proposed terminals for the Savannah area
and Jacksonville are or will be export terminals. The proposed terminal for the Savannah area will be
located along I-95 in Richmond Hill, far from any marine facility. The Palmetto Pipeline has been
designed to provide transportation service from the Gulf Coast refineries to these market centers and no
further. The Gulf Coast refineries, where products transported through the Palmetto Pipeline will originate,
already have marine export capabilities, so it would not be economical to transport fuel to North Augusta,
Savannah, or Jacksonville for subsequent export outside of the United States.
8.

Palmetto Pipeline Will Result in Public Convenience

9.

Meeting the 43% growth in motor fuel needs in East and Coastal Georgia over the next 25
years is a convenience. Not having Palmetto Pipeline would result in 43% more tanker
truck trips from North Augusta and Macon to meet the growth in fuel need. Avoiding that
many more trucks and millions of additional annual truck miles driven on Georgias
highways will be a traffic convenience for Georgias citizens.
Avoiding millions of additional truck miles annually on East and Coastal Georgia highways
will reduce the probability of highway accidents involving trucks. Thus Palmetto Pipeline
will result in safer highways. Increased highway safety is a convenience for Georgians.
Providing more competition to fuel suppliers in the Savannah and Augusta areas, starting
immediately when Palmetto Pipeline goes into operation, is a convenience. Competition
will be inconvenient for the one independent motor fuel supplier in the Savannah area, and
to a few other existing suppliers in the Augusta area. However, competition will be very
convenient to the hundreds of thousands of automobile and truck owners and thousands of
farmers in East and Coastal Georgia, since they will have more opportunities than they
currently have to save money on motor fuel costs. Avoiding unnecessarily high fuel costs is
a public convenience.
Palmetto Pipeline will result in less heavy truck traffic and thus less wear and tear on
Georgias highways. Georgias citizens pay for highway construction and repair with their
tax dollars, so having their highways last longer before repairs are needed means lower
repair costs to taxpayers. Saving tax dollars is a convenience for Georgians.
Shippers and the FERC Have Approved This Project

These facts prove what the market has already revealed: there is a substantial need for the Palmetto
Pipeline. Palmettos prior filings with the GDOT describe the binding commitments it has received to ship
refined products through the pipeline.
Following these commitments, and as part of the approval process required for this project,
Palmetto filed a petition with the Federal Energy Regulatory Commission (FERC) where Palmetto
requested that the FERC approve the rates, and terms and conditions of service for the Palmetto Pipeline.
Following a review of Palmettos application and the associated facts regarding this project, the FERC
issued an order on May 1, 2015 (see Appendix 4) granting Palmettos petition and concluding that the
project was consistent with FERC precedent: The Commission finds that the rates, and terms and
conditions of service offered to the potential committed shippers during the open season are consistent with
the ICA and Commission precedent.

TABLE E-1
POPULATION PROJECTIONS

2014 POPULATION(2)

COUNTY(l)

2030 POPULATION(3)

Brantley

18,417

25,462

Bryan

33,906

44,465

Bulloch

72,087

107,678

Burke

22,709

26,865

Camden

52,027

77,516

Charlton

12,897

12,879

Chatham

283,379

354,945

Columbia

139,257

178,880

Effingham

55,423

78,507

Emanuel

22,755

26,976

Evans

10,898

12,261

Glynn

82,175

98,625

Jefferson

16,272

17,866

Jenkins

9,125

8,698

Liberty

65,198

85,512

Long

17,113

26,016

McDuffie

21,370

24,436

McIntosh

14,214

18,653

Richmond

201,368

241,582

Screven

14,085

14,494

Tattnall

25,224

33,307

Ware

35,515

40,373

Wayne

31,982

37,275

1,257,396

1,593,271

TOTAL

(1) Counties on this list are the 12 Georgia counties through which a portion of the Palmetto Pipeline is
proposed, and the 11 other Georgia counties which lie adjacent to one of more of the 12 pipeline route
counties.
(2) 2014 populations are estimates made by the U.S. Census Bureau (USCB).
(3) 2030 population projections by the Governor's Office of Planning and Budget (OPB), January 2013.
*Total Georgia 2012 population is 10,097,343 per USCB.
*Total Georgia 2030 population is 13,154,530 per OPB's 2013 projections.
*Straight line projection from 2014 through 2030 to 2040 is 15,065,270.
*Total Georgia growth 2014 to 2040 will be 49.2%
*Straight line population for 23 counties from 2014 through 2030 to 2040 is 1,803,191.
*Total 23 county growth 2014 to 2040 will be 43.4%.

Counties

Appling
Atkinson
Bacon
Baker
Baldwin
Banks
Barrow
Bartow
Ben Hill
Berrien
Bibb
Bleckley
Brantley
Brooks
Bryan
Bulloch
Burke
Butts
Calhoun
Camden
Candler
Carroll
Catoosa
Charlton
Chatham
Chattahoochee
Chattooga
Cherokee
Clarke
Clay
Clayton
Clinch
Cobb
Coffee
Colquitt
Columbia
Cook
Coweta
Crawford
Crisp
Dade
Dawson
Decatur

Sales Tax on
Current County
County
Total Local Sales
3 cents/gal
Motor Fuel as % of Share of Motor
Transportation
Tax on Motor Fuel
Excise Tax
Total Sales Tax
Fuel Collections
O&M Budget
$
$
$
1,286,201
14.63%
710,458
407,334
2,599,268
391,896
20.05%
188,992
124,432
554,755
625,090
17.18%
270,474
194,723
956,763
142,017
25.38%
85,280
54,115
273,987
2,706,724
14.49%
1,180,812
875,084
1,634,156
1,901,360
21.68%
1,111,010
601,322
540,506
2,833,882
10.79%
1,151,518
908,051
1,751,004
12,253,293
21.10%
5,541,076
3,799,957
4,741,395
933,689
14.67%
463,532
298,776
1,073,567
797,709
19.48%
311,223
254,948
1,809,729
11,051,879
12.58%
5,143,087
3,566,045
7,026,239
473,086
17.72%
186,333
151,510
691,684
681,842
21.46%
383,144
218,164
1,778,879
441,347
15.27%
200,866
141,812
1,555,119
4,867,811
32.71%
1,848,626
1,508,856
1,466,382
3,859,657
12.93%
716,668
1,241,718
2,650,576
771,044
7.39%
552,915
367,390
3,817,253
5,989,371
53.07%
2,297,600
1,784,499
1,766,452
213,234
18.87%
94,057
67,150
339,121
6,260,100
29.42%
1,584,863
1,937,241
2,367,827
844,473
22.22%
295,502
270,139
933,159
7,804,738
16.74%
3,213,973
2,468,999
5,405,226
3,819,804
14.34%
1,959,574
1,223,591
2,039,644
833,013
26.45%
448,496
256,362
1,686,110
17,621,222
9.48%
3,530,425
5,599,955
14,838,889
157,809
5.81%
105,198
50,354
592,148
821,139
11.53%
148,578
265,753
2,300,345
6,511,075
10.55%
2,315,065
3,159,922
3,406,174
5,107,287
8.21%
3,364,431
1,643,061
3,465,036
137,748
20.59%
54,043
43,601
528,169
18,304,886
13.82%
8,596,284
5,759,819
17,409,599
467,479
22.89%
151,228
145,371
620,391
23,841,340
9.14%
8,688,473
11,528,518
54,753,525
2,588,235
16.31%
779,763
816,589
2,821,379
2,367,619
15.16%
788,579
755,515
3,303,259
5,456,750
9.89%
3,239,492
1,755,403
6,623,770
1,153,445
22.24%
609,100
367,816
932,191
8,215,486
14.26%
3,636,050
2,615,112
3,469,602
198,104
12.86%
108,779
60,207
831,452
2,788,728
23.87%
1,210,316
873,328
1,656,570
2,683,395
40.70%
1,609,083
824,270
755,511
1,589,650
8.21%
996,214
514,694
2,141,903
1,911,823
15.73%
720,609
601,213
2,120,509

DeKalb
Dodge
Dooly
Dougherty
Douglas
Early
Echols
Effingham
Elbert
Emanuel
Evans
Fannin
Fayette
Floyd
Forsyth
Franklin
Fulton
Gilmer
Glascock
Glynn
Gordon
Grady
Greene
Gwinnett
Habersham
Hall
Hancock
Haralson
Harris
Hart
Heard
Henry
Houston
Irwin
Jackson
Jasper
Jeff Davis
Jefferson
Jenkins
Johnson
Jones
Lamar
Lanier
Laurens
Lee
Liberty
Lincoln
Long

31,114,408
820,679
1,685,158
6,603,407
7,063,790
513,372
44,621
1,944,615
807,310
1,153,560
530,169
1,601,392
3,577,708
3,073,166
8,556,508
3,233,655
43,136,176
1,167,979
69,468
5,339,368
5,181,806
1,590,306
1,220,677
26,619,777
2,358,559
10,339,171
135,650
3,301,912
1,149,959
1,045,073
169,481
11,189,744
7,310,204
296,552
5,245,903
265,954
1,328,037
862,122
404,958
353,704
739,868
757,642
342,708
5,006,567
1,223,432
2,231,557
326,733
221,351

9.85%
14.65%
42.19%
14.09%
10.77%
11.63%
14.15%
8.48%
14.05%
15.92%
15.87%
13.75%
8.81%
10.33%
9.11%
33.65%
5.98%
10.82%
12.58%
14.32%
20.89%
21.23%
17.36%
9.63%
15.83%
12.79%
9.83%
32.09%
16.69%
13.41%
1.42%
12.63%
11.70%
16.76%
19.25%
10.99%
23.63%
15.89%
18.46%
22.56%
12.94%
16.73%
21.55%
21.18%
13.14%
10.22%
17.73%
15.37%

8,444,316
363,515
730,013
1,671,454
4,029,144
194,341
29,748
961,646
354,305
568,993
246,279
874,651
888,873
955,893
4,917,296
1,456,275
2,012,574
643,081
36,117
1,874,589
2,553,767
638,827
888,122
10,502,681
576,610
5,359,015
75,753
1,267,172
663,398
552,553
90,365
5,219,876
1,501,986
137,387
2,285,208
127,712
617,830
309,101
182,228
200,367
403,156
281,641
128,267
2,108,166
681,882
880,578
178,529
123,172

9,988,518
262,040
519,065
2,086,865
2,289,252
160,542
14,262
628,062
259,784
369,112
165,996
514,558
1,741,486
1,331,108
2,761,537
978,778
13,855,417
377,618
22,489
2,515,973
1,598,803
505,602
564,705
12,887,491
825,273
3,313,971
43,866
1,014,224
368,638
339,561
54,846
3,620,015
2,350,554
93,471
1,633,759
85,793
412,357
272,466
127,592
111,575
234,993
242,204
110,499
1,556,536
394,733
724,204
101,691
71,043

17,488,676
718,509
2,326,997
1,898,792
4,752,356
1,014,849
454,378
1,787,999
645,567
1,844,547
552,568
5,891,614
3,504,527
5,769,070
7,775,942
1,023,998
3,844,212
1,493,667
402,842
4,339,359
4,166,738
834,552
1,242,385
34,907,908
1,695,450
3,349,202
1,603,272
1,946,812
1,087,428
1,247,723
381,851
15,180,707
4,873,809
802,706
5,375,203
1,697,802
1,069,423
733,517
631,195
975,304
2,741,991
924,840
515,412
2,701,783
1,743,983
1,380,395
447,843
974,948

Lowndes
Lumpkin
Macon
Madison
Marion
McDuffie
McIntosh
Meriwether
Miller
Mitchell
Monroe
Montgomery
Morgan
Murray
Muscogee
Newton
Oconee
Oglethorpe
Paulding
Peach
Pickens
Pierce
Pike
Polk
Pulaski
Putnam
Quitman
Rabun
Randolph
Richmond
Rockdale
Schley
Screven
Seminole
Spalding
Stephens
Stewart
Sumter
Talbot
Taliaferro
Tattnall
Taylor
Telfair
Terrell
Thomas
Tift
Toombs
Towns

12,387,654
930,665
450,459
1,091,885
208,500
2,491,665
993,323
667,413
252,006
1,027,413
1,367,423
170,456
3,060,817
1,477,823
8,393,357
5,145,818
2,455,211
307,144
4,897,785
3,485,403
1,936,021
613,454
391,875
2,172,740
393,690
1,023,799
169,647
1,450,761
565,776
8,289,516
3,638,542
135,933
578,769
536,785
3,279,121
1,128,582
203,581
1,848,534
123,828
50,794
1,089,791
405,561
610,290
475,869
2,613,811
6,507,231
2,305,911
621,634

19.94%
10.70%
14.31%
19.57%
17.09%
25.92%
26.66%
13.84%
16.56%
16.13%
11.25%
11.48%
29.96%
12.88%
8.17%
16.35%
13.90%
15.65%
11.59%
33.17%
16.55%
15.48%
14.24%
15.62%
15.52%
13.48%
35.51%
15.11%
26.20%
7.73%
12.10%
15.15%
16.62%
18.34%
13.31%
12.10%
23.05%
16.05%
10.00%
15.31%
21.23%
17.53%
18.24%
18.00%
12.82%
25.83%
16.66%
12.20%

4,110,377
488,757
145,080
589,145
89,731
1,377,382
513,233
354,924
136,515
341,806
694,594
59,163
1,605,089
840,679
5,586,703
2,696,748
1,424,070
193,191
2,817,689
1,704,598
948,992
243,273
227,953
773,570
130,790
450,869
113,027
80,148
196,030
5,041,049
3,096,964
52,680
292,900
291,578
1,195,749
497,128
60,388
651,194
63,270
29,884
508,085
170,909
158,429
181,158
861,816
2,151,272
642,609
337,093

3,860,623
301,592
139,460
351,264
65,265
773,960
320,131
214,310
80,081
324,060
437,331
53,679
945,783
473,029
2,717,176
1,668,592
795,020
98,752
1,587,296
1,084,645
625,860
235,509
124,202
693,336
126,727
323,817
53,555
466,606
173,836
2,667,426
1,583,684
42,928
184,210
167,593
1,060,019
365,393
63,799
586,439
39,933
16,673
341,058
127,362
192,542
150,677
839,660
2,013,785
733,588
201,041

5,014,687
1,010,120
263,220
832,739
306,959
1,366,054
1,012,752
1,103,915
672,340
767,922
2,793,038
1,416,366
2,459,147
1,534,615
15,453,788
5,744,131
3,955,358
1,309,515
7,716,782
940,611
2,238,245
977,650
874,695
2,165,755
749,552
3,708,245
413,681
1,725,074
1,111,132
11,239,942
2,661,493
206,223
1,324,567
798,776
2,649,959
1,137,252
530,179
985,841
761,640
234,648
1,712,725
717,976
510,046
510,868
3,290,605
2,897,335
1,454,739
834,308

Treutlen
Troup
Turner
Twiggs
Union
Upson
Walker
Walton
Ware
Warren
Washington
Wayne
Webster
Wheeler
White
Whitfield
Wilcox
Wilkes
Wilkinson
Worth
Total:

246,155
5,702,124
564,022
525,132
1,315,859
1,092,192
2,159,547
4,087,886
2,554,275
115,100
1,375,762
1,563,124
128,947
233,763
914,683
5,469,505
182,727
455,889
491,066
558,925
511,123,143

21.76%
17.99%
23.25%
32.15%
12.35%
12.57%
14.88%
14.58%
13.16%
8.97%
16.02%
13.83%
23.30%
19.26%
9.08%
17.44%
14.83%
14.96%
9.99%
13.16%
16.69%

87,373
2,014,896
212,257
288,890
789,393
463,743
1,058,208
1,791,512
1,030,253
60,565
577,281
691,952
85,021
95,020
408,380
1,765,577
77,963
178,267
139,711
237,916
197,652,706

79,852
1,780,438
181,779
215,279
423,659
348,493
701,428
1,315,471
808,671
36,095
430,812
495,632
40,715
72,424
295,137
2,556,233
58,334
144,778
151,734
179,246

313,467
1,427,605
798,075
1,164,530
1,289,819
882,183
1,870,649
4,750,677
1,641,050
388,674
2,051,408
2,652,196
303,532
603,850
1,441,815
12,243,547
562,072
834,550
1,067,460
2,060,736

175,415,167

This table was developed by GDOT for examining transportation funding options during the 2015 General
Assembly Session.
The column titled 3 cents/gal Excise Tax, $ is the column of interest. The total of the excise tax dollars for
the 23 East and Coastal counties is $23,350,625. Dividing that number by 3 cents per gallon yields the
number of gallons of motor fuel sold in those counties in 2014 on which excise tax was paid. This was
778,354,167 gallons. Rounded to 778,000,000 gallons per year, this is equal to more than 50,000 barrels per
day (bpd).
This is a conservatively low number for actual motor fuel use in the 23 counties, since several types of fuel
use are exempt from the excise tax (agricultural field use, non-highway use, military use, etc.) and thus are
not counted.

TABLE E-3
COUNTIES THAT WILL BENEFIT BY BEING CLOSER TO A
PIPELINE-SOURCED PETROLEUM PRODUCTS TERMINAL
SAVANNAH AREA
(BRYAN COUNTY TERMINAL)
Appling
Bacon
Bryan
Bulloch
Candler
Chatham
Effingham
Evans
Jeff Davis
Liberty
Long
McIntosh
Pierce
Screven
Tattnall
Toombs
Wayne

JACKSONVILLE AREA
(JACKSONVILLE TERMINAL)
Brantley
Camden
Charlton
Clinch
Echols
Glynn
Ware

F.

LOCAL BENEFITS OF THE PIPELINE PROJECT

Construction of the Palmetto Pipeline would generate approximately 1,200 temporary


construction jobs at its peak. While Palmetto will hire pipeline construction contractors to build
the Palmetto Pipeline, these construction firms will hire local labor to augment their crews. The
economic impact of construction will be significant. Workers will rely upon local businesses,
housing and support services during construction.
Palmetto will purchase property rights sufficient to construct and maintain the pipeline
and will pay fair market value for those rights. Payments to landowners for these rights will
have a significant economic impact on individual landowners and, potentially, communities
where these funds would be put back into the market.
Additionally, upon completion, the pipeline will result in an increase of an estimated $4.5
million in annual tax revenue to state and local taxing bodies in Georgia.
These local benefits are, of course, in addition to those associated with meeting increased
fuel needs in east and coastal Georgia. As detailed above, the twelve counties through which the
pipeline is proposed and the other counties in Georgia that border those twelve, have a 2014
population of 1,257,396 and are projected to grow to 1,803,191 by 2040, according to a 2010
report by the Carl Vinson Institute. See Appendix 3. This 43% growth will likely increase
current fuel consumption in those counties by at least 43%.
The Palmetto Pipeline will be a tremendous benefit to Georgia citizens. It will provide a
new and reliable source of motor fuel and it will significantly reduce the potential of motor fuel
shortages in coastal Georgia. This new source will also provide a competitive market for motor
fuel. No one can confidently predict the future price of gasoline, but competition is the life
blood of the free market system and has proven time and time again to reduce prices to
consumers. The cost of the pipeline will be borne solely by Palmetto. The residents of coastal
Georgia will pay nothing for this major infrastructure investment.

G.

ENVIRONMENT AND SAFETY

The route identified by Palmetto will cause minimal adverse environmental impacts, and
as compared to other modes of transporting petroleum products, pipelines are recognized as not
only the most cost-effective but also the safest mode of transportation. These issues are not the
subject of the GDOT process but will be fully addressed.
1.

Environmental Issues

A number of federal and state agencies will be involved in the review and approval of the
environmental impacts of the project, including the U.S. Army Corps of Engineers (COE) and
the Georgia Environmental Protection Division (EPD). After, and separate from, GDOTs
process, the project will undergo a review that will address environmental protection and
mitigation relating to project siting, permitting, construction and operation, among other issues.
As required by Georgia law, any proposed petroleum product pipeline must undergo an
environmental review by EPD, which occurs subsequent to GDOTs issuance of the certificate
of convenience and necessity. See O.C.G.A. 22-3-84(a). Palmetto will ask EPD to determine,
after notice to affected landowners and a public hearing, that the location, construction, and
maintenance of the Georgia portion of the Palmetto Pipeline is consistent with and not an undue
hazard to the environmental and natural resources of Georgia. See O.C.G.A. 22-3-84(b)(4). In
making that decision, the EPD Director will determine whether the Georgia portion of the
pipeline route is an environmentally reasonable route, whether existing utility corridors may
reasonably be used for the pipeline, and whether the project will comply with any local zoning
ordinances (unless compliance would impose an unreasonable burden on the project, as weighed
against the purpose of the zoning ordinances in question). O.C.G.A. 22-3-84(c). Prior to
issuing the permit, EPD will also need to assure that ample opportunity has been afforded for
public comment, including comments from the municipalities and counties in which the pipeline
will be located. Id.
Rules adopted by the Board of Natural Resources further explain the procedures and
requirements applicable to EPDs consideration of a petroleum pipeline. Ga. Comp. R. and Regs.
r. 391-3-23-.01, et seq (hereinafter r. 391-3-23-.01). The application for the permit must
include an Environmental Effects Report, comparable to the reports required under the Georgia
Environmental Policy Act, which must be prepared and signed by a professional engineer or a
professional geologist. See r. 391-3-23-.07(2). The Environmental Effects Report must include,
among other items, a copy of GDOTs Certificate of Public Convenience and Necessity, route
maps, a description of the proposed project, background data on engineering or environmental
studies used by the pipeline company, and a proposal to monitor the effects of the pipeline on the
surrounding environment. See r. 391-3-23-.07(2). The rules further provide for public notice, a
public hearing, and an opportunity for written comments on the proposed pipeline. See r. 391-323-.07(4).
Palmetto will not be legally authorized to exercise the right of eminent domain until EPD
has issued the required permit, unless EPD fails to approve or deny the permit within 120 days of
the date of publication of the public notice of the EPD permit application. See O.C.G.A. 22-384. Moreover, EPD can impose reasonable conditions on the permit to require monitoring of the

effect of the pipeline on the surrounding environmental and natural resources. See O.C.G.A.
22-3-84(c); r. 391-3-23-.07(7).
In addition to the EPD petroleum pipeline-specific permit, the project must comply with
requirements for other site-specific environmental permits. Palmetto expects to apply for
permits from the COE pursuant to Section 404 of the Clean Water Act and Section 10 of the
Rivers and Harbors Act, and Palmetto will comply, as appropriate, with the general permit for
the discharge of stormwater during construction. Where stream buffers apply, Palmetto will
follow applicable standards and procedures.
The pipeline will be constructed to avoid, to the extent practicable, any adverse impacts
to rivers and creeks along the route, and the pipeline will not cross over or through any rivers or
streams. The pipeline will be buried four feet below ground surface in most areas along the
route; however, as the pipeline approaches a river or stream, the construction team will use
horizontal directional drilling to install the pipeline well below the bottoms of all rivers and
streams, thereby protecting both waters and stream buffer areas.
The company is also working to minimize impacts to wetlands along the proposed
pipeline route. Palmettos expert wetlands consultants are marking and measuring the wetlands
along the route, and all wetlands will be identified in the application that will be filed with the
COE for a Section 404 permit. The wetland impacts will also be addressed in the Environmental
Effects Report that will be submitted to EPD.
2.

Pipeline Safety Issues

It is well understood that pipelines are the safest mode of transportation to deliver
products such as gasoline, jet fuel and diesel. Pipelines Are Safest for Transportation of Oil
and Gas, Diana Furchtgott-Roth, Manhattan Institute for Policy Research (June 23, 2013).
Palmettos parent company, Kinder Morgan, is one of the safest pipeline operators in
North America, recognized industry-wide as a leader in emergency preparedness, incident
response and integrity management for its pipeline network. Kinder Morgan consistently
performs better than its industry peers in almost all safety and release-related measures.
Palmetto will follow the companys required specifications regarding installation of stateof-the-art pipeline and will adhere to company protocols to regularly monitor, test and inspect
the mechanical and operational integrity of the pipeline.

Pipe Materials The pipeline will be made of high strength steel, with all joints
carefully welded, pressure tested, and inspected before being put into use, and
will be cathodically protected, which is the best method to protect against
corrosion in underground pipelines. The Federal standard is to inspect 10% of the
welds, but Palmetto will inspect every weld on the Palmetto Pipeline.

Monitoring Palmetto will monitor its pipeline operating conditions 24 hours a


day, 7 days a week, in control centers using sophisticated computer systems. If
operating conditions change, the operators on duty will be alerted and will

investigate immediately. Automated and manual valves will be placed along the
pipeline system to enable immediate shutdown if necessary.

Emergency preparedness measures will be put into place and Palmetto will work
closely with local emergency response organizations on how to respond in the
event of an emergency.

All petroleum pipelines are under the regulatory oversight of the U.S. DOT
Pipeline and Hazardous Materials Safety Administration.

3.

Highway Safety Issues

At least 80% of the motor fuel in the 23 East and Coastal counties is delivered to the
wholesale and retail outlets by 10,000 gallon capacity tanker trucks that can handle maximum
loads of 8,800 gallons of gasoline or 7,500 gallons of diesel. As a result, it takes 198 truck-loads
of motor fuel and 198 return trips, 365 days per year, to serve these counties. Without this
pipeline, it will take 43% more truck trips in 2040.
The Savannah area alone has about 15,000 bpd of motor fuels trucked to it from Macon
and North Augusta. (About 5,000 bpd may get to the Savannah area by marine vessel.) These
15,000 barrels per day require 74 truck trips per day, or about 27,000 trips per year and 7.8
million highway miles per year by truck. If the Palmetto Pipeline replaces just half of the current
15,000 bpd of fuel trucked to the Savannah area, it will eliminate 13,500 tanker truck trips and
3.9 million miles driven by those trucks annually.
The pipeline will significantly reduce the number of truck miles driven to get fuel to
customer outlets. A new pipeline terminal near Savannah will put at least 17 Southeast Georgia
counties closer to a pipeline sourced terminal than they are now, which will reduce tanker truck
miles driven. A terminal at Jacksonville will put at least 7 other Southeast Georgia counties
closer to a pipeline sourced terminal.
Fewer truck miles driven means lower probability of traffic accidents, decreased traffic
congestion, and less wear and tear on Georgias highways.

H.

EASEMENTS AND EMINENT DOMAIN

Palmetto is not seeking a fee interest in the property along the right of way. Palmetto will
seek permanent easements of 50 feet and additional temporary easements of up to 75 feet to
allow for construction of the pipeline. Because Palmetto is seeking only easements (not fee
interests), landowners will retain rights to the property. In fact, with regard to the area of any
temporary easement, any and all rights to that property will revert to landowners once the
pipeline is constructed. With respect to the permanent easement, landowners will continue to
enjoy the use of that land, often precisely as it is projected to be used as if the pipeline was not
built.
Furthermore, all landowners will be given fair market value for any temporary and
permanent easement interests required in connection with this pipeline. Palmetto has already
engaged expert appraisers to evaluate the market value of property impacted by the proposed
pipeline. Negotiations with landowners will be informed by the results of appraisal studies, and
will be further guided by information landowners provide regarding their property. Palmetto will
negotiate in good faith with landowners and will take landowners concerns and perspectives
into account in order to make reasonable and appropriate offers.
In an attempt to minimize impacts on landowners as much as possible, Palmetto has
collocated the pipelines proposed route along existing pipeline, utility or railroad rights of way
whenever possible. Georgia law requires that a petroleum pipeline route should use existing
public utility corridors as much as can reasonably be done, and approximately 86 percent of the
pipeline route in Georgia runs directly alongside existing utility or railroad easements.
Palmetto will make every effort to secure the needed easements by agreements and
anticipates, based on previous experience, that most easements will be acquired through
negotiation. However, Palmetto has begun the process of securing approval for this project so
that it has the ability to exercise the power of eminent domain for those landowners that will not
accept reasonable offers to transfer the property interests necessary to construct this important
project. Many different types of utilities in Georgia have the power of eminent domain in
circumstances like this one, where that power is necessary to create infrastructure that provides a
public good. Such utilities include publicly owned or privately owned lines or systems for
producing or distributing:
Communications
Electricity
Natural Gas
Petroleum products
Water and wastewater
Rail service.
The Georgia General Assembly has authorized many types of for-profit companies to
exercise the power of eminent domain in Georgia. However, there are significantly more state
imposed requirements for petroleum pipeline companies to meet than there are for any other
publicly or privately owned utility which wants to use eminent domain. No other type of public
utility is required to apply for and receive a certificate of necessity and convenience from GDOT.

No other type of public utility is required to develop what amounts to an environmental impact
statement and get a project specific permit from Georgia EPD.
The statements made in the public comment period on the route of the proposed Palmetto
Pipeline indicate that some landowners are not willing to enter into agreements for easements.
Therefore, the use of eminent domain, although not preferable, may be necessary for this project.

I.

RESPONSES TO FREQUENTLY ASKED QUESTIONS

Palmetto Pipeline Project


Georgia Frequently Asked Questions:
May, 2015

Project Overview

1. What is the Palmetto Pipeline and where will it be located?


Kinder Morgan is proposing the Palmetto Pipeline, which will allow the company to offer a new service to
move refined petroleum products from Baton Rouge, Louisiana, Collins and Pascagoula, Mississippi, and
Belton, South Carolina, to North Augusta, South Carolina, Savannah, Georgia, and Jacksonville, Florida. The
new 360-mile pipeline from Belton to Jacksonville will be constructed as part of the project.
The proposed Palmetto Pipeline will cross through the following counties in Georgia: Bryan, Burke,
Camden, Charlton, Chatham, Effingham, Glynn, Liberty, Long, McIntosh, Richmond and Screven.
2. What is the capacity of the proposed Palmetto Pipeline and what will it carry?
The proposed Palmetto Pipeline would carry 150,000 barrels per day (bpd), with an ultimate capacity of
167,000 bpd. The pipeline would carry refined petroleum products such as gasoline, diesel fuel, jet fuel
and ethanol.
3. What is the timeline for this proposed project?
The final route selection and development of the environmental permit application is planned for the
summer of 2015. We plan to begin construction in the spring of 2016, and we have a targeted in-service
date of July 2017.

The Need for the Pipeline

1. Why is the Palmetto Pipeline needed?


A. Meet Growth in Fuel Needs
Over the next 25 years, Georgias population will grow by about 49 percent, and the population of
the 12 counties on the pipeline route, plus their 11 neighboring counties in Georgia, will grow by
about 43 percent. These 23 counties (and others) will benefit from being able to receive gasoline
and diesel fuel from the Palmetto Pipeline. Motor fuel use will closely track population growth,
even with expected improvements in car and truck fuel efficiency. Thus, those 23 East and Coastal
Georgia counties will need about 43 percent more motor fuel by 2040.
B. Capacity Expansion and Choice
The 23 East and Coastal Georgia counties used 778 million gallons of motor fuel in 2014, or 50,000
bpd, not counting the large quantities of motor fuels used at Fort Gordon, Fort Stewart and Hunter
Army Air Base. By 2040 these counties will be using about 72,000 bpd. East and Coastal Georgia
are pipeline-constrained, since existing petroleum pipelines deliver fuel only to Macon and North
Augusta. Palmetto will provide the first direct petroleum pipeline to Savannah and to Jacksonville,
and will supplement the North Augusta pipeline capacity. Some fuel is brought by ship to
Savannah and Jacksonville, but the vast majority of the fuel used in Coastal Georgia is brought
there by truck. Palmetto will provide infrastructure needed for the continued healthy growth of
East and Coastal Georgia.
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C. Highway Safety
At least 80 percent of the motor fuel in the 23 counties is delivered to wholesale and retail outlets
by 10,000 gallon tanker trucks that can handle maximum weight limits of 8800 gallons of gasoline
or 7500 gallons of diesel. As a result, it takes 198 truckloads of motor fuel and 198 return trips
daily, 365 days per year, to serve the needs of these counties. Without the pipeline, it will take 43
percent more trips in 2040. The pipeline will significantly reduce the number of truck miles driven
to get fuel to customer outlets. A new pipeline terminal near Savannah will put at least 17
Southeast Georgia counties closer to a pipeline terminal than they are now, which will reduce
tanker miles driven. A pipeline terminal at Jacksonville will put at least 7 additional Georgia
counties closer to a pipeline sourced terminal. Fewer truck miles driven means lower probability
of traffic accidents and less wear and tear on Georgias highways.
D. Lower Transportation Costs
Pipeline transport is the most cost efficient way to move large quantities of motor fuel. Trucking
fuel from Baton Rouge to Savannah costs about 30 cents per gallon. The cost of marine transport
for a gallon of fuel from Baton Rouge to Savannah costs about 50 percent less. The cost to send a
gallon of fuel from Baton Rouge to Macon or North Augusta by pipeline, then truck it to Savannah,
is about 36 percent less than marine transport. The cost to send a gallon of fuel from Baton Rouge
to Savannah by pipeline is about 25 percent less than the current method of pipeline plus trucking.
E. Competition
As a general proposition, additional sources of supply will lower motor fuel prices. There is
currently only one independent supplier to the Savannah area (a vocal opponent of this project),
and the free enterprise system has demonstrated over and over that competition reduces prices
and/or increases choices. The market will support as many suppliers as needed to provide good
service at a reasonable rate. Note: Palmetto will not own any of the fuel transported in the
pipeline and will not set the price of gasoline or diesel at the pump. Therefore it has no ability to
raise or lower fuel prices.
2. Where will product be delivered from the Palmetto Pipeline?
Delivery points from Palmetto will be North Augusta, the Savannah area and Jacksonville. The disposition
of product is up to Palmettos shippers, and shippers will designate products based on market demand.
Its reasonable to assume that some of the product delivered to North Augusta will serve east and north
Georgia, product delivered to Savannah will primarily serve the Georgia coastal area, and some of the
product delivered to Jacksonville will serve southern Georgia. In general, as supply sources proliferate,
prices decrease to the consumer.
3. Where will terminals be located for the Palmetto Pipeline?
Terminals will be located in North Augusta, the Savannah area (Richmond Hill) and Jacksonville.
4. How many barrels per day will be offloaded for delivery to local customers at the various terminals?
Estimates for Palmetto destinations are as follows:
North Augusta area: 40,000-50,000 bpd
Savannah area: 20,000-25,000 bpd
Jacksonville area: 70,000-80,000 bpd
5. The pipeline begins in South Carolina and ends in Florida - what percentage of the product will Georgia
have for its benefit?
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Kinder Morgan estimates that at least 50-60 percent of the pipeline capacity will transport refined
products to consumers in the Augusta and Savannah areas. Additionally, the close proximity of Jacksonville
(the third terminal market for Palmetto Pipeline) to coastal Georgia communities suggests that additional
product shipped through the Palmetto Pipeline will ultimately enter markets in southern Georgia.
Palmetto's shippers will determine the ultimate destinations for products transported on the Palmetto
Pipeline.

Local Benefits of the Pipeline


1. How would construction of the Palmetto Pipeline benefit surrounding areas?
Construction of the Palmetto Pipeline would generate approximately 1,200 temporary construction jobs at
its peak. The economic impact of construction will be significant as workers will rely upon local businesses,
housing and support services during construction.
Additionally, upon completion, the pipeline will result in an increase of an estimated $4.5 million in annual
tax revenue to state and local taxing bodies in Georgia.
Moreover, Palmetto will pay landowners along the route the fair market value of any property necessary
to construct and operate the pipeline. These payments will benefit landowners and cause an influx of
dollars into local economies.
These benefits are in addition to the fact that the proposed pipeline would help meet increased fuel needs
in East and Coastal Georgia. The twelve counties through which the pipeline is proposed and the other
counties in Georgia that border those twelve, have a 2014 population of 1,257,396 and are projected to
grow to 1,803,191 by 2040. This 43 percent growth will likely increase current motor fuel consumption in
those counties by at least 43 percent.
2. Will Kinder Morgan hire local individuals to build the pipeline?
Kinder Morgan will hire pipeline construction contractors to build the Palmetto Pipeline. These
construction firms generally hire local labor to augment their crews. Also, the contractors will have a
positive impact on the local economy with their local purchases of goods and services such as meals,
lodging, fuel, and construction materials.
3. Does Kinder Morgan already have existing petroleum pipelines in the region?
Yes, Kinder Morgan owns and operates the Plantation Pipe Line Company (Plantation) in the Southeast
region. Plantation is one of the largest refined petroleum products pipelines in the United States. It
delivers approximately 700,000 bpd of gasoline, jet fuel, diesel and biodiesel through its 3,100-mile
network. Plantation connects to 90 delivery terminals throughout eight states which are owned by
petroleum refiners, marketers, and military and commercial fuel users. Plantation was founded in 1940
and its headquarters are in the Atlanta area. The existing Plantation pipeline currently has extensive
operations in Georgia, and the proposed Palmetto Pipeline would allow access to markets in coastal
Georgia as well.
4. Does Kinder Morgan have an existing presence in Georgia?
Yes, Kinder Morgan is proud to have extensive existing infrastructure in Georgia. Kinder Morgan is no
stranger to operating assets safely and efficiently in this State.

Kinder Morgan operates more than 3,000 miles of natural gas and petroleum products pipelines
throughout 85 counties in Georgia. Kinder Morgan also operates five terminals in Georgia. In
2014, Kinder Morgan employed 330 Georgians and maintained a payroll of over $28 million.
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In 2014, Kinder Morgan paid over $15.8 million to state and local taxing bodies.

Environmental and Safety Concerns


1. What state/federal agencies are involved in approving this project?
A number of federal and state agencies will be involved in the approval and oversight of the project,
including the Federal Energy Regulatory Commission (FERC), the U.S. Army Corps of Engineers the Georgia
Department of Transportation, and the Georgia Environmental Protection Division. The project will
undergo a careful review, which will address environmental protection and mitigation relating to project
siting, permitting, construction and operation, among other issues.
As part of the process, following a review of Palmettos application and the associated facts regarding this
project, the FERC issued an order on May 1, 2015 granting Palmettos petition and concluding that the
project was consistent with FERC precedent: The Commission finds that the rates, and terms and
conditions of service offered to the potential committed shippers during the open season are consistent
with the ICA and Commission precedent.
2. What kinds of safety features will the Palmetto Pipeline feature to prevent leaks and/or environmental
damage?
It is very important that people understand that pipelines are the safest mode of transportation to deliver
products such as gasoline, jet fuel and diesel. Furthermore, Kinder Morgans spill rate is one-third of the
industrys average. Overall, our operational performance was better than our industry peers in 35 out of
36 environmental, health and safety measures in 2014.
We are proud to say that Kinder Morgan is one of the safest asset operators in North America, recognized
industry-wide as a leader in emergency preparedness, incident response and integrity management for our
pipeline network.
Every day, Kinder Morgan follows numerous procedures to regularly monitor, test and inspect the
mechanical and operational integrity of our pipelines. Activities include monitoring operating conditions
around the clock, using electronic surveillance systems that gather data such as pipeline pressures, volume
and flow rates, placing automated and/or manual valves at strategic locations to isolate sections to shut
down the pipeline when needed, and conducting visual and internal inspections regularly. Most
importantly, if an incident does occur, we take swift and appropriate action with local, state and federal
emergency responders and work diligently to remedy the situation in a responsible manner.
3. Will the Palmetto Pipeline follow existing power line and utility corridor rights-of-way?
In an attempt to minimize impacts on property in the area as much as possible, Kinder Morgan has
collocated approximately 86 percent of the Palmetto Pipelines proposed route in Georgia along existing
pipeline, utility or railroad rights-of-way. Georgia law requires that a petroleum pipeline route should use
existing public utility corridors as much as can be reasonably done, and Kinder Morgan will do so. It is not
possible to stay completely along the existing corridors due to development that has occurred since the
corridor was first established and other operational or local environmental constraints. Deviations from
the existing corridor, where necessary, will make the pipeline safer and less intrusive.
4. Where along the Savannah River is the proposed pipeline planning to cross? Is it safe for the pipeline to
run along the Savannah River?
The Palmetto Pipelines proposed crossing of the Savannah River is south of Augusta, near the community
of Jackson, South Carolina. The vast majority of the line will be several miles away from the Savannah
River. That is the most reasonable route, considering that Kinder Morgan needs to be along existing utility
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corridors and wants to keep the length of the pipeline as short as possible. State and federal
environmental laws and rules will adequately protect the Savannah River and all other streams and
wetlands on the pipeline route.
5. How will rivers and creeks in the vicinity of the proposed pipeline be protected during construction and
once the pipeline is in operation?
Rivers and creeks in the vicinity of the pipeline will be protected in several ways: construction methods,
pipeline materials, safety programs, and monitoring.
Construction Methods The pipeline will not cross through any stream. The pipeline will be
buried four feet below ground surface in most areas. But near streams, Kinder Morgans
construction team will use horizontal directional drilling to construct the pipeline well below the
bottoms of all rivers and streams, to help protect both the streams and the sensitive stream
buffer areas.

Pipe Materials The pipeline will be made of high strength steel, with all joints carefully welded,
pressure tested and inspected before being put into service, and it will be cathodically protected,
which is the best method to protect against corrosion in underground pipelines. Federal standards
require x-ray inspection on 10% of all welded joints in oil and gas pipelines, but on the Palmetto
Pipeline 100% of all welded joints will undergo x-ray inspection.

Monitoring Kinder Morgan monitors its pipeline operating conditions 24 hours a day, 7 days a
week in control centers using sophisticated computer systems. If operating conditions change, the
operators on duty are alerted and will investigate immediately. Automated and manual valves are
placed along the pipeline system to enable immediate shutdown if necessary.

Emergency preparedness measures are in place and Kinder Morgan works closely with local
emergency response organizations on how to respond in the event of an emergency.

All petroleum pipelines are under the regulatory oversight of the U.S. DOTs Pipeline and
Hazardous Materials Safety Administration.

6. It has been stated by some organizations that The vast majority of the pipeline from Savannah to
Jacksonville is going to be built in wetlands. Is that correct?
No, it is not correct. Certainly there are numerous areas of wetlands along the proposed pipeline route,
and the company is working to minimize impacts to those wetlands. We are still doing the measurements
in the field, but we believe that about 29 percent of the pipeline route in Georgia will cross waterways or
wetlands. As explained above, our plan is to bore under all rivers and streams, thereby avoiding or
minimizing adverse impacts in those areas. All wetlands will be identified in the permit application we will
file with the Corps of Engineers. The wetlands impacts will also be addressed in the Environmental Effects
Report that we will file with the Georgia EPD to support our environmental permit application.

Other Concerns/Questions
1. In Georgia, how does a for-profit company get eminent domain powers? What are the requirements for
obtaining eminent domain powers in Georgia?
The Georgia General Assembly has adopted laws allowing public utilities to have the power of eminent
domain to provide services for the public good. Public utilities include publicly owned or privately owned
lines or systems for producing or distributing:
5
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Communications
Electricity
Natural Gas
Petroleum products
Water and wastewater
Rail service

The Georgia legislature has made it possible for many kinds of for-profit companies to obtain eminent
domain power in Georgia. However, there are significantly more state imposed requirements for
petroleum pipeline companies to meet than there are for any other publicly or privately owned utility that
wants to use eminent domain. No other type of public utility is required to apply for and receive a
certificate of public convenience and necessity from Georgia DOT. No other type of public utility is
required to develop what amounts to an environmental impact statement and obtain a project specific
permit from Georgia EPD.
2. If I am an impacted landowner, will the state government allow my land to be seized to build the
pipeline?
No, there is no seizure involved. State law allows a pipeline company to use eminent domain to acquire
easements for a petroleum pipeline, but only if Georgia DOT issues a certificate of necessity and
convenience for the pipeline, and if Georgia EPD issues a pipeline permit after considering the likely
environmental effects. If these two state approvals are issued, then Palmetto can use eminent domain in
cases where it is not able to negotiate an agreement with a landowner to purchase an easement or find a
workable alternative for the pipeline route . Eminent domain will not be needed in the vast majority of
easement acquisitions, and even when it must be used, the law requires notice to landowners and affords
landowners an opportunity to present their views regarding the process, and the landowner will be paid
fair market value as determined by an independent appraiser. Palmetto will make every attempt to
negotiate with landowners to arrive at a mutually agreed upon easement before the use of eminent
domain is even considered. Palmetto prefers not to use eminent domain.
3. If I am an impacted landowner, what can I do with my land if I grant an easement to Palmetto or if an
easement is obtained through eminent domain?
The landowner will retain ownership of the property. Pipeline easements are compatible with many
agricultural and other uses.
4. Will the products transported by the Palmetto Pipeline be exported?
No, all of the product transported through Palmetto Pipeline will be for consumption in markets in the
southeastern United States. None of the proposed terminals in North Augusta, the Savannah area and
Jacksonville are export terminals. The Palmetto Pipeline has been designed to provide transportation
service from the Gulf Coast refineries to these market centers and no further. Considering that the Gulf
Coast refineries where products transported through the Palmetto Pipeline will originate have marine
export capabilities, it would be not be economical to transport product to North Augusta, Savannah or
Jacksonville for export outside of the United States.
5. Why does gasoline cost more at the pump in Savannah than in Macon and other places?
The answer to this question was explained by Colonial Oil, currently the primary supplier of oil in the
Savannah area, as reported by the Savannah Morning News on April 7, 2013:
Many Savannah residents complain that gas prices are lower in other Georgia cities, such as Atlanta and
Macon, and they're correct, said Ryan Chandler, vice president of business development at Colonial Group
Inc.
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The reason for the lower prices is that those markets have access to a pipeline supply direct from the U.S.
Gulf Coast, he said. Savannah is forced to pay what amounts to a Jones Act penalty to bring gasoline and
diesel in from the Gulf Coast, and that's only if there are ships available to carry the cargo, Chandler said.
When Jones Act ships aren't available, Colonial is forced to import gasoline and diesel from foreign
markets to meet Savannah's needs, which frankly can't compete with pipeline economics plus truck freight
to Savannah.

7
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J.

APPENDICES

1.

Officials and Others Receiving Supplemental Data

2.

Route map .kmz (Google Earth) file

3.

2010 Vinson Institute Study

4.

May 1, 2015 FERC Order

OFFICIALS AND OTHERS RECEIVING SUPPLEMENTAL DATA ON THE PALMETTO PIPELINE


Augusta-Richmond County (2 miles)
Hardie Davis - Mayor of Augusta - 706.821.1831; mayordavis@augustaga.gov
Susan Parr, President/CEO - Augusta Metro Chamber of Commerce - 706.821.1300; sue.parr@augustametrochamber.com
Sen. Harold Jones - District 22; harold.jones@senate.ga.gov
Sen. Jesse Stone - District 23 - jesse.stone@senate.ga.gov
Sen. Bill Jackson - District 24; bill.jackson@senate.ga.gov
Rep. Barbara Sims - District 123; barbara.sims@house.ga.gov
Rep. Wayne Howard - District 124; wayne.howard@house.ga.gov
Rep. Brian Prince - District 127; brian.prince@house.ga.gov
Burke County (25 miles)
Pauline Jenkins - Mayor of Waynesboro - 706.554.8017; pjenkins@waynesboroga.com
R. Wayne Crockett - Chair - 706.554.2324
PO Box 724, Waynesboro, GA 30830
Cam Parker, President - Burke County Chamber of Commerce - 706.554.5451
241 East 6th Street, Waynesboro, GA 30830
Sen. Jesse Stone - jesse.stone@senate.ga.gov
Rep. Gloria Frazier - frazier26@comcast.net
Screven (30 miles)
Margaret Evens - Mayor of Sylvania - 912.564.7411; mevans@cityofsylvaniaga.com
William Boyd - Chair - 912.564.7535
PO Box 159, Sylvania, GA 30467-0159
Latasha Roberts, Ex. Dir. - Sylvania Screven County Chamber of Commerce - 912.564.7878; Inroberts@planters.net
Sen. Jesse Stone - jesse.stone@senate.ga.gov
Rep. Jon Burns - jon.burns@house.ga.gov

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Effingham County (39 miles)


Barton Alderman - Mayor of Springfield - 912.754.6666
City of Springfield, PO Box 1, Springfield, GA 31329
Wendell Kessler - Chair - 912.754.2123
601 North Laurel Street, Springfield, GA 31`329
Sen. Jack Hill - jack.hill@senate.ga.gov
Rep. Jon Burns - jon.burns@house.ga.gov
Rep. Bill Hitchens - bill.hitchens@house.ga.gov
Chatham County (12 miles)
Edna Jackson - Mayor of Savannah - 912.651.6441; ejackson@savannahga.gov
Al Scott - Chair -912.652.7875
PO Box 8161, Savannah, GA 31412
William W. Hubbard - President & CEO - Savannah Area Chamber of Commerce - 912.644.6421
101 E Bay Street, PO Box 1628, Savannah, GA 31402
Sen. Ben Watson - ben.watson@senate.ga.gov
Sen. Lester Jackson - lester.jackson@senate.ga.gov
Rep. Bill Hitchens - bill.hitchens@house.ga.gov
Rep. Bob Bryant - bob.bryant@house.ga.gov
Rep. Craig Gordon - jcraig.gordon@house.ga.gov
Rep. Ron Stephens - ron.stephens@house.ga.gov
Rep. Mickey Stephens - mickey.stephens@gmail.com
Rep. Jesse Petrea - jesse.petrea@house.ga.gov
Bryan County (7 miles)
Mary Warnell - Mayor of Pembroke - 912.653.4413; mayor@pembrokega.net
James Burnsed - Chair - 912.653.3837
PO Box 430, Pembroke, GA 31321
Sen. Ben Watson - ben.watson@senate.ga.gov
Rep. Jan Tankersley - jan.tankersley@house.ga.gov

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Liberty County (18 miles)


James Thomas - Mayor of Hinesville - 912.876.3564
City of Hinesville, 115 East M.L. King, Jr. Drive, Hinesville, GA 31313
Tom Ratcliff - tratcliffe@hinesvillelaw.com
Donald Lovett - Chair - 912.876.2164
PO Box 829, Hinesville, GA 31313
Leah Poole, CEO - Liberty County Chamber of Commerce - 912.368.4445; director@libertycounty.org
Sen. Ben Watson - ben.watson@senate.ga.gov
Rep. Al Williams - al.williams@house.ga.gov
Long County (2 miles)
James Fuller - Mayor of Ludowici - 912.545.2732
PO Box 800, Ludowici, GA 31316-0800
Dwight Gordon - Chair - 912.545.2143
PO Box 476, Ludowici, GA 31316
Sen. Tommie Williams - tommie.williams@senate.ga.gov
Rep. Jeff Jones - jeff.jones@house.ga.gov
McIntosh County (17 miles)
Hugh Hodge - Mayor of Darien - 912.437.6686
c/o City of Darien, PO Box 452, Darien, GA 31305
Kelly Spratt - Chair - 912.437.6671
PO Box 584, Darien, GA 31305
Darien-McIntosh County Chamber of Commerce - 912.437.6684
PO Box 1497, Darien, GA 31305
Sen. William Ligon - william.ligon@senate.ga.gov
Rep. Jeff Jones - jeff.jones@house.ga.gov

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Glynn County (24 miles)


Cornell Harvey - Mayor of Brunswick - 912.267.5500; mayorcharvey@gmail.com
Dale Provenzano - Chair - 912.554.7400; dprovenzano@glynncounty-ga.gov
Woody Woodside, President - The Brunswick-Golden Isles Chamber of Commerce - 912.265.0620; woodyw@bgicoc.com
Sen. William Ligon - william.ligon@senate.ga.gov
Rep. Alex Atwood - alex.atwood@house.ga.gov
Camden County (18 Miles)
Steven Parrott - Mayor of Woodbine - 912.576.3211; woodbinemayor@tds.net
James Starline - Chair - 912.576.5651; district3@co.camden.ga.us
Sen. William Ligon - william.ligon@senate.ga.gov
Rep. Jason Spencer - jason.spencer@house.ga.gov
Charlton County (12 miles)
Lee Gowen - Mayor of Folkston - 912.496.2563; folkston1@windstream.net
James Everett - Chair - 912.496.2549
68 Kingsland Drive, Suite B, Folkston, GA 31537-2872
Dawn Malin, Executive Director - Okefenokee Chamber of Commerce - 912.496.2536
3795 Main Street, PO Box 756, Folkston, GA 31537
Sen. William Ligon -william.ligon@senate.ga.gov
Rep. John Corbett - john.corbett@house.ga.gov
DOT Board - District 1
Ann Purcell - 912.663.8128; apurcell@dot.ga.gov
DOT Board - District 2
Johnny Floyd - 229.273.5312; jofloyd@dot.ga.gov

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DOT Board - District 3


Sam Welborn - 706.615.0965; swellborn@dot.ga.gov
DOT District 4
Robert L. Brown, Jr. (Secretary) - 404.377.2460; mailto:robrown@dot.ga.gov
DOT Board - District 5
Stacey Key - 404.310.5040; skey@dot.ga.gov
DOT Board - District 6
Mark Burkhalter - 404.527.4156; mburkhalter@dot.ga.gov
DOT Board - District 7
Rudy Bowen - 404.317.3310; mailto:rubowen@dot.ga.gov
DOT Board - District 8
OPEN (Jay Shaw)
DOT Board - District 9
Emily Dunn (Vice Chairman) - 706.632.5000; edunn@dot.ga.gov
DOT Board - District 10
Jamie Boswell - 706.546.8100; jboswell@dot.ga.gov

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DOT Board - District 11


Jeff Lewis - 770.382.4411; jeflewis@dot.ga.gov
DOT Board - District 12
Don Grantham (Chairman) - 706.738.7786; dgrantham@dot.ga.gov
DOT Board - District 13
Dana Lemon - 770.490.9125; dalemon@dot.ga.gov
DOT Board - District 14
Roger Williams - 706.618.6029; rogwilliams@dot.ga.gov

DMSLIBRARY01/25585261.1

The Motor Use Fuel Tax in Georgia:


Collection Efficiency, Trends, and
Projections
December 2010

Wes Clarke, Warren Brown, and Matt Hauer


Carl Vinson Institute of Government
University of Georgia

The University of Georgia

TableofContents

ExecutiveSummary

Introduction

TheMotorFuelTax..

MotorFuelTaxEvasion.............

AModelofPredictedMotorUseFuelTax

10

MotorFuelRetailMargins........

12

StateEnforcementSystems

16

EstimatesofFutureMotorFuelUse......

23

Conclusions......

32

References..

34


ExecutiveSummary
Theprimarypurposeofthisstudyofstatemotorusefueltax(MUFT)revenueistodetermine
whetherGeorgiacollectstheamountofrevenuefromthissourcethatdataonhighwayuseof
fuelsuggestshouldbecollected.TheestimatesofMUFTrevenuearederivedfromannualdata
onhighwayuseofmotorfuelandmonthlyusedatareportedtotheU.S.Departmentof
TransportationcoupledwithaveragemonthlypricingdatafromtheOilPriceInformation
Service.AsecondpurposeistodeterminehowenforcementmechanismsinGeorgiaand
elsewhereaffectthecollectionofthisrevenue.WealsoinvestigatehowGeorgiasrelativelylow
taxratesonfuelaffectretailpricesbyconsideringdealermarginsandstaterevenueasa
percentageofsalesvolumeinGeorgiaandeightothersoutheasternstates.Finally,usingdata
fromtheAppliedDemographyProgramattheCarlVinsonInstituteofGovernmentand
estimatesoffutureenergycostsfromtheEnergyInformationAdministration,weestimate
GeorgiasfuelneedsandMUFTthrough2020atcurrenttaxrates.
MajorFindings
Thepointatwhichmotorfuelistaxedinmoststateshasmovedhigherinthe
distributionsystemoverthepasttwodecadesinordertoimproverevenuecollection
efficiency.Withthisshift,therearefewertransactionstoprocessandauditatrackor
distributorlevelthanatthewholesaleorretaillevel.Thesechangeshavealsosimplified
recordkeepingandreducedcompliancecostsforsellers.

Collectionefficiencyfrom2004to2008improveddramatically.Theimprovement
coincideswiththeimplementationofHB219thatestablishedasystemofprepayment
ofthesalestaxbasedonestimatedpricessetsemiannuallyandimposedatthesame
pointandtimeasprepaymentoftheexcisetax.Italsocoincideswithimplementationof
aninspectionprogramattheGeorgiaDepartmentofRevenuetodetectuseofuntaxed
fuelinhighwayvehicles.ThatprogramisfundedbytheGeorgiaDepartmentof
Transportation.

Georgiahasoneofthelowestexcisetaxratesinthecountryonbothgasolineanddiesel
fuelat7.5centspergallon.Georgiaaddsa3percenttaxonsalesofmotorfuelthatis
classifiedasMUFTanda1percenttaxthatisreceivedasgeneralfundrevenue.In2008,
theexcisetaxandbothsalestaxescombinedproducedaneffectiverateof21.2cents
pergallon.About17.8centspergallonisclassifiedasMUFT.

GeorgiasMUFTshowedgreatsensitivitytofuelpricesastheyfluctuatedfrom2004to
2008.From2005to2006,whenfuelpricesdropped,totalrevenuesdeclinedevenas
totalvehiclemilestraveledincreased.From2006through2008,MUFTgrewrapidlyasa
resultofrecordhighfuelprices.

ThesharpincreaseinpricesthatproducedgrowthforGeorgiasMUFToccurredduringa
periodofreduceddemand.Pricesformostgoodsdeclineinthefaceofreduced
demand.

RetailmarginsandstateMUFTasapercentageofsalesvolumearelowinGeorgia
comparedwiththoseinothersoutheasternstates.

DatafromtheGeorgiaDepartmentofRevenueindicatethatuntaxedfuelviolations
havedroppedbyhalfsinceitinitiatedaprogramofinspectionsinFY2007.Thisprogram
supplementsinspectionsconductedbytheInternalRevenueService,increasingthe
visibilityofoverallinspectioneffort.

Vehiclemilestraveledisexpectedtogrowatabout1.8percentannuallyfrom2010to
2020,whileMUFTisexpectedtogrowatabout2.4percentannually.Theeffectivetax
rateisestimatedtobebetween17centsand21centspergallonthrough2020.Adding
the1percentGeneralFundsalestaxbringstheeffectivetaxratetobetween20and25
centspergallon.

Introduction
Motorusefueltax(MUFT)revenueistheprimarysourceofbothfederalandstatefundsused
tofinanceroadsandbridgesandrepresentsoneofthemostcomplextaxestoadministerand
understand.Thecomplexityofthisrevenueinstrumentisdueinparttothedistributionsystem,
thatconsistsofmultiplelevelsincludingrefiners/producers,bulkstations,wholesalers,and
retailers.Figure1showsthelevelsinthedistributionsystem.Thepointoftaxationinthe
systemvariesfromstatetostatebutingeneralhasmovedfromlowerpoints(retailers)to
higherpoints(wholesalers/distributors)overthepasttwodecades.InGeorgia,thetaxis
imposedatthefirstpointofwholesaledistribution.
MotorfuelsusedforhighwaytravelinGeorgiaaretaxedattherateof7.5centspergallonplus
a3percentsalestaxonthepriceincludingthefederalexcisetaxof18.4centspergallon.Fuel
salesarealsosubjecttoa1percentsalestaxthatisnotclassifiedasMUFT.The1percenttaxis
generalfundrevenueforthestate.Likemostotherstates,Georgiaexemptsfuelsusedin
agricultureandaviationfromthesetaxesandallowsrefundsoftaxespaidbysellers(users)who
sell(purchase)fuelsfornontaxablepurposes.Mostfuelsusedinagriculturaloperationsare
dyedredandcontainachemicalmarkerthatallowsthemtobeidentified.Fuelsprocessedwith
thedyeandchemicalmarkerarenottaxedwithinthedistributionsystem.TheMUFTsystemsin
moststatesaresimilartoGeorgias,withvariationsintheapplicableexciseandsalestaxrates.
Somestates,suchasKentucky,requirepaymentofthetaxonallfuelandrefundtaxespaidonly
touserswhoareregisteredwiththestateDepartmentofRevenueandapprovedforuntaxed
useoffuel.Somestatesapplythesalestaxratetothepriceoffuel,includingthefederalexcise
amount,whileothersapplyitexclusiveofthefederaltax.
TheGeorgiaDepartmentofTransportationaskedfacultyattheCarlVinsonInstituteof
GovernmenttoreviewMUFTrevenuesforGeorgiaandothersoutheasternstatesfrom2004to
2008forthepurposeofdeterminingwhetherGeorgiacollectstheamountofrevenuethatdata
onmotorfueluseandsalessuggestshouldbecollectedandwhetherGeorgiadiffersinthat
regardfromotherstates.Mostofthedatapresentedhereincludeallfiftystates,butparticular
attentionisgiventoAlabama,Florida,Kentucky,Mississippi,NorthCarolina,SouthCarolina,
Tennessee,andVirginia.
Asecondpurposeofthestudyistoidentifyauditandenforcementmechanismsofthesestates,
especiallythosethatappeartocollectlevelsofrevenuethatthemodelsuggeststheyshould
collect.Wealsolookathowthesestatescomparewithoneanotherontheestimatedmargins
producedattheretailpricelevel.Finally,thereportcontainsaforecastofMUFTrevenuesthat
canbeanticipatedatcurrentexciseandsalestaxratesthrough2020,takingintoconsideration
projectedchangestoautomobilefuelefficiencyandgrowthinpopulationandautomobileuse.

ThisstudyusesdatafromtheU.S.DepartmentofTransportation,theU.S.CensusBureau,the
variousstates,theOilPriceInformationService,andothersources.FacultyfromtheFinance
andEconomicDevelopmentProgramandtheAppliedDemographyProgramattheVinson
Institutecontributedtotheanalysis.Themethodsfordevelopingestimatesandforecastsof
revenuesandmotorfuelusewillbediscussedineachsectionofthereport.

TheMotorFuelTax
Themotorusefueltax(MUFT)inmoststatesisanexcisetax,butseveralstatesimposebothan
exciseandasalestaxthatisappliedtothesalepriceoffuel.Inrecentyears,thepointof
taxationfortheexcisetax(thatis,thepointofsaleatwhichfuelisdeliveredbytherefineryvia
pipelineortrucktothedistributororbulkterminal)hasbeenmovedhigherinthedistribution
system,awayfromtheretaillevelandtowardthewholesalerortherack.Threestatesinthe
SoutheastAlabama,Kentucky,andVirginiahavemovedthepointoftaxationupthe
distributionsystemtothedistributororsuppliersince2000.
InGeorgia,thepointoftaxationfortheexcisetaxof7.5centspergallonisatthedistributoror
wholesalerlevel.WholesaledealersoffuelarerequiredtoremitthetaxtotheGeorgia
DepartmentofRevenueforfuelsprocessedfortaxablepurposes.In2008,Georgiamovedits
pointofcollectionforthesalestaxcomponentoftheMUFTtothewholesalelevel,establishing
amechanismforestimatingthetaxandcollectingthiscomponentconcurrentlywiththeexcise
tax.ThesalestaxportionofGeorgiasMUFTisestimatedusingaforecastoffuelprices.A
forecastpriceisadoptedeverysixmonths(January1andJuly1)andremainsineffectunless
theretailpricechangesbymorethan25percent.Noadjustmentismadeforsmallerchangesin
retailprices.
Wholesalersarerequiredtodyefuelssoldfornontaxableuses,primarilyforagricultural
operations.Thesefuelsaresegregatedbythewholesaler,whokeepsrecordstoshowthe
quantitiesthathavebeenprocessed.Ofthestatesincludedinthedetailedanalysisforthis
report,Alabama,Mississippi,andKentuckyalsoimposetheexcisetaxatthewholesalelevel,
whileFlorida,NorthCarolina,SouthCarolina,Tennessee,andVirginiacollecttheexcisetaxat
therack.
GasolineissubjecttotheexcisetaxatthewholesalelevelinGeorgia,Alabama,Mississippi,and
Kentucky.InFlorida,NorthCarolina,SouthCarolina,andVirginia,theexcisetaxongasolineis
imposedattherack,whileTennesseeimposesthetaxatthefirstpointofsalewithinthestate.
Thatcouldbeeitherattherackoratthewholesaleleveliffuelisdeliveredtoawholesaler
fromoutofstate.

Figure1.Motorfueldistributionsystem

Source:DenisonandEger(2000).

TheexcisetaxratesforninesoutheasternstatesarepresentedinTable1.AlthoughGeorgias
rateisthelowestofthenineat7.5centspergallononbothgasolineanddiesel,ifweinclude
thestate'sMUFT3percentsalestaxonfuel,theeffectivetaxratein2008was17.8centsper
gallon.Includingthe1percentgeneralfundsalestaxpushedtheeffectivetaxratetoaround
21.2centspergallonin2008.Floridausesacountybasedtaxofupto5percentcoupledwith
its15.6centspergallonexcisetax.Virginiaappliesa3percentsalestaxtodieselfuelusedin
vehiclesweighing26,000poundsormore.SouthCarolinaalsoappliesa5percentsalestaxto
aviationfuelbutthatrevenueisnotclassifiedasMUFT.Comparedwiththe21.2centsper
gallontotalinGeorgia,Alabama,Mississippi,SouthCarolina,andTennesseehaveslightlylower
effectiveratesonhighwayuseofmotorfuel.Kentuckysexcisetaxdifferentialongasolineand
dieselmakesitaboutcomparabletoGeorgia.Virginiaisalsoroughlycomparableafterthat
statesadditionaldieseltaxisincluded.OnlyFloridaandNorthCarolinaaresignificantlyhigher.
Table2showstheeffectivetaxratesforthesestates.

Table3includesthereportedMUFTrevenuefortheninesoutheasternstatesforfiscalyears
2004to2008andthegrowthintotalvehiclemilestraveled(VMT)thathadoccurredinthe
periodjustprior.VMTinmoststatesdidnotgrowfrom2004to2008;infact,insomestates,
includingGeorgia,therewasadecreaseduetotheeconomicdecline.However,from1990to

2005,onlyFloridaandMississippihadhighergrowthratesinVMTthandidGeorgia.This
longertermtrendislikelytoreturnin2011andbeyond.
KentuckyandGeorgiahadthehighestgrowthinrevenuefrom2004to2008.Georgiastaxrate
hasnotchangedovertheperiod,sothegrowthhasresultedfromincreasedfueluseandthe
higherpricesforfuel,especiallyfromlate2007throughearly2008.Infact,Georgiasrevenues
weredownslightlyfrom2005to2006,whenfuelpriceswerelowerandmorestable.
Kentuckysgrowthislargelyduetoanincreaseintheexcisetaxfrom16.4centsto22.5cents
pergallonforgasolineandfrom13.4centsto19.5centspergallonfordieselfuel.Theincrease
tookplaceinsmallincrementsovertheentireperiod.NorthCarolinaalsoincreaseditsexcise
taxovertheperiod,asshowninTable1,resultinginnearly5percentannualgrowthinMUFT
overtheperiod.

Table1.Statemotorusefuelexcisetaxrates(centspergallon)
GasolineExcise
State

2004

2005

2006

DieselExcise

2007

2008

2004

2005

2006

2007

2008

Alabama

18.00

18.00

18.00

18.00

18.00

19.00

19.00

19.00

19.00

19.00

Florida

13.90

14.50

15.30

15.30

15.60

26.40

14.50

15.30

15.30

15.60

Georgia

7.50

7.50

7.50

7.50

7.50

7.50

7.50

7.50

7.50

7.50

Kentucky

16.40

18.50

19.70

21.00

22.50

13.40

15.50

16.70

18.00

19.50

Mississippi
North
Carolina
South
Carolina

18.40

18.40

18.40

18.40

18.40

18.40

18.40

18.40

18.40

18.40

24.60

27.10

30.15

29.95

30.15

24.30

27.10

30.15

29.95

30.15

16.00

16.00

16.00

16.00

16.00

16.00

16.00

16.00

16.00

16.00

Tennessee

21.40

21.40

21.40

20.00

20.00

18.40

18.40

18.40

17.00

17.00

Virginia
17.50
17.50
17.50
17.50
17.50
16.00
16.00
16.00
17.50
17.50
Note:Georgiaappliesasecondmotorfueltaxof3percentofthesalespriceanda1percentsalestaxthatbecomesgeneral
fundrevenue.Floridaappliesacountybasedfuelsalestaxofupto5percent.SouthCarolinaappliesa5percentsalestaxto
aviationfuel.Virginiaappliesanadditional3percentsalestaxtodieselfuelusedinvehiclesweighing26,000poundsormore.
Source:U.S.DepartmentofTransportation.


Table2.Statemotorusefueltaxeffectiverates,
2008(centspergallons)
Alabama
18.5
Florida
29.6
Georgia
21.2
Kentucky
21.9
Mississippi
18.6
NorthCarolina
30.8
SouthCarolina
16.3
Tennessee
19.6
Virginia
20.2
Note:Floridaseffectivetaxrateestimatedusinga4%averagecountytax.
Georgiaseffectivetaxrateincludingthe1%GeneralFundsalestax.
Source:CalculatedfromU.S.DepartmentofTransportationandstatedata.

Table3.MotorusefueltaxrevenueandVMT,2004to2008

State
Alabama
Florida

CRG*
2004
2008

AnnualVMT
(millions)

CRG*
19902005

2004

2005

2006

2007

2008

600,596

616,005

680,165

619,628

665,822

2.61%

42.3

59.6

2.3%

1,992,707 2,039,785 2,182,626 2,233,129

1990

2005

2,215,452

2.68%

110.0

201.5

4.1%

Georgia

731,398

821,867

817,187

934,175

997,381

8.05%

70.2

113.5

3.2%

Kentucky

461,382

469,622

527,763

563,168

608,502

7.16%

33.6

47.5

2.3%

Mississippi
North
Carolina
South
Carolina

409,874

396,426

423,412

431,432

418,632

0.53%

24.4

40.2

3.4%

1,301,744 1,384,834 1,531,943 1,654,346

1,573,318

4.85%

62.8

101.3

3.2%

483,596

515,040

503,822

531,916

521,230

1.89%

34.4

49.4

2.5%

Tennessee

824,109

828,274

832,465

849,662

833,287

0.28%

46.7

70.8

2.8%

Virginia

903,216

919,997

907,330

926,932

935,108

0.87%

60.2

80.3

1.9%

*CRGiscompoundrateofgrowth,oraverageannualgrowthovertheperiodindicated.
Note:VMTreportedbytheU.S.DepartmentofTransportation.GeorgiasrevenuegrowthinMUFTispartlyattributabletoincreasesinfuel
pricesnationallyinlate2007and2008,whichresultedinhighersalestaxrevenue.KentuckyandNorthCarolinaincreasedtheirexcisetaxes
considerablyoverthestudyperiod(seeTable1).
Source:U.S.DepartmentofTransportationandstatedocuments.

MotorFuelTaxEvasion
SchemesformotorfueltaxevasionarelistedinFigure2.Whilethetrendtowardtaxationat
higherlevelsinthesystemandsignificantincreasestofederalauditshavemadeevasionmore
difficult,evasioncontinuesduetothehighdollaramountsrepresentedbythevolumeoffuels
distributed.
Attheterminalorwholesalelevel,bootleggingoccurswhenfuelfromastatewithalowexcise
taxisdeliveredforsaleinaneighboringstatethathasahighertax.Blendingisaprocess
wherebyawholesalerordistributortakesadvantageofalowertaxrateonalternativefuels
suchasethanol.Eithertheblendedfuelproductisdilutedortheamountofblendedfuelis
overstatedinordertoincreasethevolumeoffuelgoingtotheretaillevelabovethatwhichhas
beenstatedfortaxpurposes.Themostcommonformsofevasionarefailuretofilethetax
revenue,falsifyingthefilingpaperwork,andfilingforfalseexemptionsorrefundsoftaxespaid.
ImposingtheMUFTatlowerpointsinthesupplychaincreatesgreatercostsofcompliance
sincemanymorewholesaleandretailtransactionsserveasthetaxbase.Whenthepointof
taxationishigherinthesystem,thereisgreaterincentivetoevadethetaxsincethedollar
amountsperincidentarehigh,buttherearealsofewertransactionsthatmustbeaudited,and
evasionmaybemorevisible.

Figure2.Motorfueltaxevasiontechniques

Source:Weimaretal.2008

AModelofPredictedMotorUseFuelTax
ThereisgreatdifficultyinpredictingtheamountofMUFTrevenuethatastateshouldcollect
thisyearornextyearorshouldhavecollectedinsomepreviousyear.Mostestimatesrelyon
VMTandfuelvolumedatafiledwiththeU.S.DepartmentofCommercebyfuelwholesale
operationsandtaxreceiptdatafiledbystatedepartmentsofrevenue.
Thereareanumberofproblemswiththeuseofthesedata.Oneisthattheyobviouslydonot
includethevolumeoffuelforwhichnotaxfilingoccurred.Inthiscase,astatemaycollectthe
salestaxbutnottheexcisetax.Thedatamaynotincludeanyvolumeincreasesduetoblending
butmayincludevolumesforwhichfalseexemptionsorrefundswereprocessed.Bootlegging
activitiesmaycausestateswithlowerexcisetaxrates,likeGeorgia,tocollectrevenueson
volumesoffuelsoldatretailinneighboringstates.Thosestateswouldcollectthesalestaxes,if
any,butwouldnotrealizetheexcisetaxsincethevolumesoffuelwouldbereportedforexcise
taxationelsewhere.Assumingthatevasionotherthanbootleggingoccursatroughlythesame
rateinmoststates,comparisonofactualrevenueswiththeamountsthatamodelpredicts
wouldbecollectedmaybeausefulexercise.
ThemodelofpredictedMUFTincludesacalculationoftheexcisetaxandthesalestaxwhere
applicableusingdatafromtheU.S.DepartmentofTransportation(USDOT)publicationHighway
Statisticsforeachyearfrom2004through2008andaveragemonthlyretailpricesforfuelfrom
theOilPriceInformationService(OPIS).Averagepricesfordieselfuelin2004werenot
availablefromOPIS.Monthlyexcisetaxamountswerecalculatedusingthequantitiesoffuel
reportedintheUSDOTtableMF33GA,MonthlyGasoline/GasaholReportedbyStates;table
MF27,HighwayUseofMotorFuel;andtheexcisetaxratesreportedintableMF121T,Tax
RatesonMotorFuel.Aspartoftheanalysis,datawerelaggedtocoincidewithGeorgiasfiscal
years.Thisadjustmentproducednosubstantivechange.Thisresultisprobablyduetothedelay
intheremittanceofrevenuefromwholesalers/dealersandalaginrecognitionofrevenueby
thestate.Itislikelythatthesedelaysproducedatleasta90daylagintheoriginaldata,and
adjustingforasixmonthoffsetforfiscalyearssimplyproducedalagintheotherdirection.Ina
multiyearstudy,variancecreatedbytimingissuesislessimportantsincealaginanygivenyear
isoffsetbythesamelagthefollowingyear.
Thesalestaxestimatesforthemodelwerecalculatedusingthesamemonthlyandannualfuel
volumes.Theaveragemonthlyretailpricesineachoftheninestatesforthedetailedanalysisas
reportedbytheOPISweremultipliedbythereportedvolumeinordertoestimatethevalueof
fuelsoldineachmonth.Theappropriatesalestaxrateswerethenappliedtotheestimated
value.Fortheremainingstates,averagemonthlyfuelpriceswereestimatedusingthenine
statesample.Monthlypricingdatafordieselfuelin2004werenotavailable.Anestimateof
dieselfuelpriceswasmadeusingtheratioofdieseltogasolinepricinginsubsequentyears.The

10

estimatesofpredictedrevenueandactualMUFTrevenuefor2004varyinadifferentwaythan
insubsequentyears.Thelackofmonthlydieselfuelpricingmayaccountforthisresult.
Table4showstheamountsofMUFTpredictedandcollectedforGeorgiafrom2004to2008.
FiguresforallfiftystatesarepresentedinTable5.Theactualrevenuefiguresarethose
reportedtoorcollectedbytheUSDOT.Insomeinstances,theamountsofactualrevenues
collectedwereverifiedagainststatedocuments.InthecaseofGeorgia,therevenueamounts
reportedintheUSDOTtablesfor2004,2005,and2006werefoundtobeincorrect.The
amountsreportedbytheGeorgiaDepartmentofRevenueandverifiedbytheGeorgia
DepartmentofAuditsandAccountswerethereforeusedinstead.Dataforotherstatesmaybe
inerrorandcouldaccountforsomevariationbetweentheestimatesandtheactualrevenues
reportedbytheUSDOTorforchangesfromoneyeartoanother.Forallfiftystates,the
calculationsofpredictedMUFTareabout2percentto6percenthigherthanactualcollections
forallyearsafter2004.In2004,thepredictedamountis8.8percentlowerthanactual
collectionsforallfiftystates.Again,thisresultismostlikelyduetolackofaccurateestimatesof
monthlydieselpricesfromOPISandchangestotheUSDOT'smethodofdatacollectionin2005.
For2004,themodelpredicts$831.4millioninMUFTrevenueforGeorgiacomparedwithactual
collectionsofabout$731.9million,adifferenceof12percent(seeTables4and5).In2005and
2006,thevariancefromthepredictedrevenueincreasesto15percentand17percent,
respectively.However,in2007and2008,thereisadramaticimprovement;actualrevenuesare
within8.2percentand5.7percentofpredictedamounts.Theremainingvarianceisprobably
duetoavarietyofinefficienciesinthesystem,someevasion,andotherfactors.Twopolicy
changeslikelyaccountforthisincreaseincollectionefficiency:themovetoprepaymentofthe
salestaxatthesamepointasprepaymentoftheexcisetaxandtheGeorgiaDepartmentof
Revenue'simplementationofinspectionsforhighwayuseofuntaxedfuels.Thisinspection
programisdiscussedinmoredetailinthenextsection.Somevariationinpredictedversus
actualrevenueislikelyduetodelaysintaxfilingbydistributorsandthemethodsusedbythe
statetorecognizeMUFTrevenue.SinceGeorgiacollectsitsexcisetaxatthedistributorlevel,
uncollectedrevenuewouldbemorelikelytooccurwiththesalestaxthatiscollectedatthe
retaillevel.
ForMississippi,SouthCarolina,andTennessee,themodelpredictsrevenueverywell.
Tennesseecollected6percentand9percentmorerevenuethanpredictedin2007and2008,
respectively.Alabamasactualrevenueshavevariedbothaboveandbelowthepredicted
amounts.Thismaybeduetothetimingofeitherfuelusereportingortherecognitionof
revenuesbythestate.Floridaspredictedrevenueshavelaggedbypercentagessimilarto
Georgias.Finally,Virginiahascomewithinabout3percentto8percentofitspredicted
amountssince2004.

11

Table4.GeorgiasMUFTcollectionefficiency,2004to2008
MUFT
Year
Predicted
Actual
831,400

731,398
2004
963,298
821,867
2005
980,311
817,187
2006
1,017,819
934,175
2007
1,058,256
997,381
2008

Variance
12.03%
14.68%
16.64%
8.22%
5.75%

Source:CarlVinsonInstituteofGovernment.CalculatedfromU.S.DepartmentofTransportationandOil
PriceInformationServicedata.

MotorFuelRetailMargins
Goodsthatarehandledinbulkquantitiessuchasmotorfuelgenerallyproducelowoverall
marginsforsellersanddistributors.Handlingfuelinlargequantities,however,enablesthose
businessestoproduceaprofit.Themarginproducedistheportionofthesellingpricethatis
overandabovethecostofthegoodssold,expressedasapercentageofthesellingprice.Table
6showstheestimatedretailvalueofmotorfuelsalesineachoftheninesoutheasternstates
for2008calculatedusingthevolumesreportedbytheindustryandtheaverageretailprices
reportedbytheOPIS.Thecalculationswereperformedonmonthlydata,althoughTable6
reportsthetotalsonlyfor2007.
Margindollarsrealizedonthesaleofmotorfuelwerecalculatedusingwholesalecostsoffuel,
includinganestimatedfreightdifferentialforeachstate.Thosedataandestimateswere
obtainedfromtheOPIS.ThemargindollarsreportedinTable6representthemarginsfromthe
racktotheretaillevel.Georgiaisamongthelowest,witha4.81percentmargin.OnlyNorth
Carolinaisaslow,withanestimatedmarginof4.8percent.Basedontheseestimates,Alabama,
Mississippi,andVirginiarepresentthehighestmarginstatesinthegroup.
Reportedstaterevenueasapercentageoftheestimatedretailsalesvolumeispresentedinthe
lastcolumnofthetable.Georgiaislowestamongtheseninestatesatjustunder5.31percent.
However,ifweincludethe1percentgeneralfundrevenuesalestax,staterevenueasa
percentageofsalesis6.3percent,comparabletomostofthestatesincludedintheanalysis.As
apercentageofestimatedsales,FloridaandNorthCarolinaarehighestatabout7.98and11.1
percent,respectively.Basedonthesesalesvolumeestimates,eachonepercentagepoint
representsabout$200millioninGeorgia.Georgiaisthesecondhighestretailsalesvolume
stateinthegroup.SalesvolumeinFloridaisabout56percentgreater.
12

Table5.Predictedandactualmotorusefueltaxreceipts,2004to2008(thousandsofdollars)
2004
MUFT
Predicted

MUFT
Reported

573,449

Alaska

34,058

Arizona

2005
Percent
Variance

MUFT
Predicted

MUFT
Reported

600,596

4.73%

622,924

28,889

15.18%

41,266

652,757

644,065

1.33%

Arkansas

449,069

446,925

California

3,439,741

Colorado

2006
Percent
Variance

MUFT
Predicted

MUFT
Reported

616,005

1.11%

623,118

31,496

23.68%

41,297

730,012

677,743

7.16%

0.48%

453,994

443,666

3,225,584

6.23%

3,406,146

374,698

553,597

47.74%

Connecticut

529,034

454,996

Delaware

110,949

2007
Percent
Variance

MUFT
Predicted

MUFT
Reported

680,165

9.16%

639,286

29,246

29.18%

41,812

745,607

704,683

5.49%

2.27%

450,296

435,876

3,302,266

3.05%

3,382,465

585,578

518,727

11.42%

13.99%

610,034

473,866

112,282

1.20%

118,038

2,258,081

1,992,707

11.75%

Georgia

831,400

731,398

Hawaii

79,119

78,744

Idaho

213,676

Illinois

2008
Percent
Variance

MUFT
Predicted

MUFT
Reported

619,628

3.08%

600,694

665,822

10.84%

30,558

26.92%

41,078

29,556

28.05%

747,943

716,847

4.16%

693,665

707,517

2.00%

3.20%

455,661

462,190

1.43%

435,490

463,678

6.47%

3,302,874

2.35%

3,383,913

3,266,398

3.47%

3,192,418

3,254,369

1.94%

584,066

602,896

3.22%

589,781

567,680

3.75%

566,129

554,936

1.98%

22.32%

606,701

581,230

4.20%

653,662

676,813

3.54%

670,248

678,370

1.21%

113,018

4.25%

117,778

118,369

0.50%

119,624

117,218

2.01%

113,355

117,501

3.66%

2,448,282

2,039,785

16.69%

2,663,212

2,182,626

18.05%

2,688,363

2,233,129

16.93%

2,746,148

2,215,452

19.33%

12.03%

963,298

821,867

14.68%

980,311

817,187

16.64%

1,017,819

934,175

8.22%

1,058,256

997,381

5.75%

0.47%

81,357

79,288

2.54%

84,482

81,448

3.59%

88,306

84,557

4.25%

82,805

84,559

2.12%

214,671

0.47%

215,013

215,215

0.09%

223,855

220,968

1.29%

230,377

232,560

0.95%

214,840

218,532

1.72%

632,393

1,341,391

112.11%

1,387,216

1,301,862

6.15%

1,389,762

1,312,637

5.55%

1,383,675

1,333,333

3.64%

1,312,512

1,314,291

0.14%

Indiana

534,085

866,866

62.31%

792,449

888,321

12.10%

785,299

878,753

11.90%

786,371

879,651

11.86%

748,472

855,847

14.35%

Iowa

242,820

418,164

72.21%

460,927

424,355

7.93%

475,735

430,082

9.60%

484,938

441,056

9.05%

473,104

434,728

8.11%

Kansas

330,168

422,849

28.07%

421,953

434,442

2.96%

416,611

429,365

3.06%

432,967

439,590

1.53%

421,918

423,850

0.46%

Kentucky

382,327

461,382

20.68%

543,910

469,622

13.66%

578,023

527,763

8.70%

618,451

563,168

8.94%

629,959

608,502

3.41%

Louisiana

516,313

563,396

9.12%

610,515

581,896

4.69%

678,440

603,419

11.06%

614,730

639,748

4.07%

554,978

597,962

7.75%

Maine

241,274

210,958

12.57%

237,367

217,277

8.46%

239,232

227,185

5.04%

243,965

233,045

4.48%

238,796

240,408

0.68%

Maryland

748,159

740,695

1.00%

768,308

754,197

1.84%

770,563

746,021

3.18%

778,219

755,328

2.94%

753,182

751,845

0.18%

Massachusetts

684,924

675,812

1.33%

684,653

685,898

0.18%

674,991

670,811

0.62%

694,490

667,675

3.86%

660,204

665,107

0.74%

Michigan

799,058

1,054,995

32.03%

1,084,667

1,048,800

3.31%

1,058,494

1,037,374

2.00%

1,032,418

1,010,304

2.14%

977,652

972,379

0.54%

Minnesota

699,582

636,735

8.98%

666,725

640,474

3.94%

666,538

658,839

1.16%

656,675

659,077

0.37%

700,216

664,059

5.16%

Mississippi

409,014

409,874

0.21%

411,472

396,426

3.66%

416,440

423,412

1.67%

418,396

431,432

3.12%

406,717

418,632

2.93%

Missouri

542,007

700,429

29.23%

724,229

710,517

1.89%

716,338

708,002

1.16%

723,874

704,183

2.72%

695,028

710,351

2.20%

Montana

189,625

187,948

0.88%

200,035

171,557

14.24%

203,803

196,194

3.73%

207,000

191,314

7.58%

197,281

193,776

1.78%

Nebraska

216,743

316,853

46.19%

306,784

303,337

1.12%

324,648

310,329

4.41%

337,181

332,368

1.43%

314,301

304,453

3.13%

State
Alabama

Florida

Percent
Variance

Source:CalculatedfromU.S.DepartmentofTransportationdataandvariousstatedocuments.Seetextformodelspecifications.

13

Table5(continued).Predictedandactualmotorusefueltaxreceipts,2004to2008(thousandsofdollars)
2004

2005

2006

2007

2008

MUFT
Predicted

MUFT
Reported

Percent
Variance

MUFT
Predicted

MUFT
Reported

Percent
Variance

MUFT
Predicted

MUFT
Reported

Percent
Variance

MUFT
Predicted

MUFT
Reported

Percent
Variance

MUFT
Predicted

MUFT
Reported

Percent
Variance

245,340

421,643

71.86%

380,431

454,048

19.35%

398,986

480,768

20.50%

384,669

520,679

35.36%

356,986

307,855

13.76%

New
Hampshire

161,487

152,052

5.84%

158,829

154,592

2.67%

159,160

150,809

5.25%

162,054

151,965

6.23%

157,756

152,935

3.06%

NewJersey

559,220

617,811

10.48%

578,092

564,505

2.35%

578,573

579,393

0.14%

590,965

589,571

0.24%

564,954

587,673

4.02%

NewMexico

248,937

242,608

2.54%

289,997

249,344

14.02%

299,152

282,645

5.52%

298,619

289,138

3.17%

276,606

289,138

4.53%

NewYork

1,661,290

1,590,635

4.25%

1,633,421

1,570,504

3.85%

1,725,004

1,594,867

7.54%

1,728,990

2,197,646

27.11%

1,664,274

1,607,139

3.43%

NorthCarolina

1,116,545

1,301,744

16.59%

1,501,458

1,384,834

7.77%

1,658,688

1,531,943

7.64%

1,655,029

1,654,346

0.04%

1,693,711

1,573,318

7.11%

83,036

108,425

30.58%

118,595

108,456

8.55%

114,080

135,774

19.02%

119,080

124,105

4.22%

122,630

143,858

17.31%

1,303,870

1,640,791

25.84%

1,916,915

1,771,293

7.60%

1,876,225

1,873,450

0.15%

1,870,946

1,877,201

0.33%

1,797,725

1,840,206

2.36%

399,052

415,109

4.02%

419,005

434,797

3.77%

409,038

440,833

7.77%

430,121

410,548

4.55%

429,560

371,041

13.62%

State
Nevada

NorthDakota
Ohio
Oklahoma

407,443

396,522

2.68%

500,711

391,623

21.79%

502,579

399,930

20.42%

505,483

397,258

21.41%

481,503

398,130

17.32%

Pennsylvania

1,770,725

1,788,954

1.03%

2,123,228

1,912,812

9.91%

2,116,899

2,092,102

1.17%

2,173,134

2,106,519

3.07%

1,996,284

2,105,810

5.49%

RhodeIsland

138,790

148,558

7.04%

138,713

148,558

7.10%

139,006

143,679

3.36%

138,629

146,104

5.39%

136,382

146,104

7.13%

SouthCarolina

492,421

483,596

1.79%

504,992

515,040

1.99%

518,226

503,822

2.78%

518,719

531,916

2.54%

513,715

521,230

1.46%

77,519

128,889

66.27%

129,695

128,923

0.60%

128,405

129,281

0.68%

134,882

127,737

5.30%

131,702

128,971

2.07%

840,175

824,109

1.91%

859,491

828,274

3.63%

846,158

832,465

1.62%

800,029

849,662

6.20%

764,941

833,287

8.93%

2,917,266

2,912,106

0.18%

3,043,940

2,924,251

3.93%

3,150,139

2,997,975

4.83%

3,239,704

3,064,997

5.39%

3,182,708

3,043,364

4.38%

331,175

326,291

1.47%

349,688

335,353

4.10%

375,908

341,528

9.15%

380,341

368,502

3.11%

358,522

363,654

1.43%

Vermont

86,203

87,501

1.51%

85,660

85,991

0.39%

85,496

91,832

7.41%

84,744

93,037

9.79%

83,905

87,745

4.58%

Virginia

788,042

903,216

14.62%

945,373

919,997

2.68%

961,064

907,330

5.59%

1,004,428

926,932

7.72%

979,913

935,108

4.57%

Washington

751,481

888,587

18.24%

1,034,341

911,745

11.85%

1,154,702

1,003,543

13.09%

1,221,915

1,107,499

9.36%

1,206,442

1,168,490

3.15%

WestVirginia

240,206

394,836

64.37%

306,878

288,123

6.11%

354,923

297,734

16.11%

352,506

316,384

10.25%

332,001

359,472

8.27%

Wisconsin

630,621

917,108

45.43%

971,315

937,477

3.48%

990,344

944,077

4.67%

1,010,472

986,069

2.42%

975,369

979,899

0.46%

Wyoming

94,781

101,409

6.99%

98,137

97,050

1.11%

97,319

97,490

0.18%

102,783

103,537

0.73%

100,056

106,415

6.35%

32,060,146

34,885,301

8.81%

37,666,055

35,479,513

5.81%

38,538,178

36,771,024

4.59%

38,978,144

38,164,377

2.09%

37,807,091

37,194,705

1.62%

Oregon

SouthDakota
Tennessee
Texas
Utah

TOTAL

Source:CalculatedfromU.S.DepartmentofTransportationdataandvariousstatedocuments.Seetextformodelspecifications.

14

Table6.Estimatedsalesvolume,margins,andstaterevenue,2007
Estimated
Estimated
Asa
Reported
Asa
Sales
Margin
Percentage
State
Percentage
Volume
Dollars
ofSales
Revenue
ofSales
State
(thousands)
(thousands)
Volume
(thousands)
Volume
Alabama
9,407,662
556,288
5.91%
619,628
6.59%
Florida
27,989,966
1,409,475
5.04%
2,233,129
7.98%
Georgia
17,592,770
846,439
4.81%
934,175
5.31%*
Kentucky
8,373,641
446,225
5.33%
563,168
6.73%
Mississippi
6,062,489
363,781
6.00%
431,432
7.12%
NorthCarolina
14,963,345
717,689
4.80%
1,654,346
11.06%
SouthCarolina
8,491,004
450,971
5.31%
531,916
6.26%
Tennessee
11,081,297
592,445
5.35%
849,662
7.67%
Virginia
13,897,635
906,978
6.53%
926,932
6.67%
Source:CalculatedfromU.S.DepartmentofTransportationandOilPriceInformationServicedata.
*IncludingGeorgias1percentgeneralfundsalestaxincreasesrevenueasapercentageofsalesto6.3percent.

Table7presentsthesameinformationfor2008.Georgiaisagainoneofthelowermarginstates
forfuelsalesatanestimated6.06percent.Floridaisslightlylowerat5.94percent.State
revenueasapercentageofthedollarvalueoffuelsalesinGeorgiaisdownslightlyatjustunder
5percent.Ifweincludethe1percentgeneralfundsalestax,revenueasapercentageofsalesis
6percentofsalesvolume.AlthoughrevenueincreasedinGeorgia,asitdidforthreeother
statesinthegroup,themixofexcisetaxandsalestaxamongthesestatesmaketherevenue
sourcemorevolatile.Seasonalpricingoffuelandhigherpricesthroughlate2007andearly
2008producedmorerevenueinstateslikeFloridaandGeorgiathatusethesalestaxtoa
greaterextent.NorthCarolinasrevenueasapercentageofestimatedsalesvolumein2008is
moreinlinewiththeotherstatesinthegroup.The2007revenuefigurecouldhavebeenhigh
duetothetimingofrevenuerecognition.NorthCarolinamaybethehighestamongthese
statesinrevenueasapercentageofestimatedsalesvolumesinceitreliessolelyonanexcise
taxapproaching30centspergallon.
Thepriceoffuelabovetherackisusuallyreferredtoasthe"spotmarket"comprisingsalesvia
pipelineandpetroleumcarriersusedbyproducerstodeliverquantitiesofproductstosome
markets.Transactionsrecordedinthismarketincludeshipmentsfromproducers,wherethe
customerisalsotheproducerorasubsidiaryineffect,aproducersellingproducttoitself.
Averagepricesforsalesinthismarketarethereforedifficulttointerpret.Dataexpertsatthe
OPIScontendthatvariationinstatetaxratesplaysapartinretailpricesbutthatthisvariationis
15

onlyonecomponentofaverycomplexmarketthatrespondstoforceswithingeographiesboth
largeandsmall.Differencesinfreightcosts(pipelineortruck)andvariableswithinalocal
marketthatmaycrossstatelinescaneasilyoverwhelmanydifferencesinstatetaxrates.
fueltaxrevenuesgrewatarateof2.6percentperyearfromincreasedvolumesoffuel
reportedfortaxation(seeTable3).

Table7.Estimatedsalesvolume,margins,andstaterevenue,2008

State
Alabama
Florida
Georgia
Kentucky
Mississippi
NorthCarolina
SouthCarolina
Tennessee
Virginia

Estimated
Sales
Volume
10,873,470
31,301,316
20,005,970
9,693,029
7,254,206
18,773,674
10,184,441
12,982,396
16,093,298

Estimated
Margin
Dollars
831,553
1,859,091
1,212,719
610,056
507,340
1,247,894
689,991
912,449
1,273,535

Asa
Percentage
ofSales
Volume
7.65%
5.94%
6.06%
6.29%
6.99%
6.65%
6.77%
7.03%
7.91%

Reported
State
Revenue
665,822
2,215,452
997,381
608,502
418,632
1,573,318
521,230
833,287
935,108

Asa
Percentage
ofSales
Volume
6.12%
7.08%
4.99%*
6.28%
5.77%
8.38%
5.12%
6.42%
5.81%

Source:CalculatedfromU.S.DepartmentofTransportationandOilPriceInformationServicedata.
*IncludingGeorgias1percentgeneralfundsalestaxincreasesrevenueasapercentageofsalesto6percent.

StateEnforcementSystems
InSeptemberandOctober2010,facultyattheVinsonInstituteaskedofficialsinnine
Southeasternstatesabouttheirenforcementandauditprogramstoincreasecompliancewith
themotorusefueltax.Thesecontactsweremadeprimarilybyemailandtelephone,anddata
weregatheredthroughthetelephoneconversationsandfromwrittenresponsestoour
questions.
Alabama
Alabamasfuelexciseratesremainedunchangedfrom2004to2008,withagasolineexciseof
18centspergallonandadieselrateof19centspergallon(seeTable1).Thestatesmotoruse
TerminaloperatorsandsuppliersareauditedonathreeyearcyclebytheDepartmentof
16

Revenue,MotorFuelsSection.Theauditconsistsofbothaphysicalinspectionoftheterminal
facilityandthepaperworksubmittedwithfuelremittances.Additionalauditsmaybetriggered
byobservedabnormalitiesinfueltaxfilingsdetectedbyautomatedcomparisontoprevious
filings.Auditfindingsmaybeturnedovertoaninvestigationdivisionwhenappropriate.In
2009,theunitconducted24auditsofgasolineterminaloperationsand25auditsofdieselfuel
terminals.
Theauditsectionalsohasaprogramofthirdpartyinspectionstoverifythepurchaseof
untaxedfuelbylocalgovernments,schoolboards,andotherusersthatareexemptfromthe
statetax.Theseauditsaredonerandomlyandserveprimarilyasadeterrentandhavebeen
madewellknownbytheauditdivisioninordertoincreasetheeffectoftheaudits.
OfficialsinAlabamaexpressedtheiropinionthattheirinspectionandauditprogramsprovided
adeterrenteffectandthattheadditionalrevenueorfinesarearelativelysmallamount.
AuditorswiththeAlabamaDepartmentofRevenuebelievethatthethirdpartyinspections
havebeenparticularlyeffectiveinproducingimprovementsinbothrecordkeepingandtax
filingbydistributorsandwholesalersinthestate.
Florida
Floridaexperiencedlowbutsteadygrowthof2.68percentannuallyinmotorusefueltax
revenuefrom2004to2008.Asnoted,thisispartlyduetoanincreaseinthestatesexcisetax
onbothgasolineanddieselfuel.Thestateimposesitsexcisetaxattherack,anditiscollected
fromthesupplieratthatpoint.Floridausesacountybasedlocaloptionsalestaxofupto5
percent.Aminimumamountestimatedforthecounty,thelevelatwhichfuelisdeliveredby
thesupplier,iscollectedfromthesupplier.Anyadditionalamountsduearethencollectedby
thecountybasedsupplierorwholesaler.Theexcisetaxondieselfuelforhighwayuseis
collectedbytheterminalsupplierattherack.
NeithertheDepartmentofRevenuenortheDepartmentofTransportationinFloridaconducts
inspectionsoftheterminalfacilitiesthatprocessmotorfuels.TheBureauofPetroleum
InspectionwithintheDepartmentofAgricultureandConsumerServicesinspectsfueldelivery
devicesandsamplesfuelfromsourcesselling,offering,orexposingpetroleumfuelsforsale.
FloridaparticipatesintheInternationalFuelTaxAgreement(IFTA),whichisadministeredinthe
statebytheDivisionofMotorVehiclesattheDepartmentofHighwaySafetyandMotor
Vehicles.Undertheagreement,Floridaisrequiredtoaudit3percentofitsstatebasedcarriers
thatmanagefueltaxpaymentthroughthesystem.Thestatecouldnotprovidedataon
amountscollectedthroughtheIFTAsystem.
TheFloridaDepartmentofRevenueidentifiedtwoprogramsthatithasdevelopedtoauditthe
filingoffueltaxpaymentsfromterminaloperators.ThefirstiscalledMotorFuelTracking,
17

whichisasystematiccomparisonoftaxreturndatatothirdpartyreceipts,disbursement
records,anddeliverydatafrompetroleumcarriers,terminaloperators,suppliers,and
customers.Exceptionsthatmeetminimumcriteriaareflaggedforassignmenttoacaseworker.
ThesecondprogramiscalledtheExceptionProcessingandErrorIdentificationSystem.
Electronicdataarefilteredthroughadatapurificationsystem.Potentialweaknessesininternal
controlanddataintegrity(abnormalities)areidentifiedandreportedtothetaxpayer.The
taxpayermaycorrecttheseerrorspriortofiling.Failuretoaddresstheseexceptionswillresult
inaleadthatisassignedtoacaseworker.
ThestateDepartmentofRevenuewasnotabletoprovidedataontheamountofadditional
revenueorfinescollectedasaresultoftheseprograms.

Georgia
GeorgiasMUFTisderivedthroughbothanexcisetaxandasalestax.Thesalestaxcontributes
abitmorethanhalfoftotalMUFTrevenue.In2011,weprojectthatGeorgiawillderiveabout
54percentofitstotalthroughthesalestax.Thisdoesnotincludethe1percentsalestaxthat
becomesgeneralfundrevenue.In2007,duringaperiodofhighfuelprices,weestimatethat
thesalestaxportionoftheMUFTwouldhaveapproached60percent,butthegovernor
suspendedtheprotocolthatadjustsestimatedfuelprices.ThissensitivityofthestatesMUFT
revenuetofuelpricesresultedinthehighestpercentagegrowthofallninesoutheasternstates
consideredinthisanalysisfrom2004to2008.However,withfuelpricescurrentlymuchlower,
MUFTwilldecreaseandisnotexpectedtorecovertothe2008amountuntil2013.Thisis
discussedfurtherinthelastsectionofthereport.
GeorgiasDepartmentofTransportationprovidesfundingforthemotorusefueltaxrevenue
auditprogramoftheGeorgiaDepartmentofRevenue.Thisarrangementisuniqueamongthe
ninesoutheasternstatesreviewedhere,althoughseveralotherstateshavesimilar
arrangementsandmanystatedepartmentsoftransportationperformauditsand,especially,
inspectionsforreddyeddieselfuel.
Since2008,Georgiahascollectedtheestimatedsalestaxatthesametimethattheexcisetaxis
paid.Fuelpricesforthepurposeofcalculatingthetaxaresetforsixmonths,effectiveJanuary1
andJuly1eachyear.Theratesremainineffectunlesstheretailpriceoffuelchangesbymore
than25percent.Thereisnoprocessforrefundingexcesstaxpaidwhenfuelpricesfallorfor
collectingadditionalrevenueifpricesincreasebylessthan25percentduringanysixmonth
period.AdditionalanalysisofMUFTwillhavetobedoneinordertodeterminehowthischange
inthetaxfilingprocesshasaffectedcomplianceandcollectionefficiencysince2008.

18

GeorgiasDepartmentofRevenuebeganconductinginspectionsforreddyeddieselfuelin
FY2007,beginningJuly1,2006.ThefiguresinTable8wereprovidedbythedepartmentand
showthatoverthecourseofthefirstfouryearsoftheprogram,violationsasapercentageof
inspectionsfellfrom5.4percenttolessthanhalfthatrateinFY2009andFY2010.Thisdropis
primafacieevidencethattheprogramhashadadeterrenteffect.Theactualeffectthatthe
programhaswillrequirefurtherstudy.

Table8.GeorgiaDepartmentofRevenuefuelinspectionsand
violations,FY2007toFY2010
Fiscal
Vehicle
Retail
Year Inspections Inspections
2007
4349
0
2008
5253
17
2009
6548
10
2010
4998
70

Samples
Taken
272
205
234
418

Violations
234
151
161
132

Rate
5.4%
2.9%
2.5%
2.6%

Source:GeorgiaDepartmentofRevenue.

Kentucky
Kentuckyexperiencedmorethan8percentannualgrowthfrom2004to2008dueinlargepart
toa37percentincreaseinitsgasolineexcisetaxrateanda45percentincreaseinitsdiesel
exciserate(seeTable1)andmoderategainsinthevolumeoffuelsold.Kentuckyhasalso
movedthepointoftaxationupthedistributionsystemsince2000andnowimposesthetaxat
thedistributorlevelratherthanatthedealerorwholesalelevel.
Kentuckyassumesthatallmotorfuelinthedistributionsystemistaxable,andthetaxis
imposedonthelastlicenseddealertoreceivethefuel.Allgasolineanddieselfuel(clearor
dyed)issubjecttothemotorfuelstax.Usersoffuelforuntaxedpurposesmustregisterwith
theDepartmentofRevenuetobearefundpermitholder.Onceapproved,theycanapplyfora
refundofthetaxespreviouslypaidonthequantitiesoffueltheypurchase.Dealerrecordsand
refundapplicationsaremonitoredandaudited.Irregularitiesinconsumption,timeofpurchase
fortherespectiveindustry(e.g.,agriculturalusers),tipsfromthirdparties,orother
inconsistenciesfoundduringaroutinereviewmaytriggeranauditofarefundpermitholderor
theseller.Ifdyedfuelisfoundinuseonthehighway,thefinesare$10pergallon,witha
minimumfineof$1,000.
Kentuckyperformsfieldauditsoflicensedfueldealers,includinginspectionsoffacilitiesfor
compliancewithstatutes.Themostcommonreasonforconductinganauditisfailuretofilea
returnorremitpaymentoftaxesdue.AlthoughofficialswiththeKentuckyDepartmentof
19

Revenueindicatethattheirsystemrequiresdiligenceinitsauditprogram,theywerenotable
toprovidestatisticsonthenumberofauditsortheamountsofadditionalrevenueorfines
receivedasaresultoftheauditprogram.

Mississippi
Mississippiexperiencedlittlegrowthinmotorusefueltaxrevenuefrom2004to2008.There
wasnochangeinthe18.4centpergallonexcisetaxonbothgasolineanddieselfuel,sothe
annualgrowthofhalfof1percent(seeTable3)wasduetoanincreaseinfuelvolumereported
fortaxation.
ThestateDepartmentofRevenueconductsauditsofterminaloperatorsandsupplierswhoare
responsibleforremittingthetaxtothestate.Anauditistriggeredbyanobservedabnormality
inthefilingpaperworkorfailuretofileinatimelymanner.Theauditdivisioninvestigatessuch
cases.
Inadditiontofederalinspectionsfortheuseofdyedfuelinhighwayvehicles,thestate
DepartmentofTransportationconductsrandominspectionsfortheuseofuntaxed(dyed)fuel.
Asofthiswriting,thestateofMississippiwasunabletoprovidedataonthenumberof
inspectionscompletedortheirresults.

NorthCarolina
From2004to2008,NorthCarolinaraiseditsexcisetaxongasolinefrom24.6centsto30.15
centspergallonandondieselfuelfrom24.3centsto30.15centspergallon.VMTinNorth
Carolinahasgrownrecentlyatarateof2.1percentwhiletheincreaseintheexcisetaxhas
producednearly5percentannualgrowth(seeTables1and3).Thestatedoesnotimposea
salestaxonfuel.Inthreeoftheyearsincludedinthisstudy,themodelofestimatedMUFT
overestimatedNorthCarolinasMUFTby7percentor8percent.Thismaybearesultof
revenuerecognitiontimingorasystematicerrorinthereportingofestimatedfueluseor
revenue.

SouthCarolina
SouthCarolinasexcisetaxremained16centspergallononbothgasolineanddieselfuelover
thestudyperiod.ThestatesgrowthratesforVMTandMUFThavebeenaround1.8percent
and1.9percent,respectively,overthestudyperiod.Asalestaxof5percentisappliedonlyto

20

aviationfuel.Thisrelianceontheexcisetaxisonereasonwhythemodelofpredictedsalestax
inthisstudyaccuratelyestimatestherevenuethestatecollected.
TheSouthCarolinaDepartmentofRevenuewasunabletoprovidestatisticsonthenumberof
inspectionscompletedandrevenuecollectedasaresultofanyinspectionprogram.

Tennessee
Tennesseeexperiencedratherflatrevenuegrowthfrom2004to2008(seeTable3)andhas
collectedclosetoormorethantherevenuepredicted(Table5).Thestatehaslongimposedits
motorusefuelexcisetaxatthehighestpointinthedistributionchain.Gasolineistaxedatthe
timetheproductfirstcomestorestinthestate(abovetherack);dieselistaxedattherack.
TheTennesseeDepartmentofRevenuedoesnotcurrentlyconductanyauditsorinspectionsof
thefacilitiesownedbytheorganizationsthatremitthetaxbutdoesconductrandom
inspectionsforreddyedfuelatconstructionsites,farms,andweighscalesoninterstate
highwaysandalonghighwaysinconjunctionwithstateandlocallawenforcementagencies.
Whenaviolationisdiscovered,theinspectorobtainsasampleofthefuelforanalysis,gathers
informationonthepersonoperatingthevehicle,andtriestodeterminehowthedyedfuel
enteredthefueltank.Finesforviolationareaminimumof$1,000or$10pergallonbasedon
thecapacityofthetankforthefirstoffense.Thefineforeachsubsequentoffenseismultiplied
bythenumberofoffenses.TheTennesseeDepartmentofTransportationdoesnothavean
activeroleintheauditofthemotorusefueltax.
DataontherevenuesproducedbytheauditprogramthroughSeptember2010arepresented
inTable9.Theamountscollectedinfinesthroughtheprogramaresmall,representingatiny
fractionoftotalMUFTrevenue.Thebenefitoftheprogramisitsdeterrenteffect.Operators
knowthatinspectionsarebeingconductedinthoselocationsandthatthefinesarehighwhen
aviolationisdiscovered.Thefederalgovernmenthasperformedinspectionsinthepastbut
doesnotcurrentlyhaveanactiveroleinTennessee.
TheMotorCarrierSectionoftheTennesseeDepartmentofRevenueprovidesanumberof
servicestomotorcarrieroperators,includingquarterlyfueltaxreportingthroughthe
InternationalFuelTaxAgreement(IFTA).Thisstateagencyconductsauditsofinterstatecarriers
thatarebasedinTennesseeandthatareregisteredfortheIFTAandtheInternational
RegistrationProgram(IRP).Undertheseagreements,Tennesseeisrequiredtoaudit3percent
ofregisteredIFTAandIRPaccountsannually.Overthepastfiveyears,theMotorCarrierSection
oftheTennesseeDepartmentofRevenuehasconducted954IFTAauditsand1,021IRPaudits.

21


Table9.Tennesseeinspectionsforreddyeddieselfuel
violations,2006to2010

Year
2006
2007
2008
2009
2010*

Numberof
Inspections
2,730
3,739
3,135
3,814
1,036

Numberof
Violations
50
41
51
43
10

Amount
Collected
inFines
$50,000
41,000
51,000
43,000
10,000

*DatathroughSeptember2010

Source:TennesseeDepartmentofRevenue.

Undertheauditprogram,motorusefueltaxesthatareduetoTennesseeandotherstatesin
whichthosecarriersoperatemaybeidentified.Overpaymentsarisingfromthepurchaseoffuel
inonestatebutusedinanothermayalsobefound.Anyonestatesassessmentwillvarysince
eachstatereceivesonlythenetamountsdue.Failuretoperformtherequiredauditsunderthe
agreementcouldresultinthelossofIFTAandIRPtaxes/feescollectedbyotherjurisdictions
thatareduetoastate.

Virginia
Virginiaraiseditsexcisetaxondieselfuelfrom16centsto17.5centspergallonin2007.The
stateexperiencedflatrevenuesduringthestudyperiod,withlessthan1percentannual
growth,matchingitsgrowthinVMT.Vehiclesweighingmorethan26,000poundspaya3
percentsalestaxondieselfuel.ThemodelofpredictedMUFTinthisstudyappliesthissalestax
todieselfuelsalesforhighwayuse,whichlikelyaccountsfortheoverestimationofMUFT.
Virginiamoveditspointoftaxationfromthewholesaleleveltotherackin2001.Officialsinthat
stateindicatethattheresultsofthatmovehavebeenpositiveandthattheauditsofrefund
applicationshasbeenthebiggestchallenge.
Asofthiswriting,thestateofVirginiawasunabletoprovidestatisticsonthenumberofaudits
orinspectionscompletedortheirresults.

22

EstimatesofFutureMotorFuelUse
TheFederalHighwayAdministration(FHWA)tracksVMTbystateandreportsthesedatainits
annualpublication,HighwayStatistics.TheannualVMTfigureisthemileagetraveledbyall
vehiclesonaroadsystemforthatyear.TheFHWAmaintainshistoricaldatafrom1980tothe
present;theseserveasthebasesforourestimatesoffutureMUFTrevenue.Facultyatthe
AppliedDemographyProgramattheCarlVinsonInstituteusedhistoricalVMTdataandstate
populationprojectionstoestimatetheuseofpersonalautomobilesthroughtheyear2020.The
historicalfiguresandestimatesforVMTarepresentedinTable10.
WecombinedthedataonVMTwithannualestimatesofstatepopulationtocomputethe
annualVMTpercapitabystate.InFigure3,wehaveplottedtheannualseries,19802008,to
showtrendsintheVMTpercapitaforGeorgiaandotherstatesintheSoutheast.TheVMTper
capitahasgrownfastersince1980inMississippithaninanyotherstateintheSoutheast.
MississippihadthegreatestVMTpercapitain2008whilehavingtheleastin1980.Alabama
hadthesecondgreatestVMTpercapitain2008.Theotherstateswerebunchedrelatively
closelyin2008.GeorgiasVMTpercapitarosefairlysteadilybetween1980and2001andhas
sincedecreased,mostnoticeablysince2004.AmongthestatesintheSoutheast,Georgiahad
thegreatestdecreaseinVMTpercapitasince2004.OnlySouthCarolinaandTennesseealso
haddecreases,buttheyweremoregradualthanGeorgias.Itisunrealistictoanticipatethat
thisdownwardtrendwillcontinue,sowehaveusedthelongertermtrendthatprojectssmall
growthinVMTpercapitathrough2020.AlthoughVMTisanticipatedtochangelittleoverthe
nextdecade,Georgiaspopulationisprojectedtogrowby14.2percentfrom2010to2020toan
estimated11.37million.
InordertopredicttotalVMTforGeorgiatotheyear2040,weusedeconomicdemographic
projectionsoftotalpopulationincombinationwithtimeseriespredictionsofVMTpercapita.
ThepopulationprojectionsarebasedondataprovidedbyWoods&PooleEconomics,aprivate
sectorforecastingfirm.Theseprojectionsuseregionalemploymentforecaststhatdetermine
thedemandforlabor.Shiftsinthenumberofworkersaretranslatedintomigrationstreamsof
thepopulationbyage,sex,andrace/ethnicity.Themigrationstreamsarecombinedwiththe
forecastsofbirthsanddeathstoyieldprojectionsoftheresidentpopulation.
ThehistoricaltrendsinVMTpercapitaforGeorgia,from1980through2008,wereanalyzedto
determineifatimeseriesmodelcouldbeusedtoexplainpastchangesandpredictfuture
values.TheDurbinWatsonstatisticforcorrelationofsuccessiveresidualsinthetimeseries
modelwas0.179,meaningthatoverthecourseofthe29years,therewasastrongpositive
autocorrelation.Weusedanautoregressivemodelwithaoneyearlaginterval(AR(1)model),
whichwasanexcellentfittothehistoricaldata.TheR2valuewas0.969,indicatingthatthe
modelpredicts,orexplains,nearly97percentofthevariationinVMTpercapitafromyearto

23

year.ThemodelforpredictingfutureVMTpercapitaisy=0.9135x+1066.8,wherexistotal
population.HistoricalandpredictedVMTareshowninTable10.
AnumberofdemographicfactorsaffectpercapitaratesforVMT,someleadingtowardhigher
ratesandotherstowardlowerrates.TheagecompositionofapopulationaffectsVMT.Persons
tendtodrivefewermilesonaverageastheyageintotheir50sandbeyond.Thelowestper
capitaVMTisfordriversaged85andolder.Teenageddriversalsotendtodrivefewermiles.In
theagespanof19to49,therearenosignificantdifferences.Thetypeofhouseholdalongwith
householdincomeisrelatedtothenumberofvehiclesownedbyahouseholdand,alongwith
age,affectsVMT.Olderpersonswithnochildreninthehouseholdtendtodrivethefewest
miles.Familieswithteenagechildrenofdrivingageandhigherincomedrivethemostmiles.
TypeofvehicleisrelatedtoVMTaswell.Minivans,whichtendtobeownedbyfamilieswith
children,aredrivenmoremilesonaveragethanothertypesofvehicles.Householdincome
tendstobepositivelycorrelatedwiththenumberofvehiclesownedbyahousehold,andin
turnthemorevehiclesahouseholdowns,thegreatertheaverageamountofVMT.
Populationdensityandproximitytowork,shopping,andrecreationalsoaffectVMTpercapita
rates.Lowerdensitypatternsassociatedwithrurallivingandsprawlingsuburbandevelopment
increasetheVMTpercapitaincontrastwithdense,compactsettlementpatterns.Individual
behaviorincommutingtoworkaffectsVMT.Lowadoptionofconservationmeasuressuchas
carpooling,useofpublictransit,orbikingandwalkingleadstohigherVMTpercapita.With
respecttoworkrelatedtravel,increasesintelecommutinghavereducedVMT.Onestudy
(Choo,etal.2005)estimatesthatthereductioninVMTattributedtoincreasingnumbersof
workerstelecommutinghasbeenalmost0.8percentannuallyoverthepasttwodecades.
However,thereissomeindicationthatthenetchangeinproportionofworkerswhoare
telecommutingislevelingoffasmoreworkersexitfromtheranksoftelecommuters.While
workforcealternativestoprivatevehicleuseforcommutingcarpooling,publictransit,and
telecommutingleadtoareductioninVMTforworkrelatedtrips,thereisevidencethat
telecommutingincreasesVMTforhomerelatedtrips.Dependingonthecharacteristicsofthe
household,thevehiclethatisnotusedforworkrelatedtravelbecomesanadditionalvehicle
availabletootherfamilymembersfornonworkrelatedtrips.
TransportationmodelsrunbytheAtlantaRegionalCommissiondonotexplicitlyidentify
telecommutersasafactor;rather,telecommutingisgroupedtogetherwithallformsofnon
motorizedtripsfromhome.Theresultsofthemodelssuggestthatiftelecommutingweretobe
explicitlyincludedinaforecastofreducedtripsfromhometowork,itwouldbereasonableto
assumethattripsfromhomeforotherreasonssuchasappointmentsanderrandswould
increase.

24

Table10.HistoricalandprojectedlevelsofGeorgiasVMTpercapita

Year

Vehicle
Miles
Traveled Resident
(Millions) Population VMT/Capita

Historical

1980
43,188 5,484,436
1981
44,843 5,568,401
1982
48,781 5,649,780
1983
48,837 5,728,304
1984
50,486 5,835,018
1985
53,713 5,962,716
1986
56,833 6,084,748
1987
60,293 6,208,496
1988
62,262 6,316,186
1989
68,069 6,411,123
1990
70,222 6,512,602
1991
73,005 6,653,005
1992
77,904 6,817,203
1993
78,426 6,978,240
1994
82,822 7,157,165
1995
85,384 7,328,413
1996
89,132 7,501,069
1997
93,530 7,685,099
1998
96,433 7,863,536
1999
99,304 8,045,965
2000 105,010 8,230,053
2001 107,897 8,418,592

Year

Vehicle
Miles
Traveled Resident VMTper
(Millions) Population Capita

7,875 2002 108,321


8,053 2003 109,246
8,634 2004 113,618
8,526 2005 113,509
8,652 2006 113,532
9,008 2007 112,541
9,340 2008 109,057
9,711

9,858 Predicted
10,617 2009 111,386
10,782 2010 113,804
10,973 2011 116,168
11,428 2012 118,497
11,239 2013 120,792
11,572 2014 123,057
11,651 2015 125,293
11,883 2016 127,500
12,170 2017 129,684
12,263 2018 131,842
12,342 2019 133,978
12,759 2020 136,093
12,817

8,583,674
8,732,924
8,910,741
9,093,958
9,318,715
9,523,297
9,685,744

9,822,815
9,960,537
10,098,024
10,236,725
10,376,241
10,516,766
10,658,046
10,799,947
10,942,632
11,085,733
11,229,435
11,373,573

12,619
12,510
12,751
12,482
12,183
11,817
11,260

11,340
11,425
11,504
11,576
11,641
11,701
11,756
11,806
11,851
11,893
11,931
11,966

Source:PreparedbytheAppliedDemographyProgram,CarlVinsonInstituteofGovernment,Universityof
GeorgiausingdataobtainedfromtheU.S.DepartmentofTransportation

25

Figure3.Vehiclemilestraveledpercapita,1980to2008

Source:PreparedbytheAppliedDemographyProgram,CarlVinsonInstituteofGovernment,UniversityofGeorgia,usingdataobtainedfromtheU.S.Departmentof
TransportationandWoods&PooleEconomics,Inc.

26

TherearealargenumberoffactorstoaccountforinadetailedmodelofVMTpercapita.We
havechosenasimpleralternativethatincludesallthesefactorswithoutspecifyingthem
individually.ByforecastingthefutureofVMTpercapitausingasimpletimeseriesmodel,we
haveassumedthatthefactorsleadingtoincreasesandoffsettingdecreaseswillfollowthe
longtermhistoricalpatternintothefuture.

Table 11. Automobile fuel efficiency and model year characteristics (selected model
years)
ModelYear

1975
1987
1998
2009
Fueleconomy
13.1
22.1
20.1
21.1
Percenthybrid

1.8

Percentdiesel

0.2

0.2

0.1

0.5

Source:U.S.EnvironmentalProtectionAgency.

Thelastfewyearshaveseentheintroductionofhybridfuelautomobilesthatuseelectricity
storedinonboardbatteriesforaportionoftheirpropulsioninadditiontoothereffortsto
increasefuelefficiencysuchasreducedvehicleweightinallclasses,improvementsinfueluse
whenidling,andsystemstoproducemorecompletecombustionoffuels.TheEnergy
InformationAdministration(EIA)oftheU.S.DepartmentofEnergyanticipatesthatuseof
gasolineasamotorfuelwillincreasebylessthan2.5percentfrom2010to2011andwillthen
actuallydeclinebyamountsoflessthan1percenteachyearthrough2020.Duringthesame
period,theEIAprojectsgrowthindieselfueluseofabout3percentin2011and2012,then
increasesoflessthan1percentthrough2020.
ImprovementsinfuelefficiencyfornewcarssoldintheUnitedStatesweredramaticfromthe
mid1970stothemid1980s,asillustratedintheU.S.EnvironmentalProtectionAgencyfigures
presentedinTable11.Theachievementofmarkedlybetterfuelefficiencycomparedwithten
yearsearlierandthelowfuelcostsoverthatperiodledtonoincreaseintheaverageefficiency
ofnewvehiclessoldtwentyyearslater.Whilesomemodelclassesperformbetterthaninthe
1980s,theincreaseinsalesoftrucksandSUVsactuallyresultedinaslightdeclineinaverage
efficiencyofnewvehicles.

27

Allindicationssuggestthatthedemandformotorfuelsnationallywillincreaseonlygradually
overthenexttenyears.TheResearchandInnovationTechnologyAdministrationwithinthe
BureauofTransportationStatisticsattheUSDOTreportsthathighwaytrucktrafficincreased
nationallyatanannualrateof3.4percentfrom1960to2008butthattheincreasefrom2000
to2008wasamoremodest0.76percent(seeTable12)sincetrafficactuallydecreasedfrom
2005to2006andfrom2007to2008duetotheeconomicdownturn.
InGeorgia,VMThasgrownthroughouttheperiod,andtheFHWAreportsthathighwaytrailer
registrationsinGeorgiaincreasedfrom2000to2006by18percentfrom177,326to209,766.
Thatisacompound(annual)rateofgrowthof2.8percent.ForpurposesofestimatingGeorgias
needfordieselfuel,weassumethehighergrowthrateoftheperiodjustpriortothecurrent
economicrecession.
Table13presentstheprojectedfuelneedsforGeorgiathrough2020basedontheestimated
VMTandhighwaytrucktravelestimates.For2004through2008,thefiguresarethoseactually
reportedforbothgasolineanddieselfuelvolumes.Fuelefficiencyfiguresforthoseyearswere
estimatedbydividingtotalVMTbythereportedvolumesoffuelused.Insubsequentyears,fuel
efficiencywasestimatedusinginformationfromtheUSDOT.Theconsensusfromseveral
estimatesandstudiesoffuelefficiencygainssuggeststhatmajorimprovementsinefficiency
willnotberealizeduntilafter2020butthatgainsintherangeof5percentwilloccurfrom
continuedretirementofoldervehiclesandmodestgainsintheefficiencyofnewcarssold.The
CorporateAverageFuelEconomy(CAFE)requirementsfor2016willnothaveamajorimpact
through2020.Rather,theimpactwillaccumulateascarsmeetingthoserequirementsaresold
andreplaceoldervehiclesoveramuchlongerperiod.
GasolineneedsforthestatearethereforedeterminedbymultiplyingtheprojectedVMTbythe
expectedaveragefleetfuelefficiencyestimate.Dieselfuelquantitieswereestimatedusingthe
2.8percentgrowthannualgrowthfactor,whichrepresentsthetrendintrucktrafficpriortothe
2007recession(seeTable12).
Projectingthefuturecostofenergyisadifficultpropositiongiventheuncertaintyassociated
withbothoilexplorationandforcesaffectingtheglobalmarket.However,theEnergy
InformationAdministration(EIA)oftheU.S.DepartmentofEnergyhasproducedforecasts
underbothlowandhighdemandscenariosforfuelandglobaleconomicgrowth.Thecostsper
gallonforgasolineanddieselfuelinTable13arecalculatedusingtheEIAestimatesunderan
assumptionoflowergrowthgloballyinthedemandforenergy.
Futuremotorusefueltaxrevenueisestimatedusingthecurrentexciseandsalestaxratesin
Georgiaappliedtotheprojectionsoffuelneeds(seeTable14).ThefiguresinTable14are
expressedin2010dollars.Thatis,futureamountshavebeendiscountedusing3.5percentas

28

Table12.Annualhighwaytruckmiles(millions)

Year
1960
1965
1970
1975
1980
1985
1990
1991
1992
1993
1994
1995
1996

Millionsof
U.S.Tuck
Traffic
Miles
28,854
31,665
35,134
46,724
68,678
78,063
94,341
96,645
99,510
103,116
108,932
115,451
118,899

Millionsof
U.S.Tuck
Traffic
Miles
124,584
128,359
132,384
135,020
136,584
138,737
140,160
142,370
144,028
142,169
145,046
143,507

Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

CompoundRateofGrowth*
19602008
3.40%
20002008
0.76%

*Averageannualgrowthfortheperiodindicated;calculatedfromBTSdata.
Source:BureauofTransportationStatisticsattheU.S.DepartmentofTransportation.

theanticipatedinflationrateforstateandlocalgovernmentpurchasesofgoodsandservices.
Thisnumberisaconservativeestimateofinflationinthissectorbasedontheobserved4
percentannualrateofinflationfrom2005to2009.TotalMUFTinconstant2010dollarsis
anticipatedtogrowfromabout$904millionin2011tojustover$1.1billionin2020,an
averageannualincreaseof2.375percent.NotshowninTable14isanestimated$1.8billion
(constant2010dollars)ingeneralfundrevenuethatthestateshouldcollectfrom2011through
2020fromthe1percentgeneralfundsalestax.
From2011through2020,Georgiastotalneedsforhighwayfuelrangefrom6.3milliongallons
to7.3million,soeach1centofexcisetaxequatesto$63millionto$73milliondollarsinMUFT.
Thesalestaxportionisdeterminedbyfuelprices.BasedontheEIAestimatesoffuelpricesover
theperiod,each1percentinsalestaxwillgenerate$113millionin2011to$306millionin
2020.

29

Table13.Georgiasfuelneeds,2004to2020

Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

VMT
(millions)
113,618
113,509
113,532
112,541
109,057
111,386
113,804
116,168
118,497
120,792
123,057
125,293
127,500
129,684
131,842
133,978
136,093

Estimated
Automobile
Fuel
Efficiency
23.190
22.858
23.519
23.047
23.682
23.680
23.680
23.680
23.680
23.680
23.680
23.680
24.864
24.864
24.864
24.864
24.864

Gasoline
Volume
Salesof
Gasoline*
Average
(thousandsof PricePer
gallons)
Gallon**
4,899,436
1.73
4,965,789
2.18
4,827,210
2.47
4,883,089
2.69
4,604,968
3.21
4,703,818
2.82
4,805,912
2.82
4,905,722
3.03
5,004,103
3.10
5,101,006
3.33
5,196,663
3.57
5,291,076
3.71
5,127,900
3.77
5,215,722
3.89
5,302,508
3.96
5,388,434
4.05
5,473,504
4.11

Diesel

Volume
Salesof
Diesel*
(thousands
ofgallons)
1,461,981
1,696,811
1,567,130
1,515,560
1,336,493
1,373,915
1,412,384
1,451,931
1,492,585
1,534,377
1,577,340
1,621,506
1,666,908
1,713,581
1,761,561
1,810,885
1,861,590

Average
Price
per
Gallon**
1.97
2.44
2.70
2.94
3.91
2.97
2.97
3.20
3.26
3.51
3.68
3.81
3.93
4.09
4.20
4.29
4.35

*Reportedfor2004to2008;estimatedfor2009;projectedforsubsequentyears.
**Calculatedfor2004to2008usingdatafromtheU.S.DepartmentofTransportationandtheOilPriceInformation
Service;estimatedfor2009;projectedforsubsequentyearsin2010dollars.
Note:Compoundrateofgrowth(CRG)forVMTis1.8percentfor2010to2020.Forgasolineanddieselfuelcombined,
theCRGis1.67percentoverthesameperiodduetoslightlybetterfuelefficiency.

FurtherevidenceofthesensitivityofGeorgiasMUFTrevenuetofuelpricesisshowninTable
15.ThesefiguresareestimatesofwhatGeorgiashouldhavecollectedeachyearfrom2005to
2008basedonfuelsalesandusereportedtotheUSDOTandthemonthlyaverageretailprices
inthestateasreportedbytheOPIS.Declinesinthedemandforfuelfromeachyeartothenext
resultedinlowerexcisetaxlevels.Priceincreasesmorethanoffsetthelowerexciseamounts,
resultinginmoderateoverallestimatedincreases.Normallythismightbeapositiveoutcome,
whereonecomponentoftheMUFToffsetslossesintheother,buttheperiodwasunusualin
thatpricesincreaseddramaticallyduring2007and2008comparedwiththepreviousyear,even
asdemanddeclinedsomewhat.Normally,lowereddemandresultsinlowerprices.Thisresultis
furtherevidenceofthedifficultyinpredictingthecostoffuel.Itismucheasiertoestimate
demand.

30

Table14.ProjectedmotorusefueltaxrevenueinGeorgia,2011to2020
(thousandsof2010dollars)
Year

Gasoline
Excise

SalesTax

Total

Diesel
Excise

SalesTax

TOTAL
MUFT

Total

2011

355,487

419,282

774,769

105,212

129,319

234,532

904,089

2012

350,353

452,900

803,254

104,500

141,204

245,704

944,458

2013

345,061

500,733

845,794

103,794

152,004

255,798

997,799

2014

339,644

524,457

864,102

103,092

160,245

263,337

1,024,348

2015

334,120

547,338

881,459

102,394

169,805

272,200

1,051,264

2016

312,866

541,075

853,941

101,702

179,611

281,314

1,033,553

2017

307,463

557,242

864,706

101,014

187,421

288,436

1,052,127

2018

302,009

575,910

877,919

100,331

197,109

297,440

1,075,029

2019

296,524

593,633

890,157

99,652

207,116

306,768

1,097,273

2020

291,020

610,119

901,140

98,978

215,601

314,579

1,116,741

3,234,550
5,322,695
8,557,245
1,020,673
Total*
Note:Thesefiguresdonotincludethe1%GeneralFundsalestax.
*Columnsmaynotsumtototalduetorounding.
Source:CarlVinsonInstituteofGovernment.

1,739,439

2,760,113

10,296,685

Table15.GeorgiaspredictedMUFTexciseandsalestaxrevenue,2005to2008,usingthe
studymodel
Gasoline
Percent
Change

Sales
Tax

DieselFuel
Percent
Change

Diesel
Excise

Percent
Change

TotalMUFT

Year

Gasoline
Excise

2005

388,726.4

433,751.5

127,260.8

165,278.2

1,115,017.0

2006

380,466.1

2.12%

477,307.4

10.04%

117,534.7

7.64%

169,135.0

2.33%

1,144,443.4

2.64%

2007

377,906.8

0.67%

525,553.7

10.11%

113,667.0

178,157.1

5.33%

1,195,284.5

4.44%

2008

360,108.0

4.71%

591,077.0

12.47%

100,237.0

3.29%

11.82%

209,161.7

17.40%

1,260,583.7

5.46%

SalesTax

Percent
Change

Revenue

Percent
Change

Source:CarlVinsonInstituteofGovernment.

31

Conclusions
Georgiahadthehighestgrowthrateinvehiclemilestraveledfrom2005to2008amongthe
ninesoutheasternstatesconsideredinthisanalysisofmotorusefueltax(MUFT)revenue,
matchedonlybyNorthCarolina.Overtheperiod,GeorgiasMUFThasgrownatabout8
percentannually.However,thisstatisticismisleadingsincemostofthatgrowthoccurred
during2007andearly2008,whenfuelpricesescalatedtohistoricallyhighlevels.From2005to
2006,duringaperiodoflowerfuelprices,revenueremainedflat.Thissensitivitytothepriceof
fuelmakesMUFTdifficulttoforecast.
ThemodelofestimatedMUFTthatwasproducedusingfuelsalesdatafromtheUSDOT
suggeststhatGeorgiascollectionofMUFTimproveddramaticallyfrom2004to2008.The2008
changeincollectionoftheestimatedsalestaxportionoftheMUFTtothesamepointas
collectionoftheexcisetaxlikelyaccountsformuchofthatimprovement,butadditional
researchwouldberequiredtodeterminethatinterpretationwithanycertainty.TheGeorgia
DepartmentofRevenuesinspectionforuseofuntaxeddieselfuelinhighwayvehiclesthat
beganin2007mayaccountforsomeoftheimprovementaswell.Theremainingvariance
shownbythemodel,whichmaybearesultfromerrorsinthedatareportedtotheUSDOT,
couldproducethisresult,ascouldasamplingerrorintheOPISdatausedtoestimatemonthly
fuelpricesovertheperiod.
Georgiareliesonthe3percentsalestaxformorethanhalfofitsMUFT.Georgianowcollects
anestimatedsalestaxbasedonestimatedfuelpricesthatareseteverysixmonths(January
andJuly)atthesametimethatitcollectstheexcisetax.Thoseestimatedpricesareineffect
unlessthepricechangesbymorethan25percentduringtheperiod.Thismethodforcollecting
therevenueessentiallyconvertsthesalestaxtoavariableexcisetaxthatisadjustedeverysix
monthsbasedonprojectedfuelprices.In2008,GeorgiasMUFTrevenueproducedan
estimatedeffectivetaxrateof16.8centspergallon,whichisamongthelowestinthe
Southeast.Ifweaddthe1percentstatesalestax,Georgiaseffectivetaxratewasjustover20
centspergallonin2007and2008,comparabletothatofmoststatesinthisanalysis.Only
NorthCarolinastaxratewassignificantlyhigher.Convertingthesystemtoanexcisetaxwould
simplifycomplianceandlikelymakerevenueforecastingmucheasierandmoreaccurate.
ThedealermarginonfuelsalesasestimatedusingdatafromtheOPISwaslowerinGeorgiain
2007and2008thanintheotherstatesincludedintheanalysis.Whentheexciseandsalestax
componentsoftheMUFT,plusthe1percentgeneralfundsalestaxareconsideredtogether,as
theyshouldbe,Georgiastaxonfueliscomparabletothatofmostofthesoutheasternstates
consideredinthisanalysis.OnlyNorthCarolinasissignificantlyhigher.

32

TheestimatedMUFTthatGeorgiascurrenttaxrateswillproduceoverthenextdecade
producesaverageannualgrowthofnearly2.4percent.However,thisestimateisquitesensitive
tothepriceoffuel,whichisverydifficulttoforecastaccurately.UsingtheEnergyInformation
Administrationsforecastoffuelpricesunderanassumptionofhighglobaldemandandhigher
pricesforgasolineanddieselfuel,theincreaseinthesalestaxportionofGeorgiasMUFT
resultsina12percenthigheroverallestimate.AsdemonstratedinthemodelofMUFT
revenuesinthisstudy,estimatesoftheamountsthatstatesshouldcollectbasedonreported
fuelusearemuchclosertotheactualcollectionsinstatesthatrelyprimarily,orexclusively,on
theexcisetax.

33

References

Choo,Sangho,PatriciaL.Mokhtarian,andIlanSalomon.2005.DoesTelecommutingReduce
VehicleMilesTraveled?AnAggregateTimeSeriesAnalysisfortheU.S.Transportation
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Denison,Dwight,andRobertEger.2000.TaxEvasionfromaPolicyPerspective:TheCaseof
theMotorFuelsTax.PublicAdministrationReview60:2.
EnergyInformationAdministration.2010.EnergyOutlook2010.Washington,DC:U.S.
DepartmentofEnergy.
NationalResearchCouncil.2010.AssessmentofTechnologiesforImprovingLightDutyVehicle
FuelEconomy.Washington,DC:NationalAcademiesPress.
U.S.DepartmentofTransportation.variousyears.HighwayStatistics.
www.fhwa.dot.gov/policy/ohpi/hss/hsspubs.cfm.AccessedDecember6,2010
U.S.EnvironmentalProtectionAgency.LightDutyAutomotiveTechnology,CarbonDioxide
Emissions,andFuelEconomyTrends:19752010.www.epa.gov/oms/fetrends.htm.
AccessedDecember6,2010.
Varma,K.V.,C.I.Ho,D.M.Stanek,andP.L.Mokhtarian.1998."DurationandFrequencyof
TelecenterUse:OnceaTelecommuter,AlwaysaTelecommuter?Transportation
ResearchC6:4768.
Walls,Margaret,andElenaSafirova.2004.AReviewoftheLiteratureonTelecommutingand
ItsImplicationforVehicleTravelandEmissions.ResourcesfortheFuture.Discussion
Paper0444,December.
Weimar,Mark,SusanWhitmore,PatrickBalducci,EihabFathelrahman,andAnthonyRufolo.
2008.IdentifyingandQuantifyingRatesofStateMotorFuelTaxEvasion.Washington,
DC:TransportationResearchBoard.

34

151 FERC 61,090


UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Norman C. Bay, Chairman;
Philip D. Moeller, Cheryl A. LaFleur,
Tony Clark, and Colette D. Honorable.
Palmetto Products Pipe Line LLC

Docket No. OR15-13-000

ORDER ON PETITION FOR DECLARATORY ORDER


(Issued May 1, 2015)
1.
On January 23, 2015, Palmetto Products Pipe Line LLC (Palmetto) filed a petition
for declaratory order requesting that the Commission approve the rates, and terms and
conditions of service for a new pipeline system that Palmetto is developing to transport
refined petroleum products and denatured fuel ethanol from origin points in Louisiana,
Mississippi, and South Carolina to destination points in South Carolina, Georgia, and
Florida. Palmetto requests that the Commission act on the petition no later than April 30,
2015, to allow Palmetto to meet the requirements for timely completion of the pipeline
and to permit Palmetto to meet its transportation service obligations for the pipeline. For
the reasons discussed below, the Commission grants Palmettos petition.
Background
2.
Palmetto states that it has developed a pipeline project that will provide significant
benefits to the energy industry by offering an alternative source of supply, and the first
major pipeline source, of refined petroleum products and denatured fuel ethanol to
consumers in the southeast portion of the United States. Palmetto states that it will
transport refined petroleum products, including gasoline, petroleum oil distillates,
biodiesel blend, and renewable diesel blend, from origin points in Baton Rouge,
Louisiana; Collins and Pascagoula, Mississippi; and Belton, South Carolina to destination
points in North Augusta, South Carolina; Savannah, Georgia; and Jacksonville, Florida.
The pipeline will also transport denatured fuel ethanol as a purity product, on a batched
basis, from the Belton origin point to each of the destination points.
3.
The pipeline will provide approximately 125,000 barrels per day (bpd) of capacity
for shipments that originate from Baton Rouge, Collins, and Pascagoula for delivery to
the destination points (Segment One Pipeline Capacity). The pipeline will provide an
additional 42,000 bpd of capacity for shipments from Belton for delivery to the
destination points (Segment Two Pipeline Capacity). The total design capacity of the
pipeline is approximately 167,000 bpd.

Docket No. OR15-13-000

-2-

4.
Palmetto states the Segment One Pipeline Capacity will be acquired by Palmetto
via a long-term lease with Plantation Pipe Line Company (Plantation). Palmetto will
lease two types of capacity from Plantation: (1) capacity that has been historically and
consistently underutilized on Plantations system (Underutilized Capacity), and
(2) capacity that Plantation will create on its system through expansion and construction
efforts (Expanded Capacity). The Underutilized Capacity that Plantation will lease to
Palmetto extends from Pascagoula, Mississippi to Collins, Mississippi and will equal
approximately 32,350 bpd. Palmetto submits that this capacity has not been used by any
shipper on Plantations system for at least ten years. The Expanded Capacity that
Plantation will lease to Palmetto will consist of approximately 121,000 bpd from Baton
Rouge, Louisiana to Collins, Mississippi and approximately 125,000 bpd from Collins,
Mississippi to Belton, South Carolina. Plantation will create the Expanded Capacity by
constructing and/or modifying existing pump stations, pumps and motors, tankage and
appurtenances on its system. Plantation will recover the costs for such Expanded
Capacity solely through the lease payments from Palmetto. Palmetto submits that
because the leased capacity is either being newly constructed by Plantation or has not
been used by any shipper on Plantations system for an extended period, Plantations
current shippers will not be impacted by Plantations lease of this capacity to Palmetto.
5.
Palmetto asserts that its pipeline will promote competition in the Savannah and
Jacksonville markets, which could decrease prices to consumers, because it will provide
these markets with their first major pipeline source of refined petroleum products.
Palmetto states that these markets are currently only supplied with refined petroleum
products via truck or marine transportation. Palmetto also states that the pipeline will
help ensure that the supply needs of the markets are served during inclement weather
conditions because unlike marine transportation vessels, the pipeline will not be directly
affected by such events. Palmetto states that the pipeline will benefit the North Augusta
market because it is only served by one pipeline source and as a result the market has
experienced supply constraints over the long term. Palmetto submits that the pipeline
should help to alleviate such constraints because it is expected to deliver at least
40,000 bpd of refined petroleum products directly into the market. Palmetto states that
the pipeline will provide each of the destination markets with their first pipeline source of
denatured fuel ethanol. Currently, ethanol is supplied to these markets either by railroad
or truck.
6.
Palmetto states that it will be required to invest in excess of $1 billion in order to
develop the pipeline. In order to determine interest in the pipeline, Palmetto held an open
season from August 4, 2014, to October 30, 2014. The open season was widely
publicized through a press release reported through the trade press and extensive
marketing efforts by Palmetto. Interested parties were given an Open Season Notice
providing a summary of the proposed terms and conditions of service and were also given
the opportunity to provide comments on the proposed terms and conditions. Palmetto
states that it incorporated many of the comments into the Open Season documents

Docket No. OR15-13-000

-3-

including the Transportation Services Agreement (TSA). Potential shippers who


executed confidentiality agreements were given a pro forma TSA, the proposed rates,
and the proposed rules and regulations tariff. Palmetto states that by the close of the
Open Season it concluded that the level of volume commitments it had received from
Committed Shippers was sufficient to proceed forward with the development of the
pipeline. 1
Palmettos Proposed Terms of Service
7.
Under Palmettos proposal, committed shippers would receive 90 percent of the
pipeline capacity and uncommitted shippers would receive 10 percent of the pipeline
capacity. Committed shippers make a Volume Commitment to ship-or-pay for a
specified volume each year during the term of its TSA. Committed shippers could elect a
five-year or ten-year term. A committed shippers Volume Commitment divided by
12 months equals its Monthly Volume Commitment. In addition to the Volume
Commitment, committed shippers will be required to specify the types of products to be
shipped and the origin and destination points. This will ensure that there is sufficient
capacity to fulfill all Volume Commitments because capacity varies between origin and
destination points and depending on the products shipped. Committed shippers will
receive firm capacity that is not subject to prorationing except in instances of
force majeure or operational disruptions. In order to receive firm service, committed
shippers will pay higher rates than uncommitted shippers. Similar to committed shippers,
uncommitted shippers will pay rates that depend on the volume of products shipped
during a particular month. The volume tiers for the committed and uncommitted rates
will be the same. The TSA permits Palmetto to adjust the committed rates based on the
Commissions indexing methodology and to file the committed rates as settlement rates.
8.
Committed shippers will also have the ability to nominate volumes on a firm basis
that vary or exceed their Monthly Volume Commitments. Flexible-Service Barrels
allows a shipper to change the product types or origin and destination points.
Incremental Barrels allows a shipper to exceed its Monthly Volume Commitment. The
flexibility provided to committed shippers will only be provided in the event that it is
operationally feasible; all committed shippers have been allocated their Monthly Volume
Commitment; and 10 percent of capacity always remains reserved for uncommitted
1

Palmetto also established a capacity allocation plan in the event that volume
commitment by committed shippers exceeded the committed capacity. Implementation
of the plan was not necessary and Palmetto gave committed shippers the right to make an
additional commitment for a period of seven days following the conclusion of the open
season.

Docket No. OR15-13-000

-4-

shippers. To the extent that a committed shippers transportation charges do not meet or
exceed its yearly contractual commitment, it will be required to make a shortfall
payment.
9.
Palmetto established a prorationing policy to allocate capacity in the event that it
receives more nominations for transportation service in a month than it is able to provide.
With respect to committed capacity, Palmetto will first allocate capacity up to the
shippers Monthly Volume Commitment provided that it does not vary by product or
origin and/or destination. Any additional nominated capacity will be treated as FlexibleService Barrels. Capacity will then be allocated to Flexible Service Barrels and such
capacity will be allocated on a pro rata basis if the Flexible Service Barrels exceeds
available capacity. Assuming capacity is available, Palmetto would then allocate
Incremental Barrels. Incremental Barrels will be allocated on a pro rata basis if there
was not enough available capacity. Non-priority capacity will be allocated to
uncommitted shippers based on a historical prorationing model. Regular Shippers who
ship for 6 months out of a 12-month defined period would receive 90 percent of the nonpriority capacity. Regular Shippers would receive the lesser of their nominated volumes
or their percentage of capacity shipped during the 12-month base period. New Shippers,
who are uncommitted shippers who are not Regular Shippers, would receive 10 percent
of the non-priority capacity. New shippers would be allocated their nominations or
pro rata share. If any capacity remains, Palmetto would allocate Non-Priority
Incremental Barrels to committed shippers who had unmet nominations.
10.
Palmetto states that the TSA provides that Palmetto and Plantation may agree to
establish a joint tariff for movements from origin points on Plantations system to
destination points on Palmettos system. Palmetto states that joint tariff rates would be
similar to the committed rates in the TSA and committed shippers would pay a premium
relative to uncommitted rates. Any potential uncommitted joint rates would be offered
volume-incentive rates. Palmetto also states that the prorationing policy of each
component pipeline would govern allocations of capacity for the portion of the joint
movement that occurs on that pipeline.
11.
To the extent that certain segments of the pipeline become available for use before
other segments, the TSA allows Palmetto to provide transportation service on a limited
basis prior to the in-service date of the pipeline. Palmetto would file a tariff with the
Commission establishing the rates, rules, and regulations for such interim service and
they could differ from those provided in the TSA. There would be no firm service and
capacity would be allocated among all potential shippers on a pro rata basis.
12.
In order to achieve the most efficient use of the leased capacity, the lease between
Palmetto and Plantation contemplates that Palmetto will release any portion of the leased
capacity that is not used by Palmetto shippers in any month back to Plantation for the
potential use by Plantations shippers during such month. Prior to the in-service date or
interim in-service date all the leased capacity that is then available will be released

Docket No. OR15-13-000

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automatically to Plantation each month. Following the in-service date or interim inservice date, the release will occur each month only if a portion of the leased capacity
remains available after Palmetto fulfills all requested nominations. The releases will
occur month-to-month and will revert back to Palmetto at the end of each month.
13.
In the event Palmetto elects to expand the capacity of the pipeline, the TSA
provides that Palmetto will provide all committed shippers a first right to submit binding
nominations to ship-or-pay for a committed volume of products on the expansion
capacity without first holding an open season for such capacity. The amount of the
expansion capacity that will be available for volume commitments will not exceed
90 percent of the total available expansion capacity.
14.
Each committed shipper elected an initial term for the agreement of five or ten
years. The TSA will automatically renew for a five-year period upon the expiration of
the initial term unless Palmetto or the committed shipper terminates the agreement by
giving at least one years notice. After the renewal term ends, the TSA will automatically
renew for successive one-year terms unless either party terminates upon at least
six months notice.
Requested Rulings in Palmettos Petition
15.
Palmetto asks the Commission to approve as just and reasonable and not unduly
discriminatory or preferential the requests discussed below.
16.
Palmetto requests that the TSA will be honored and its provisions will be upheld
and will govern the transportation services Palmetto provides to a committed shipper
during the term of the TSA. 2
17.
Palmetto requests that the Commission find that it has jurisdiction over the
interstate transportation of denatured fuel ethanol by pipeline and therefore has authority
to approve the proposed terms and conditions of service related to the pipelines
transportation of ethanol. To date, the Commission has not ruled on whether its
jurisdiction under the Interstate Commerce Act (ICA) extends to interstate transportation
of this commodity by pipeline. However, based on the analysis set forth in Gulf Central 3
2

Citing, e.g., Mid-America Pipeline Co., 136 FERC 61,087, at PP 9, 18-19


(2011); Kinder Morgan Pony Express Pipeline LLC and Belle Fourche Pipeline Co.,
141 FERC 61,180, at P 22 (2012); CenterPoint Energy Bakken Crude Services, LLC,
144 FERC 61,130, at P 17 (2013).
3

Citing, Gulf Central Pipeline Co., 50 FERC 61,381 (1990) (Gulf Central),
affd, CF Industries Inc. v. FERC, 925 F.2d 476 (1991) (CF Industries).

Docket No. OR15-13-000

-6-

regarding the scope of the Commissions jurisdiction under Section 306 of the
Department of Energy Organizational Act of 1977 (DOE Act), Palmetto submits that
jurisdiction over the interstate transportation of ethanol by pipeline resides with the
Commission.
18.
Palmetto requests that a committed shipper may receive firm transportation on the
pipeline in exchange for paying a premium rate for such transportation, as compared to
the rate applicable to a similarly-situated uncommitted shipper. 4
19.
Palmetto requests that it may transport Flexible-Service Barrels and Priority
Incremental Barrels on a priority basis, at the committed rates, provided that its
transportation of such barrels does not reduce the amount of capacity reserved for
uncommitted shippers. 5
20.
Palmetto requests that it may use the leased capacity, including the underutilized
capacity, to provide firm transportation services pursuant to the TSA. Palmetto submits
that the Commission has approved oil pipelines offering of firm transportation services
on newly constructed capacity in multiple instances, and the Commission should afford
the same treatment to the lease of underutilized capacity presented here. 6 In doing so,
Palmetto asserts that the Commission should confirm that such a lease of underutilized
capacity is separate and distinct from the factual situation presented in Colonial, 7 where
the Commission rejected the pipelines attempt to offer preferential capacity rights on an
existing, but fully utilized, portion of its system.

Citing, e.g., CCPS Transportation, LLC, 121 FERC 61,253 (2007); MarkWest
Liberty Ethane Pipeline, L.L.C., 145 FERC 61,287, at P 24 (2013); Enbridge Pipelines
(North Dakota) LLC, 133 FERC 61,167, at P 40 (2010); Shell Pipeline Co., 139 FERC
61,228, at P 21 (2012).
5

Citing, CenterPoint Energy Bakken Crude Services, LLC, 144 FERC 61,130, at
P 29 (2013); Enable Bakken Crude Services, LLC, 148 FERC 61,048 (2014).
6

Citing, e.g., Medallion Pipeline Co., LLC, 148 FERC 61,095 (2014) (approving
firm service on a new greenfield liquids pipeline system); Oxy Midstream Strategic
Development, LLC and Magellan Midstream Partners, L.P., 141 FERC 61,005, at P 19
(2012) (approving firm service on a new crude oil pipeline system); CCPS
Transportation, LLC, 122 FERC 61,123 (2008) (approving firm service on expansion
capacity).
7

Colonial Pipeline Company, 146 FERC 61,206 (2014) (Colonial).

Docket No. OR15-13-000

-7-

21.
Palmetto requests that it may allocate up to 90 percent of the total capacity
available on the pipeline to committed shippers, while reserving the remaining 10 percent
of capacity for uncommitted shippers. 8
22.
Palmetto requests that it may include the proration policy, as set forth in the TSA,
to govern the allocation of capacity on the pipeline during months when the pipeline is in
prorationing. 9
23.
Palmetto requests that it may file, at its election, the committed rates as settlement
rates during the term of the TSA, including upon the initial filing of the committed rates
in Palmettos tariff, pursuant to section 342.4(c) of the Commissions regulations. 10
24.
Palmetto requests that in the event a joint tariff is established, committed shippers
may transport barrels on a priority basis on the pipeline under such joint tariff, provided
the committed shippers pay the committed shipper joint rates for such transportation
service.
8

Citing, e.g., See, e.g., Enbridge Pipelines (FSP) LLC, 146 FERC 61,148, at
P 27 (2014); Enterprise Liquids Pipeline LLC, 142 FERC 61,087, at P 12 (2013);
Sunoco Pipeline L.P., 137 FERC 61,107, at PP 6-15 (2011); CCPS Transportation,
LLC, 121 FERC 61,253, at P 17 n.33 (2007); Enbridge (U.S.) Inc., 124 FERC 61,199,
at P 35 (2008).
9

Citing, e.g., Belle Fourche Pipeline Co., 28 FERC 61,150, at 61,281-82 (1984)
(giving pipelines the authority to develop prorationing programs); Mid-America Pipeline
Co., LLC, 106 FERC 61,094, at P 14 (2004) (citing SFPP, L.P., 86 FERC 61,022,
at 61,115 (1999) and Total Petroleum, Inc. v. Citgo Products Pipeline Co., 76 FERC
61,164, at 61,947 (1996) (no single allocation method, giving pipelines latitude to meet
operational circumstances); Oxy Midstream Strategic Development, LLC, 141 FERC
61,005, at P 15 (2012) (approving proration policy allocating capacity first to
Committed Shippers, then New Shippers up to 10 percent of capacity, then Regular
Shippers based on historical shipments); Mid-America Pipeline Company, LLC,
116 FERC 61,040, at P 24 (2006) (approving proration policy that reserved a
percentage of available capacity to regular shippers while reserving 10 percent of
capacity for new shippers).
10

Citing, Kinder Morgan Pony Express Pipeline LLC and Belle Fourche Pipeline
Co., 141 FERC 61,180, at P 21 (2012); CenterPoint Energy Bakken Crude Services,
LLC, 144 FERC 61,130, at PP 17-18 (2013); Seaway Crude Pipeline Co. LLC,
142 FERC 61,201, at P 12 (2013); MarkWest Liberty Ethane Pipeline, L.L.C.,
145 FERC 61,287, at P 26 (2013).

Docket No. OR15-13-000

-8-

25.
Palmetto requests that it may provide transportation service on the pipeline during
the interim service period, subject to the terms outlined in the TSA. 11
26.
Palmetto requests that it may release any unused portion of the leased capacity to
Plantation each month, in accordance with the terms of the lease and the TSA.
27.
Palmetto request that it may provide a committed shipper with the expansion
commitment rights specified in the TSA in the event Palmetto decides to expand the
capacity of the pipeline. 12
28.
Palmetto requests that it may implement automatic extensions of the initial term of
the TSA in accordance with the provisions of the TSA. 13
Discussion
29.
In its petition for declaratory order Palmetto is seeking approval of the rates, and
terms and conditions of service for its pipeline project that will transport refined
petroleum products and denatured fuel ethanol throughout the southeastern part of the
United States. In accordance with Commission precedent Palmetto has sought advance
guidance through the declaratory order process. 14 Palmetto informed potential shippers
of the project through a widely publicized open season. The Commission finds that the
rates, and terms and conditions of service offered to the potential committed shippers
during the open season are consistent with the ICA and Commission precedent and
policy. The various aspects of Palmettos terms of service such as committed and
uncommitted rates, priority service for committed shippers at a premium rate, 10 percent
of capacity reserved for uncommitted shippers, treatment of the committed rates as
settlement rates, expansion and extension rights for committed shippers, interim service,
and the ability to file a joint tariff are consistent with prior Commission rulings. Since
many of the issues raised in Palmettos petition have been addressed by the Commission
before, no further discussion is necessary. However, the Commission will separately
11

Citing, Sunoco Pipeline L.P., 149 FERC 61,191 (2014).

12

Citing, Enbridge Pipelines (Southern Lights) LLC, 141 FERC 61,244, at P 26

(2012).
13

Citing, CenterPoint Energy Bakken Crude Services, LLC, 144 FERC 61,130,
at P 34 (2013).
14

Express Pipeline Partnership, 76 FERC 61,245 (1996), rehg denied,


77 FERC 61,188 (1996).

Docket No. OR15-13-000

-9-

discuss its jurisdiction over fuel ethanol, Palmettos use of the leased and underutilized
capacity on Plantation, and the monthly release of unused capacity since these issues
have not been addressed before and in order to provide guidance to other pipelines who
may seek similar rulings in declaratory orders for future projects.
30.
The first issue to be addressed is whether the Commission has jurisdiction under
the ICA over the interstate transportation of denatured fuel ethanol, one of the products
that Palmetto will transport. Palmetto states that the Commission has not ruled on
whether its jurisdiction under the ICA extends to this commodity. As a result of the DOE
Act, the Federal Energy Regulatory Commission was given jurisdiction over the rates for
the transportation of oil. In the Commissions order in Gulf Central, which was later
affirmed in CF Industries, the Commission addressed the issue of whether it had
jurisdiction over the transportation of anhydrous ammonia by pipeline. Anhydrous
ammonia is an agricultural fertilizer derived from natural gas or petroleum refinery gas.
In its decision to disclaim jurisdiction over anhydrous ammonia the Commission, among
other things, determined the meaning of oil and petrochemicals, and investigated the
legislative history of the DOE Act for purposes of determining how certain energy
resources were to be regulated. As a result of its analysis, the Commission set forth the
principles for determining its jurisdiction over the transportation of oil: (1) whether the
commodity is a fuel source in that it has heating value and is used for energy-related
purposes; (2) whether the cost of transportation will have an impact on energy markets;
and (3) whether the commodity will compete with oil or other refined products for
capacity in the pipeline.
31.
In applying the principles of Gulf Central to denatured fuel ethanol, the
Commission finds that it has jurisdiction over its transportation under the ICA. Ethanol
is a fuel source and is used for energy-related purposes. As Palmetto submits, ethanol is
a direct substitute for gasoline and federal law requires ethanol to be blended with
transportation fuels prior to the fuels being sold in the market. In addition, the Energy
Information Administration has recognized that ethanol has its own energy content and
has classified it as a fuel source. The cost of the transportation of ethanol will have an
impact on energy markets because, as Palmetto states, ethanol accounts for ten percent of
the total volume of motor gasoline, and that volume is likely to increase given federal
renewable fuel standards. As ethanol consumption increases, more pipeline capacity will
be required causing the cost to transport other liquids to change. Finally, ethanol will
compete for the same pipeline capacity as the oil and other refined products regulated by
the Commission. In fact, as Palmetto states, it will batch the ethanol on the pipeline in
exactly the same manner it batches the other refined products.
32.
The next issue to be addressed is whether Palmetto can use the leased and
underutilized capacity on Plantation to provide firm transportation services under the
TSA. Specifically, Palmetto requests the Commission to confirm that the lease of
underutilized capacity is distinguishable from the factual situation presented in Colonial.

Docket No. OR15-13-000

- 10 -

In Colonial, the Commission denied a petition for declaratory order where the pipeline
offered contract or committed rates for existing capacity but did not propose any change
or expansion to its system. The Commission stated:
[T]he Commissions body of precedent has approved contract
rates with respect to new pipelines, expansion projects, or, at
the very least, reversals or reconfigurations of existing
pipelines in order to serve new markets or respond to
changing market conditions. In all of the cases approving
contract rates, contractual commitments of shippers were
necessary to, among other things, determine support for
construction of the project, obtain financing, ensure the initial
financial viability of the project, or to determine the support
in new or growing markets. Even in the case of existing
pipelines seeking to reverse or reconfigure their systems,
contract rates ensure that a pipelines investments to serve
new markets are necessary in the long term. 15
33.
In this proceeding, Palmetto proposes a new pipeline project consisting of a
combination of its own newly constructed facilities and leased capacity on Plantation
comprised of expanded capacity as well as underutilized capacity. Palmetto will provide
new transportation services for refined products to new committed and uncommitted
shippers on its pipeline. Unlike in Colonial where the pipeline was simply trying to
convert existing capacity into contract capacity without any changes to the system,
Palmetto is creating a new pipeline project, part of which enables use of underutilized
existing capacity on an affiliated pipeline. Palmettos use of the underutilized capacity
on Plantation, which has not been used for ten years and will not affect Plantations
existing shippers, is analogous to a reversal or reconfiguration of an existing pipeline to
serve new markets or respond to changing market conditions. Accordingly, Palmettos
request is granted as consistent with Commission precedent.
34.
The final issue to be addressed is whether Palmetto may release any unused
portion of the leased capacity to Plantation each month. The release of the leased
capacity would occur automatically each month prior to any in-service date of the
pipeline since Palmetto would not be able to provide transportation. After the in-service
date, the leased capacity will be released to Plantation each month provided that all of
Palmettos nominations are met and no shipper chooses to use the excess leased capacity.
The capacity would revert back to Palmetto at the end of each month. The Commission
finds that Palmettos capacity release process is an efficient use of the leased capacity
15

Colonial, 146 FERC 61,206 at P 35.

Docket No. OR15-13-000

- 11 -

both prior to and after Palmetto becomes operational because it will allow potential
shippers on Plantation to use the leased capacity rather than have it sit idle. As Palmetto
stated in its petition, all potential shippers were put on notice during the Open Season of
how the capacity lease arrangement would work following the in-service date, and each
shipper had an opportunity to submit comments to Palmetto regarding the arrangement.
In addition, Palmetto submits that the arrangement will not undermine any of the rights
that Palmetto has promised to committed shippers because (i) the leased capacity will
only be released to Plantation in the event that no shipper on the pipeline wishes to use
such capacity, and (ii) the leased capacity will automatically become available for
Palmettos use the following month. Accordingly, the Commission finds that the
capacity release arrangement contemplated in the lease is reasonable and not unduly
discriminatory or preferential.
The Commission orders:
Palmettos petition for declaratory order is granted, consistent with the discussion
above.
By the Commission.
(SEAL)

Kimberly D. Bose,
Secretary.