Natural gas public sellers in Alabama will have to post surety bonds

By Vic Lance, Lance Surety Bond Associates

As of October 2018, public sellers and fleet producers of compressed natural gas (CNG) and liquified natural gas (LNG) will have to obtain a state license.

 

If you are a natural gas public seller or fleet producer in Alabama, there are new regulations that will govern the industry as of next autumn that you will need to comply with.

As of October 2018, public sellers and fleet producers of compressed natural gas (CNG) and liquefied natural gas (LNG) will have to obtain a state license. They will also need to post a security instrument called a surety bond in order to be allowed to run their activities. Public sellers provide natural gas for purchase, while fleet producers supply compressed and liquified natural gas for commercial vehicles.

House Bill 333, which was already passed, defines the requirements that such operators have to meet to ensure the quality of their services. Additionally, the new legislation sets a plan for taxation of natural gas with planned increases of the tax amounts for the next ten years.

Here are the most important provisions set in the new Alabama bill that you need to consider.

The new licensing rules for Alabama natural gas public sellers

According to the new rule, public sellers and fleet producers of CNG or LNG who operate on the territory of Alabama will have to undergo a licensing process. You will have to meet a list of requirements defined by the licensing authority, which is the Alabama Department of Revenue.

The purpose of the license is to ensure that entities selling and producing CNG and LNG for public use will comply with relevant state laws. Personal producers of natural gas also have to get licensed, but they do not have to get bonded.

The application fee is $50. Sellers and producers can apply once and license all their locations. However, you need to pay additional $25 per each additional location you operate. You also need to obtain a surety bond to obtain your license.

The oil and gas surety bond requirement

As a part of the licensing, CNG and LNG public sellers and fleet producers have to provide a surety bond. You need to present it to the Alabama Department of Revenue. Your bond amount is set on the basis of your average tax liability per month. It should be twice this amount, or greater than $25,000. As of 2023, the Department will review bond amounts every five years to ensure they are adequate for the respective licensees.

The purpose of the bond requirement is to ensure that public sellers and fleet producers of natural gas will comply with all applicable state regulations that govern their trade. The bond protects the state against non-compliance and non-payment of required taxes. If you fail to follow relevant laws, you can get a bond claim, which can be used to compensate the financial losses of any affected parties.

To get bonded, you need to pay a percentage of your bond amount, which is your bond premium. The bond price is formulated on the basis of your personal and business finances. However, the compensation from a claim on your bond can be up to the full amount you’ve posted.

Additional provisions in the bill

Besides the new license and bond requirements for CNG and LNG public sellers and fleet producers, House Bill 133 introduces an excise tax on natural gas. The amount is set at $.08 per gallon currently.

The legislation also previews the planned increases of the excise tax. As of October 1, 2023, it will rise to $.13 per gallon. The next increase will be on October 1, 2028, when the tax will become $.15 per gallon for CNG and $.19 per gallon for LNG.

The excise tax is due by 20th day of each month. Public sellers and fleet producers have to provide a report together with each monthly payment. It should detail their monthly gas distribution for motor vehicle use and to licensed exempt entities.

How do you see the new licensing and bond requirements for natural gas public sellers in Alabama? Please share your insights in the comments below.

Vic Lance is the founder and president of Lance Surety Bond Associates.

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