Natural-Gas Sticker Shock

By John Greenwald

When Kelvin Giles bought his lumbering 2001 GMC Yukon last spring, he could hardly believe his luck. The Phoenix, Ariz., technology consultant stood to receive $23,000 in rebates on the $50,000 vehicle, compliments of the state government's alternative-fuels program, which threatens to cost Arizona an incredible $680 million--or 11% of the entire state budget. Says Giles: "I always put this under the heading of too good to be true."

He may be right. Stunned by the gargantuan cost of the program, which more than 22,000 Arizonans rushed to sign up for, state lawmakers remained hunkered down last week in a rancorous session that was called to repair the damage. One plan under consideration would limit the rebates to the 6,000 buyers who have already paid for or picked up their vehicles, thus paring the cost of the program to $200 million.

That's still far off the budget of $3 million to $10 million the state allocated this year when lawmakers voted to refund 30% of the price of a new car or truck to anyone who agreed to convert the vehicle to run on propane or natural gas. In addition, the state promised to pay for every conversion.

The staggering cost overrun has forced the resignation of house speaker Jeff Groscost and prompted a criminal probe by state attorney general Janet Napolitano. She cautions, however, that "stupidity, incompetence and greed are not violations of the law."

--By John Greenwald. Reported by David Schwartz/Phoenix

With reporting by David Schwartz/Phoenix