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SR-510-012 (7) CP:CP\EPWM\ADMIN\STAFFRPT\HYDROGENVEHICLES.DOC Council Meeting: January 13, 2004 Santa Monica, California TO: Mayor and City Council FROM: City Staff SUBJECT: Negotiate and Execute an Agreement with the Air Quality Management District and Toyota Motor Sales, USA for a Hydrogen-Powered Fuel Cell Vehicle Demonstration Project INTRODUCTION This report recommends that City Council authorize the City Manager to negotiate and execute an agreement with the Southern California Air Quality Management District (SCAQMD) and Toyota Motor Sales, USA for a hydrogen fuel cell vehicle demonstration project. The report also describes separate negotiations that have been underway with the SCAQMD over the past year to fund additional hydrogen-powered vehicles and a hydrogen fuelling facility at the City Yard. BACKGROUND In 1993, the City Council adopted an alternative fuels policy for the City?s vehicle fleet which stated that whenever feasible, new fleet vehicles would be powered by compressed natural gas (CNG), electricity or other environmentally preferable fuel. The Sustainable City Plan that was adopted by Council in 1994 included a goal for the miscellaneous fleet of 70 percent alternative fuel vehicles by the year 2000. This target has been achieved and surpassed, primarily through the procurement of CNG vehicles. A CNG fuelling facility was constructed by the City and has now been in operation for a number of years at the City Yard. In addition to the miscellaneous fleet, the Big Blue Bus committed in the year 2000 to purchase only liquefied natural gas (LNG) buses whenever feasible. To date, nearly 80 Big Blue Bus vehicles powered by LNG have been either purchased or ordered and the construction of a combined LNG-CNG fuelling facility at the Big Blue Bus Yard is nearing completion. The cessation of dedicated electric vehicle manufacture by almost all the world?s major automakers and the still limited number of dedicated natural gas vehicle models and vehicle engines that are currently available make it difficult to continue progress toward Fleet conversion. Staff has explored and evaluated advancements in vehicle technologies and alternative fuels. The most likely vehicle fuel of the future will be hydrogen. It is also likely that the predominant vehicle ?engine? of the future will be fuel cells due to the fact that they are the most efficient and non-polluting vehicle propulsion technology that exists. There is much current debate as to how long it will take for the hydrogen fuelling and fuel cell vehicle technologies to mature to a point where they are widely available to fleet purchasers or the general public. Due to Santa Monica?s commitment to alternative fuels over the past several years, these technologies have been made available to the City on a demonstration basis through a proposed partnership with the SCAQMD and Toyota Motor Sales, USA. The proposed demonstration project is described below. DISCUSSION Hydrogen Fuel Cell Vehicle Demonstration Project Several months ago, City staff was approached by management staff from Toyota and the SCAQMD to discuss siting a proposed hydrogen fuel cell vehicle demonstration project here. Such a demonstration project would fit well with the current goals and targets of the Sustainable City Plan and allow the City to gain valuable experience with vehicle technologies that are emerging as the ?preferred? technologies of the future in terms of their positive environmental impacts. The proposed demonstration project would provide the City with one new Toyota hydrogen-powered fuel cell vehicle (the Toyota Highlander SUV) for use during a 30 month lease period. The prototype fuel cell vehicle that will be provided is currently being offered to only two other entities, the University of California at Irvine and the University of California at Davis .Toyota will provide compressed hydrogen gas to the City for the vehicle during the lease period. The compressed hydrogen gas will be produced through a water electrolysis process using electricity supplied by wind turbines near Palm Springs. Electrolysis is a technology whereby hydrogen atoms are separated out of water molecules. The hydrogen will then be transported to Santa Monica. Since non-polluting green electricity will be used to drive the hydrogen creation process and since fuel cell vehicles have no harmful tailpipe emissions, the proposed project will result in a truly zero-emission vehicle for use by the City. The SCAQMD has agreed to support the project by reimbursing the City for a significant portion of the vehicle costs during the lease period. The proposed hydrogen fuel cell vehicle project will allow the City to strengthen its commitment to the use of environmentally preferable alternative fuels for vehicles used in basic City operations as well as place Santa Monica in a leadership position in the United States related to the development of hydrogen-powered vehicles and hydrogen fuelling infrastructure. Update on Negotiations with the SCAQMD on an Expanded Hydrogen Vehicle Project Since 2002, staff has been in discussions with SCAQMD staff related to an expanded hydrogen vehicle demonstration project that would include the procurement of up to six dedicated hydrogen internal combustion engine vehicles and the construction of a permanent hydrogen fuelling facility at the City Yard. In June of 2003, the SCAQMD approached City staff to determine Santa Monica?s interest in participating in a hydrogen vehicle demonstration project that would potentially include four other Southern California cities. City staff indicated interest in the SCAQMD solicitation so that specific cost, timing and logistics issues could be identified through the SCAQMD bidding process with prospective vendors. SCAQMD now has proposals from the vehicle and fuelling system vendors who responded to their solicitation process and will provide staff with information on the various options that are available. Staff will negotiate proposed financial support and program responsibilities that will be presented to City Council for approval at a future meeting. BUDGET/FISCAL IMPACT The total estimated cost for the proposed project (both vehicle and fuel) is $415,000. The SCAQMD has agreed to reimburse $100,000 and Toyota has agreed to reimburse $115,000 of this cost. The net cost to the City?s Vehicle Management Fund will be $200,000. It is proposed that this $200,000 cost be shared equally by three enterprise funds: Water, Wastewater and Refuse from their already budgeted vehicle replacement CIP funds so that each of these three operations can gain valuable first-hand experience with an important emerging vehicle technology. Each of these three funds will also benefit from an accelerated reduction in the use of gasoline and diesel fuels as well as engine motor oil that are primary sources of contamination that must currently be addressed by our water, wastewater and solid waste management operations. Funds are available for the proposed fuel cell vehicle project with Toyota and the SCAQMD in the amount of $200,000 from the following accounts: C27016704-589000 $66,667 C25016704-589000 $66,667 C31016704-589000 $66,667 RECOMMENDATION It is recommended that City Council authorize the City Manager to negotiate and execute an agreement with the Southern California Air Quality Management District and Toyota Motor Sales, USA for a hydrogen-powered fuel cell vehicle demonstration project. Prepared by: Craig Perkins, Director of EPWM