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SR-510-012 (9) EPWM:CP:ADMIN\STAFFRPT\HYDROGENDEMONSTRATION.DOC Council Meeting: October 26, 2004 Santa Monica, California TO: Mayor and City Council FROM: City Staff SUBJECT: Negotiate and Execute an Agreement with the South Coast Air Quality Management District to Participate in a Five Cities Hydrogen Vehicle Demonstration Project Introduction This report recommends that City Council authorize the City Manager to negotiate and execute an agreement with the South Coast Air Quality Management District (SCAQMD) to participate in a five-year hydrogen vehicle demonstration project along with four other Southern California cities. The goal of the demonstration project is to integrate five zero-emission sedans into the City?s fleet to test their performance and reliability in the context of normal field operations. 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 fuels. 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. To date, this target has been achieved and surpassed, primarily through the procurement of CNG vehicles. In addition, the Big Blue Bus has committed to the purchase of liquefied 1 natural gas (LNG) buses whenever feasible and has recently completed the construction of a combined LNG-CNG fuelling facility at the Big Blue Bus Yard. A number of both dedicated electric and hybrid-electric vehicles have been procured by the City and are operated by various City work units. Staff continually explores and evaluates advancements in vehicle technologies and alternative fuels and believes that significant benefit can be gained from introducing hydrogen-fuelled vehicles into the fleet and determining how well they perform in a ?real-world? environment. Staff is also very interested in testing the emissions benefits that can be obtained from the use of a hydrogen/CNG fuel mixture in some of the City?s heavy-duty CNG vehicles since heavy duty vehicles comprise the major component of the City?s overall vehicle fuel use. The proposed demonstration project with the SCAQMD will allow Santa Monica to add clean-burning hydrogen to the broad palate of gasoline and diesel fuel alternatives presently utilized by the City. Earlier this year, staff proposed partnering with the SCAQMD and Toyota Motor Sales on a 30-month demonstration project to test a single hydrogen fuel cell vehicle in City operations. Council members expressed concerns at that time that the proposed City share of total costs ($85,000) seemed too high for acquisition of a single hydrogen vehicle and the City declined to participate in that project. In contract to the project declined by the City, the five cities hydrogen vehicle demonstration project will convert five hybrid Prius vehicles to hydrogen power and install a hydrogen fuelling facility at the City Yard. The fuelling station will also enable the City to blend hydrogen fuel into 2 some of the City?s heavy-duty CNG vehicles. Virtually all of the costs associated with the project will be paid by the SCAQMD (approximately $850,000 for the fuelling facility). Santa Monica?s out-of-pocket costs for the installation of the fuelling system are estimated at no more than $100,000. Discussion Since 2002, staff has engaged in discussions with the SCAQMD related to the procurement of dedicated hydrogen internal combustion engine sedans and the construction of a hydrogen fuelling facility at the City Yard. In June of 2003, the SCAQMD proposed a project that would include Santa Monica and four other Southern California cities (Burbank, Riverside, Santa Ana and Ontario). The SCAQMD concept is to contract with a vendor who would convert fleet vehicles in each city to use hydrogen and to identify a group of contractors the cities could use to install fuelling infrastructure. Selection among the contractors would depend on the unique project goals of each of the cities. Quantum Technologies will be responsible for the conversion from gasoline to hydrogen as well as the testing, certification and maintenance of five Toyota Prius vehicles that will be provided by each of the cities. The cost of these services will be fully paid by the SCAQMD directly to Quantum Technologies. Santa Monica would commit five 2004 Toyota Prius vehicles currently in the City fleet. The City would operate these vehicles as a part of regular operations for a period of 60 months and provide access to the vehicles by Quantum for periodic testing and maintenance. 3 In regard to fuelling, Santa Monica?s sustainability objectives would argue for a technology that achieves as close to zero emission as possible. This would involve a fuelling system at the City Yard that extracts hydrogen from water through a proton exchange membrane (PEM) electrolysis process using electricity that is 100% clean and renewable from the current contract with Electric America that supplies electricity to all City facilities. The SCAQMD will pay the contractor selected by the City from those authorized for costs related to the procurement and installation of the equipment needed for the facility (estimated value of $850,000). The City?s obligation would be to provide a site at the City Yard, facilitate project approvals and permitting for the facility, complete any necessary site preparation and utility connection work, and pay for the electrical costs of the system over the demonstration project period. City staff will assist in the management and monitoring of the project over the demonstration period. Use of City forces for most of the site preparation work will limit costs. It is anticipated that the City?s direct out-of-pocket costs for construction of the fuelling facility will not exceed $100,000 and will be borne by the Water, Wastewater and Refuse enterprise funds since the hydrogen vehicles will be demonstrated in their field operations. It is expected that the hydrogen vehicles and fuelling facility could be operational by mid- 2005. The proposed hydrogen vehicle project will allow the City to strengthen its commitment to the use of environmentally preferable alternative fuels for vehicles used in basic City 4 operations, as well as place Santa Monica in a leadership position related to the development of clean hydrogen-powered vehicles and a hydrogen fuelling infrastructure. Such experience will allow Santa Monica to influence regulators, vehicle manufacturers and fuel suppliers as major policy decisions on hydrogen vehicles are made over the next several years. The demonstration project may also assist the City in successfully competing with other public agencies for alternative fuel vehicle grants and other financial resources, particularly as they may relate to future financial support for hydrogen fuel use in heavy duty vehicles. Participation in the hydrogen vehicle demonstration project will not diminish Santa Monica?s aggressive efforts to procure additional dedicated electric, dedicated natural gas and hybrid-electric vehicles. The staff recommendation was presented to the Task Force on the Environment for review and discussion at their meeting of October 18, 2004. The Task Force unanimously supported the proposed demonstration project as a reasonable next step in the City?s testing of hydrogen vehicle technologies. The Task Force also recommended that City staff aggressively pursue future hydrogen fuel options specifically related to heavy duty vehicles in the City?s fleet. Budget/Financial Impact As vehicles will be converted at SCAQMD expense, the anticipated overall budget impact to the City from the actions recommended in this staff report will not exceed $100,000 for site preparation and utility connection work. Budgeted funds in this amount are available in existing CIP and operating accounts of the Vehicle Management Fund. Reimbursement for these costs will be made through the annual 5 budget process by the Water, Solid Waste and Wastewater funds. Any ongoing costs for operation of the fuelling facility (electricity, maintenance, etc.) will be included in the next fiscal year budget for the Vehicle Management Fund and reimbursed by the three enterprise Funds as noted above. Recommendation It is recommended that City Council authorize the City Manager to negotiate and execute an agreement with the South Coast Air Quality Management District (SCAQMD) to participate in a five cities hydrogen vehicle demonstration project. Prepared by: Craig Perkins, Director, Environmental and Public Works Management Renee Cowhig, Maintenance Manager Rick Sikes, Fleet Maintenance Superintendent 6