BOARD MEETING DATE: March 17, 2000 AGENDA NO. 3

The California Fuel Cell Partnership was formally initiated in April of 1999. Its membership currently includes four auto manufacturers (DaimlerChrysler, Ford Motor Company, Honda and Volkswagen), three energy providers (ARCO, Shell and Texaco), a fuel cell company (Ballard Power Systems), and three government agencies (California Air Resources Board, the California Energy Commission and the U.S. Department of Energy). Through this public/private effort, automobile companies and fuel suppliers have joined together to demonstrate fuel cell vehicles under real day-to-day driving conditions. The Partnership will place approximately 50 fuel cell passenger cars and fuel cell buses on the road between 2000 and 2003. In addition to testing the fuel cell vehicles, the Partnership will also identify fuel infrastructure issues and help prepare the California market for this new technology.

On October 21, 1999 the Partnership formally invited the AQMD to join as a full member, including representation on its Steering Committee. The Partnership staff presented this request at the October 22, 1999 Technology Committee meeting. A number of questions were raised by the Committee members at that meeting. Subsequently, the Partnership addressed those questions and concerns in a letter (see attachment). In summary, the Partnership provided the following clarifications to its request:

Expectations of the Partnership Regarding the AQMD’s Participation:
The Partnership would like the AQMD to fully participate in both the Steering Team and Working Group meetings, and provide support commensurate with the other partners (see the Proposal section).

Status as a Full Partner:
The AQMD is being invited to participate as a full partner and not as an Associate member.

Reason in Delay in Inviting the AQMD to Join:
The idea for establishing the voluntary partnership began to crystallize in late 1998 through informal discussions among ARB staff and the Fuel Cell Alliance consisting of DaimlerChrysler, Ford and Ballard. There was a sense of urgency to formalize and announce the partnership as soon as possible. Fuel providers were recognized as a critical early addition to the core group prior to any announcement. There was an understanding that additional full partners, including other government entities such as the AQMD, would be invited at a later date.

Intention to Broaden the Partnership’s Outreach:
The Partnership plans to invite other key industry members to become associate partners as their expertise is needed to implement the programs envisioned by the Partnership. As a full partner, the AQMD is being asked to support the goals and objectives of the Partnership, which will include support of partnership expenses and may include support of fuel cell vehicle demonstrations. The AQMD is also being invited to provide representation on supporting teams, and participate in guiding the project to completion in 2003. Specifically, the Partnership seeks to achieve four main goals:

There were also several additional concerns identified at the Board’s January 21, 2000 meeting. These concerns related to the initial cost obligations of becoming a full member of the Partnership, the legal and cost liabilities of terminating such membership for any reason, and the expectations which the Partnership has for current and future funding support.

At the January 21, 2000 meeting of the District Board, staff was directed to bring the issue of membership in the California Fuel Cell Partnership back to the Technology Committee and the Administrative Committee. Specifically, the Board asked that clarification be sought from the Partnership regarding the specific financial obligations of membership and the costs to the District if it decides to terminate its membership. Budgets for administrative costs for future years are subject to approval by all Partners; if the District does not agree to future year budgets, it may withdraw from the partnership in the future.

At the January 28, 2000 Technology Committee meeting, Tom Cackette of the California Air Resources Board provided information on these issues on behalf of the Partnership. He indicated that the District’s initial first calendar year 2000 share of the administrative costs of the Partnership will be approximately $84,000. He also indicated that there would be no additional legal obligation to the District to share future costs incurred by the Partnership unless the District specifically committed to provide additional funding for future projects to be undertaken by the Partnership. If the District decides to terminate its membership in the Partnership, the only cost liability would be the unpaid portion of the initial $84,000 share of expenses which the District initially will incur upon becoming a formal full member, or its share of the future annual administrative budgets if the District withdraws after a budget has been adopted in a future year.

At the January 28, 2000 Technology Committee, Committee Chair Bernson requested the matter be referred to the February 25, 2000 Technology Committee for further review, due to lack of a quorum at the January committee meeting. At the February 11, 2000 Administrative Committee meeting, the committee expressed strong interest in obtaining annual updates from the staff on the progress and status of the Partnership prior to the Board authorizing future funding for the AQMD's share of future-year Partnership common expenses. The Committee also indicated that they were opposed to any AQMD funding for the Partnership be used for public relations-related activities.

At the February 25, 2000 Technology Committee meeting, there was concurrence with the approach outlined at the February 11, 2000 Administrative Committee meeting as described above. Based on this understanding, the proposal to join the Partnership was approved unanimously by the members present at the February 25, 2000 Technology Committee meeting.

Phase I of the Partnership’s program ran through calendar year 1999, and focused on development of vehicle, infrastructure and outreach plans for future projects. Phase II, which runs through calendar years 2000-2001, involves the demonstration of fuel cell cars and buses using hydrogen fuel. Phase III, which runs through calendar years 2002-2003 involves the demonstration of cars and buses using methanol or hydrogen fuel. Expansion of this latter phase may include a limited number of fleet customers beginning in 2003. The Partnership expects all full partners to share equally in the common partnership expenses. Specific request for AQMD funding for additional projects, for example, specific technology and demonstrations will be evaluated by staff, and if warranted, will be brought to the Board for approval.

The efforts of the Partnership are expected to have a significant effect on the pace and scope of fuel cell vehicle commercialization. The Partnership has identified four major objectives needing to be achieved to commercialize fuel cell engines for automobiles. The first is to refine the development and size of the engine so that it can operate on a liquid fuel and not take away from the passenger and cargo space of the vehicle. The second is to reduce the cost of the fuel cell engine so that it is competitive with today's ICE. The third is to develop the manufacturing processes that will be required to produce fuel cells and fuel cell engines in automotive volumes. And fourth, depending on the choice of fuel, infrastructure investments will have to be made to support wide-scale introduction.

The Partnership will expedite the commercialization of fuel cell vehicles by helping to address these objectives. The AQMD’s Air Quality Management Plan (AQMP) considers fuel cell vehicles to be a core technology which is needed to continue our progress in attaining and maintaining clean air standards. Membership in the Partnership is consistent with the November 1998 update of the Technology Advancement Plan under Project 98M13-3, Demonstration of Fuel Cells in On- and Off-Road Vehicle Applications. The AQMD supports the ARB’s zero-emission-vehicle requirement and strives to educate public and private organizations regarding the benefits and characteristics of fuel cell vehicles.

Section VIII.B.2. of the Procurement Policy and Procedure identifies four major provisions under which a sole source award may be justified. This request for a sole source award is made under provisions c(1) and d(1): The proposed contractor has unique experience and capabilities, and the project has multiple co-sponsors. The Partnership is a unique entity within California and throughout the U.S. It is considered the principal vehicle by which fuel cell commercialization can be expedited in California. AQMD participation in its activities will reinforce the goals of the AQMP.

The members of the Partnership agreed in October 1999 to establish their calendar year 2000 share at $84,000 to support the common expenses of the Partnership. Bevilaqua-Knight, Inc., has been retained by the Partnership through a subcontract agreement with Ballard Power Systems to provide the needed support for the common tasks agreed to by the Partnership. BKI has an excellent track record in providing program management, technical and market evaluations, and communications and public information materials needed to commercialize new products for public and private sector clients, including original equipment manufacturers, in the energy and transportation fields, with a specialty in electric drivetrain technology. The common budget agreed upon so far by the Partnership provides for the following activities which are overseen by BKI:

The District, if it joins the Partnership, would be legally obligated and responsible for $84,000 in first-year (FY2000) expenses if it chooses to join as a full partner. Based on the direction of the Administrative and Technology Committee, the District’s $84,000 for BKI will not be used for any public information tasks provided by BKI to the Partnership. It is, therefore, recommended that the Board authorize up to $84,000 in funding support for BKI as AQMD’s share of the common Partnership expenses for FY 2000, and that this funding be earmarked for technical tasks related to fuel cell technology commercialization issues. Future fiscal year funding authorization requests will be brought back to the Board on a year to year basis. In addition, it is recommended that the Board authorize the Chairman to sign the attached State of Intent and Addendum regarding confidentiality, subject to the provisions of the California Public Records Act. The Statement of Intent (copy attached) is labeled Statement of Intent "Addendum" to indicate that other partners have already signed the original Statement of Intent, which contains the same provisions. Although the Statement of Intent states it creates no legal rights or obligations between the parties, this does not protect the District in the event of a third-party lawsuit. For those projects which the District chooses to fund, the contract by which funding is transferred will provide adequate protection against third-party liability. However, there remains a potential for liability for damages resulting from contracts entered into on behalf of the Partnership, even though the District is not signatory to the contract. It is not possible to quantify any possible liability. It is, therefore, recommended that the District agree to sign the Statement of Intent only on the condition that other Partnership members agree to language which would protect the District from liability for contracts to which we are not a party.

To provide additional context for the funding of the common expenses, the following table shows the current and projected cost sharing for the common Partnership budget expenses:

ORGANIZATION	Amount
Original Total Common Budget for Calendar Year 2000, approved on October, 1999:	$754,000
Original Pro Rata Share (for State plus 8 Other Organizations, or 9 shares total)	84,000
Projected Common Budget for Calendar Year 2001 (Assuming AQMD Membership, along with DOE)	1,100,000
Projected Share for Calendar Year FY 2001 Common Expenses:	100,000

The Partnership has stated that the District’s share of the FY 99-00 common partnership costs (administrative, technical and program management cost, excluding any public relations related costs) associated with our participation in the Partnership will be $84,000. Authorization for additional future funding of vehicle demonstration activities, such as the planned fuel cell bus demonstration project, may be sought from the Board in the future. However, joining the Partnership creates no legal obligation to fund such projects.

To support on-going staff participation in the activities of the Partnership, sufficient funds have been made available in the FY 1999-2000 Budget from the Clean Fuels Fund, established as a special revenue fund resulting from the state-mandated Clean Fuels Program, and the ARB. The Clean Fuels Program, under Health and Safety Code Sections 40448.5 and 40512 and Vehicle Code Section 9250.11, establishes mechanisms to collect revenues from mobile sources to support projects to increase the utilization of clean fuels, including the development of the necessary advanced enabling technologies. Funds collected from motor vehicles are restricted, by statute, to be used for projects and program activities related to mobile sources that support the objectives of the Clean Fuels Program.

Additional authorization for funding of vehicle demonstration activities, such as the planned fuel cell bus demonstration project, and other activities of the Partnership, may be sought from the Board in the future.

A - Letter of Initiative dated October 12, 1999, with Statement of Intent Addendum and
Confidentiality Addendum
B - Letter of Clarification dated November 18, 1999