South Coast Air Quality Management District

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Modify Term of AQMD Participation in California Fuel Cell Partnership

SYNOPSIS:

On March 17, 2000, the Board conditionally approved joining the California Fuel Cell Partnership (CaFCP) as a full member. One condition was the addition of language to the Statement of Intent providing adequate protection from potential liability. After several months of negotiations, the full members could not reach consensus for an Indemnification Agreement that addressed liability issues. Some steps have been taken that may reduce, but not eliminate, potential liability. Nevertheless, based on progress achieved and the potential benefits of accelerating the commercialization of fuel cell vehicles, staff recommends modifying the term of AQMD membership in the CaFCP and continuing its full participation.

COMMITTEE:

Technology, August 25, 2000, Recommended for Approval

RECOMMENDED ACTION:

1. Modify the term of AQMD participation in the California Fuel Cell Partnership as a full member to remove the condition requiring language to the statement of intent providing adequate protection from potential liability (Attachment A); and
   
   
2. Accept the understanding that financial obligation beyond the first year $84,000 share of the CaFCP common expenses for calendar year 2000 will be paid to Bevilaqua-Knight as the result of the re-authorization being provided with this action. All future financial obligations will be at the full discretion of Board at the time that future funding requests are made, as no automatic additional financial obligations are incurred as the result of this re-authorization request.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The California Fuel Cell Partnership (CaFCP) was formally initiated in April of 1999. Through this public/private effort, automobile companies, technology providers, fuel suppliers, and government agencies have joined together to demonstrate fuel cell vehicles under real day-to-day driving conditions. The CaFCP will place approximately 50 fuel cell passenger cars and fuel cell buses on California roads between 2000 and 2003. In addition to testing the fuel cell vehicles, the CaFCP will also identify fuel infrastructure issues and help prepare the California market for this new technology.

The goals of the CaFCP include the following:

1. Demonstrate vehicle technology by operating and testing the vehicles under real-world conditions in California;
   
   
2. Demonstrate the viability of alternative fuel infrastructure technology, including hydrogen and methanol stations;
   
   
3. Explore the path to commercialization, from identifying potential problems to developing solutions; and
   
   
4. Increase public awareness and enhance opinion about fuel cell electric vehicles, preparing the market for commercialization.

The CaFCP has grown with the addition of new participants. The membership currently includes six auto manufacturers (DaimlerChrysler, Ford Motor Company, Honda, Hyundai, Nissan, and Volkswagen), three energy providers (BP Amoco, Shell, and Texaco), two fuel cell companies (Ballard Power Systems and International Fuel Cells), and five government agencies (AQMD, CARB, California Energy Commission, U.S. Department of Energy, and U.S. Department of Transportation).

In addition, associate partners have joined to contribute needed resources. Air Products and Chemicals, Linde AG, Methanex, and Praxair are providing fueling infrastructure support. Two California transit agencies, AC Transit and SunLine Transit, are participating as the first host sites for the demonstration of fuel cell-powered transit buses.

Phase I of the CaFCP 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.

Proposal

On March 17, 2000, the Governing Board conditionally approved joining the California Fuel Cell Partnership (CaFCP) as a full member. One condition was the addition of language to the CaFCP Statement of Intent providing adequate protection for the AQMD from potential liability. Although the Statement of Intent states it creates no legal rights or obligations between the parties, this does not protect the AQMD in the event of a third-party lawsuit. For those projects that the AQMD 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 CaFCP, even though the AQMD is not signatory to the contract.

The CaFCP has pursued, through negotiations among all the full members’ legal counsel, the development of a consensus Indemnification Agreement that would address the issue of potential liability. The proposed Indemnification Agreement included four major sections:

• Warranties and representations – essentially a disclaimer that the CaFCP is not a legal partnership.
• Indemnification and contribution – the core of the indemnification agreement.
• Confidentiality – language providing protection for confidential information.
• Dispute resolution – defines the dispute resolution process among CaFCP participants through arbitration.

After several months of negotiations, the sixteen full members of the CaFCP could not reach consensus for an Indemnification Agreement, and as a result, deleted the controversial indemnification and contribution section of the Indemnification Agreement.

However, the automobile manufacturers and fuel providers determined that the greatest potential for liability would probably be associated with the refueling of the hydrogen fuel cell vehicles. As a result, the automobile manufacturers and the fuel providers will execute individual agreements that address the responsibilities and liabilities related to the use of the hydrogen fueling facility at the CaFCP facility in West Sacramento, CA. These agreements may also help to reduce the risk and potential liability to the other CaFCP members.

At the August 25, 2000 Technology Committee meeting, Committee members directed staff to explore the possibility of having additional general liability insurance to cover any liability that might arise from participation in the California Fuel Cell Partnership. Subsequent to that, staff has recommended the AQMD secure additional liability insurance. This arrangement covers the AQMD's 275 vehicle fleet as well as providing similar coverage for any liability incurred from our participation in the California Fuel Cell Partnership. A presentation was made to Technology Committee members at the September 22, 2000 meeting indicating that obtaining such general liability insurance would provide protection over and above the self-insurance currently in place. The Committee noted their agreement that additional coverage would be prudent.

Based on progress of the CaFCP to date, the stated intentions of the participants, and the potential benefits arising from the successful demonstration of fuel cell vehicles through the CaFCP, it is recommended that the AQMD continue as a full member, with staff continuing to work toward minimizing potential liability.

Benefits to AQMD

The efforts of the CaFCP are expected to have a significant effect on the pace and scope of fuel cell vehicle commercialization. The CaFCP 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 CaFCP is consistent with the March 2000 update of the Technology Advancement Plan under Project 2000M4-3, 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.

Resource Impact

The AQMD’s share of the calendar year 2000 common project costs, including administrative, technical and program management cost, but excluding any public relations related costs, associated with participation in the CaFCP is $84,000.

Bevilaqua-Knight, Inc. (BKI), has been retained by the CaFCP through a subcontract agreement with Ballard Power Systems to provide the needed support for the common tasks agreed to by the CaFCP. 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 CaFCP provides for the following activities which are overseen by BKI:

• Development of facility specifications for hydrogen utilization (through a subcontract with Booz Allen & Associates);
• Conduct a safety analysis of hydrogen use;
• Provide public information and outreach to potential users and the general public through newletters, special demonstration events, videos, etc.;
• Support special studies related to fuel cell vehicle and infrastructure design, costs, performance and/or commercialization issues;
• Contract management.

Based on the direction of the Administrative and Technology Committee in February 2000, the AQMD’s $84,000 for BKI will not be used for any public information tasks provided by BKI to the CaFCP.

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 CaFCP creates no legal obligation to fund such projects.

Sufficient funds are available in the Clean Fuels Fund, established as a special revenue fund resulting from the state-mandated Clean Fuels Program. 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.

Attachment

A - Statement of Intent Addendum and Confidentiality Addendum

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