BOARD MEETING DATE: April 4, 2003 AGENDA NO. 3

On October 4, 2002, the Board approved release of a $1,436,318 RFP to solicit cost-share proposals for the production of liquefied natural gas (LNG) fuel within the South Coast Air Basin. Proposed projects were required to provide a detailed description of the proposed natural gas liquefaction technology, feed gas pretreatment, liquefaction process, LNG storage, method of delivering LNG to vehicle fueling stations within the South Coast Air Basin, and project financing. Proposed projects could include on-site, skid-mounted, pressure-drop, or peak shaving liquefiers, or other types of natural gas liquefaction plants. Proposed projects could also include the expansion of an existing facility, such as a natural gas processing and distribution facility or a power plant (including cogeneration). Projects including the installation of existing liquefaction equipment at a new location within the South Coast Air Quality Management District boundaries were also eligible to apply under this RFP. AQMD funding was designed to offset capital investment costs, resulting in conveniently located, publicly accessible fueling stations.

Four proposals were received in response to RFP #P2003-13, totaling $3.68 million in funding requests for a total projects value of $21.4 million. The total amount of LNG production capacity totaled 109,000 gallons per day. According to the CEC projections for LNG fueling requirements in 2005, California will need 120,000 gallons per day. With the anticipated increase in LNG-fueled vehicles under the current fleet vehicle rules and incentive programs, it is expected that over half of the LNG demand will be in Southern California. The total amount of the RFP was $1,436,318, from the Clean Fuels Fund. As these four proposals all have significant merit in terms of delivering near-term LNG production within the Basin and one of the proposed projects is at a landfill site, staff proposes that an additional $300,000 from the Clean Fuels Fund (originally allocated by the Board on September 21, 2001, for the demonstration of undefined experimental LNG production technologies using landfill gas as feedstock) be added to the $1,436,318 budgeted for LNG production amount , for a total amount of funding of $1,736,318. This funding is designed to offset capital investment costs for LNG production facilities. Staff requests approval for multiple awards to four different facilities, representing diversity in LNG production fueling type and location.

In accordance with the AQMD’s consulting and contracting policies, a public notice advertising the RFP and inviting bids was published in the following publications:

1.	Antelope Valley Press	10.	Korea Central Daily	19.	Precinct Reporter
2.	Black Voice News	11.	La Opinion	20.	Press Enterprise
3.	Chinese Daily News	12.	La Prensa Hispana	21.	Rafu Shimpo
4.	Desert Sun	13.	La Voz Publications	22.	San Bernardino Sun
5.	Eastern Group Publications	14.	Los Angeles Daily News	23.	State of California Contracts
6.	El Chicano	15.	Los Angeles Sentinel		Register
7.	El Informador	16.	Los Angeles Times	24.	The Excelsior
8.	Inland Empire Hispanic News	17.	Orange County Register	25.	The Signal
9.	Inland Valley Daily Bulletin	18.	Philippine News	26.	Wave Community Newspapers

Additionally, potential bidders were notified utilizing the Los Angeles County MTA and Cal Trans Directories of Certified Minority, Women, Disadvantaged and Disabled Veterans Business Enterprises; the Inland Area Opportunity Pages Ethnic/Women Business & Professional Directory; AQMD’s own electronic listing of certified minority vendors; and AQMD Purchasing’s mailing list. Notice of the RFP was mailed to the Black and Latino Legislative Caucuses and various minority chambers of commerce and business associations; and placed on the Internet at AQMD’s Web site [http://www.aqmd.gov, "Business and Job Opportunities" icon] and AQMD’s bidder’s 24-hour telephone message line (909) 396-2724.

In addition to publication in the above-cited publications, over 100 individual RFP notices were mailed to businesses and individuals.

The four proposals received were evaluated in accordance with criteria contained in the attached RFP. The RFP panel was composed of three scoring members.

CEC, Transportation & Fuels Office, Automotive Engineer
AQMD, Assistant Deputy Executive Officer, Science and Technology Advancement
AQMD, Program Supervisor, Science and Technology Advancement.

Table 1 provides a summary for the four proposed projects, including amount of funding requested, total project costs, LNG production capacity and the scoring by the panel.

	Waste Management	Praxair	Cryogenic Equipment & Services	Sunline Transit
Location	Bradley Landfill/ Sun Valley	Wilmington	Downtown Los Angeles	Coachella Valley
Capacity (gal./day)	6,500	40,000	12,500	50,000
Total Project $	5,500,000	4,000,000	2,000,000	9,900,000
Requested $	765,660	750,000	670,000	1,500,000
Technical Score Cost Score Local Business Total	40.0	65.0 29.2 5.0 99.2	57.3 17.0 5.0 79.3	57.7 24.4 5.0 87.1
Rank		1	3	2

Waste Management Energy Solutions, Inc, proposes to build a new gas liquefaction plant using Cryofuel technology at the Bradley Landfill in Sun Valley. While this proposal does not score well as a liquefaction project under the RFP guidelines, it is a system that would take landfill gas, purify it, then cool it down to produce LNG. This is an innovative process as the technology proposed is the first commercial installation. This proposal was deemed to contain more risk than those proposals using more traditional technologies. In addition, the Board recognized the need to demonstrate the feasibility of using landfill gas as feedstock for the production of LNG and set aside $300,000 from the Clean Fuels Fund for such a demonstration on September 21, 2001. Therefore, staff recommends demonstrating the technology using the $300,000 from the Clean Fuels Fund originally allocated by the Board based upon a sole source justification described later in this letter. Total funding requested was $1.5 million for a total project cost of $5.5 million. Staff recommends AQMD funding in an amount not to exceed $300,000.

Praxair, Inc. proposed to modify their existing air separation facility, including their liquid nitrogen storage tanks, in Wilmington, CA with a refrigeration and purification system using pipeline natural gas. Total funding requested was $750,000 and the total project cost was $4 million. As Praxair’s proposal was outstanding, staff recommends fully funding the proposed project in an amount not to exceed $750,000.

Cryogenic Equipment & Services LTD proposed to modify an existing CNG fueling station owned by the Southern California Gas Company with a pressure let-down and gas purification system using pipeline natural gas. Total funding requested was $670,000 for a total project cost of $2 million. Staff recommends awarding funding to Cryogenic Equipment & Services LTD’s request on a prorated basis in an amount not to exceed $137,264. This recommended amount is calculated to apportion the remainder funding ($686,318) based on the proposed production capacity of the two remaining proposals (Cryogenic and SunLine) to maximize the potential capacity of LNG production in the District.

SunLine Transit, in association with ENRG, Inc. and Cosmodyne, Inc., proposes to build a new natural gas liquefaction plant using traditional technology at SunLine’s Thousand Palms transit facility, using pipeline natural gas. Total funding requested was $1.5 million for a total project cost of $9.8 million. Staff recommends awarding funding to SunLine Services Group request on a prorated basis in an amount not to exceed $549,054.

The Waste Management proposal is recommended for funding using the $300,000 set aside by the Board on September 21, 2001 for the use of landfill gas for LNG production and is not considered a direct response to this RFP solicitation. 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 B.2.c. (2): the project involves the use of proprietary technology; B.2.c.(3) the contractor has ownership of key assets required for project performance; and B.2.d (1) other circumstances, including projects involving cost-sharing by multiple sponsors.

Even though this project proposal did not fit the exact criteria established in the RFP, it is in the best interest of the AQMD to cosponsor the proposed project. The project contractor is Waste Management Energy Solutions (WM Energy Solutions), a wholly owned subsidiary of Waste Management, Inc. WM Energy Solutions’ goal is to establish the first commercial scale Cryofuel gas treatment and liquefaction system, to produce LNG at a quality level of 89% methane. One of the project participants includes CryoEnergy International. The proprietary technology, owned by CryoEnergy International, is most cost-effective when used in conjunction with treating landfill gas. Waste Management owns and operates the Bradley Landfill and is dedicating it as the project site, using the landfill gas as the feed stock to produce approximately 6,500 gallons of LNG per day. Staff is recommending an award of $300,000 in support of this project and WM Energy Solutions will commit the remaining $5.2 million to complete the project.

The AQMP relies on the expedited implementation of advanced technologies and clean–burning fuels in Southern California in an effort to achieve ambient air quality standards. By establishing a local supply of LNG fuel in the South Coast Air Basin, synergistic benefits from this project will accrue to the region. The new construction will provide a local supply of LNG fuel, thus reducing the dependency on long-distance, out-of-state supplies of LNG fuel. Producing LNG locally is expected to minimize transportation costs for public and private fleet operators subject to AQMD’s clean fleet vehicle rules. In addition to the existing infrastructure network, these new projects are strategically located to help establish an infrastructure "backbone" that will allow for fueling for both LNG and CNG types of natural gas vehicles throughout the Basin.

The Board originally allocated $3 million from the Clean Fuels Fund to co-sponsor local production of LNG. However, in its December 2001 action to co-fund the expansion of the LNG refueling infrastructure, the Board reallocated $1,563,682 to co-fund the LNG refueling infrastructure, leaving $1,436,318 to co-fund local production of LNG. At its September 2001 meeting, the Board set aside $300,000 to conduct a project to produce LNG from landfill gas. Staff is recommending that the original set-aside funds be used to co-fund the Waste Management project since the proposed project would be to construct a system to liquefy landfill gas.

The total amount of AQMD funding for the recommended awards will not exceed $1,736,318 from the Clean Fuels Fund. 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 and stationary sources to support projects to increase the utilization of clean fuels in both sectors, 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.