BOARD MEETING DATE: April 4, 2003 AGENDA NO. 6

Fuel cells are an advanced clean air technology which offers the potential for extremely high efficiencies, power independence, and, most importantly, reduced or near-zero air pollutant emissions. The California Stationary Fuel Cell Collaborative (CASFCC), whose mission is to promote fuel cell commercialization to reduce or eliminate air pollutants and greenhouse gases, indicates that cost is the major barrier to fuel cell commercialization due to low production rates. Manufacturers further indicate that these costs can be competitively reduced with increased production volume. It is therefore necessary to provide incentives for businesses to install fuel cells in order to accelerate commercialization, gain operational experience, develop a reliability database, and achieve public awareness of the efficiency and air quality benefits. An existing incentive program by the California Public Utilities Commission program provides potential incentives up to 40% of total out-of-pocket company costs.

In October 2002, to further promote fuel cell deployment, the Board authorized an RFP for installing stationary fuel cells in the South Coast Air Basin in an amount not to exceed $1,000,000. The RFP was closed in December 2002 and a four-member review panel was convened to evaluate the received proposals. This letter presents the results of the review panel and recommends the level of funding for the projects.

Seven proposals were received, totaling over $3.6 million in requested funding and over $32.8 million in total project costs. The total proposed installed fuel cell capacity is over 3.8 MW. The projects encompass all of the currently available fuel cell technologies: molten carbonate (MCFC), solid oxide (SOFC), proton exchange membrane (PEM), and phosphoric acid (PAFC). Of these seven proposals, staff recommends funding portions of two projects.

The seven proposal teams represent a diverse selection from industry, academia, and municipalities. The primary proposing entity for each team is listed below:

The proposals were reviewed and evaluated according to established AQMD guidelines using the criteria outlined in the RFP. The review panel consisted of fuel cell specialists from CARB, the California Energy Commission, the U.S. Department of Defense, and the AQMD; comprise of four males, One Asian-American and three Caucasian.

Three companies did not meet the minimum passing score for technical criterion. The following table presents the average technical and cost leveraging scores from the RFP review panel for the other four proposals, which met the minimum technical requirements.

	CCMA	Anaheim	Logan	UTCFC
Technology	MCFC	PAFC	PAFC	PEM
Total Project $	9,884,000	1,627,000	4,656,000	2,586,000
Requested $	1,000,000	188,000	400,000	400,000

Technical	62.6	63.8	62.4	61.7
Cost leveraging	15.6	20.0	14.4	14.4
Total	78.3	83.8	77.8	76.1
Rank	2	1	3	4

As outlined in the RFP and AQMD guidelines, the proposals must receive a score of 56 points or greater on the technical portions of the project to be evaluated further. As a result, the top four ranked projects were the City of Anaheim, Logan Energy, CCMA, and UTCFC.

The intent of the RFP is to leverage AQMD funding to further the Clean Fuels Program the CASFCC by promoting the commercialization of clean, near-zero fuel cell technologies. The PAFC, however, is the oldest of the available fuel cell technologies, with 30 demonstrations by the Department of Defense alone and over 250 units shipped by UTC since 1991 (the AQMD also has the first commercial PAFC operating at the Diamond Bar headquarters). It is clear that further demonstrations and experience will not aid in reducing the technology’s costs, promote wider application, or accelerate its commercialization potential. For these reasons, the evaluation panel and the AQMD staff recommend no funding to the PAFC projects despite the higher rankings in the scoring. The AQMD’s Procurement Policy authorizes the Board to select other than the highest scoring proposal if it presents the "best value to the AQMD considering cost and technical factors." (§VIII(D)(2)(e).) The RFP indicated that preference will be given to projects that integrate innovative and cost-effective advanced technologies. Given the closeness in scores, the more innovative technologies were preferred.

AQMD staff therefore recommends contract awards to partially fund the remaining two top-rated proposals:

The partial funding of each proposal is recommended in order to better leverage AQMD funds and install a greater number of different, clean technologies. The funding amounts represent approximately 75% of reasonable requested costs for both proposals within the authorized $1 million.

California Cast Metals Association (CCMA)
The CCMA proposes to install four 250 kW Fuel Cell Energy molten carbonate fuel cells at three of their metal casting facilities within the South Coast Air Basin: Fontana, Carson, and Rancho Dominguez. These high temperature fuel cells will be used for metal pre-heating or other co-generation applications depending on the installation site. CCMA is partnering with Emergent Energy Group, who will own and operate the fuel cell units with guarantees for performance and warrantees from Fuel Cell Energy. The amount requested is $1,000,000 at an overall project cost of $9,884,448. Staff proposes to not fund $60,000 in website and CD creation outreach costs and consequently reduced the requested amount to $940,000. To provide greater use of available funds, staff therefore recommends funding of $701,000 or 74.6% of the reasonable requested amount. This represents an AQMD cost share of 7%.

UTC Fuel Cells (UTCFC)
UTCFC is partnering with Southern California Gas Company and Walt Disney Imagineering Research to install four 150 kW PEM units at two demonstration sites within the Disneyland complex in Anaheim or possibly elsewhere within the Company territoryAQMD jurisdiction. The stationary PEM product is seen as the commercial successor to the current PAFC units offered by UTCFC and represents a new technology with faster startup, smaller footprint, and simpler installation than its predecessor. Although the project represents one of the first deployments, and therefore may include higher risks, the proposers offer an innovative mitigation plan by requesting zero funding from the AQMD for the first phase of the project. During this phase, the AQMD would be actively engaged to help select the final sites and monitor the progress of the prototype testing. Based on the progress of the technology, staff will be able to determine prior to the start of the second phase whether to continue the project and commit the requested funding. The amount requested is $400,000 at a total project cost of $2,585,852. Staff recommends funding $299,000 or 74.6% of the requested amount contingent upon the success of the first phase. This represents an AQMD cost share of 12%.

The proposed project is included in the June 7, 2002 Advanced Air Pollution Research Plan under item D-12, "Demonstration of Commercial and Large Scale Fuel Cells."

The AQMP promotes the expedited implementation of advanced technologies and clean burning fuels in Southern California to achieve air quality standards. These contracts will demonstrate the technological feasibility of near-zero emission fuel cells. As these projects demonstrate commercial viability, the technology will increase in acceptance and lead to decreased costs, and eventual widespread application. The impact of higher efficiency, lower polluting energy production will substantially reduce emissions in the South Coast Air Basin.

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 from 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 the AQMD Procurement mailing list. Notice of the RFP was mailed to the Black and Latino Legislative Caucuses and various minority chambers of commerce and business associations placed on the Internet at AQMD’s Web site [http://www.aqmd.gov, "Business and Job Opportunities"]; and made available on AQMD’s bidder’s 24-hour telephone message line (909) 396-2724. Staff also conducted outreach efforts to specific sectors, such as transportation providers, construction and building industry, and port operations.

The total amount of AQMD funding for this program shall not exceed $1,000,000. Sufficient funds are available from 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.