BOARD MEETING DATE: March 7, 2003
AGENDA NO. 5

Execute Contracts to Develop Production of LNG Fuel in South Coast Air Basin

SYNOPSIS:

On October 4, 2002, the Board approved the release of an RFP to solicit cost-share proposals for the production of liquefied natural gas (LNG) fuel in the South Coast Air Basin and directed staff to work with potential stakeholders, including local fleet operators, state and federal agencies to seek further co-funding. Proposed projects must be located within the South Coast Air Quality Management District, have a minimum capacity of 5,000 gallons per day and may request cost-share funds for capital investment costs only. Four proposals were received by the RFP deadline of Tuesday, December 17, 2002. This action is to approve multiple contract awards from this RFP.

COMMITTEE:

Technology, February 28, 2003, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Chairman to execute the following contracts from the Clean Fuels Fund:

1. A contract with Praxair, Inc., in an amount not to exceed $750,000, to offset the costs of purchasing and installing an LNG production facility at the Wilmington air separation facility.
   
   
2. A contract with Cryogenic Equipment & Services LTD., in an amount not to exceed $176,079, to offset the costs of purchasing and installing an LNG production facility at an existing Southern California Gas Company compressed natural gas station.
   
   
3. A contract with Waste Management Energy Solutions, in an amount not to exceed $300,000, to offset the costs of purchasing and installing an LNG production facility at the Bradley Landfill, located in Sun Valley.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

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 was also eligible to apply under this RFP. AQMD funding was designed to offset capital investment costs, resulting in conveniently located, publicly accessible fueling stations.

Proposal

Four proposals were received, totaling over $4 million in funding requests for a total projects value of over $22 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 requests that an additional $300,000 from the Clean Fuels Fund originally allocated by the Board for the demonstration of undefined experimental LNG production technologies using landfill gas as feedstock be added to the amount of the RFP, 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 three different facilities, representing diversity in LNG production fueling type and location. Staff requests additional time to evaluate the fourth proposal with the potential to award any remaining funds in the future.

Benefits to AQMD

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.

Outreach

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.

Panel Composition

Proposals received were evaluated by a diverse, technically qualified panel 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.

All panelists were male; one Asian American and two Caucasian.

Bid Evaluation

Four proposals were received, totaling over $4 million in funding requests for a total projects value of over $22 million. Not all applicants received the total requested amount of funding, as allowed for in the RFP. Proposals receiving a lower score than others did not necessarily receive the requested level of funding. Stations that would provide the overall greatest value to the AQMD did receive requested funding. As limited funding is available, only those proposals that identified the most cost effective or efficient method of producing LNG were considered to receive full funding.

In accordance with approved AQMD RFP guidelines, the least cost proposal was awarded the most points in the cost category. All other proposals received a percentage of that highest score, with proposals costing over twice the lowest score getting zero points. Since this was not a solicitation for Research and Development projects, a proposal did not have to receive a minimum score in order to receive funding. Table 1, attached, provides the scoring totals for the 4 proposals received. Table 2 provides a summary for the 4 proposals, including amount of funding requested, total project amount, LNG production capacity and the recommended award.

Waste Management Energy Solutions, Inc, proposes to build a new gas liquefaction plant using Cryofuels technology at the Bradley Landfill in Sun Valley. While their proposal does not fit the RFP guidelines, they are proposing a system that would take landfill gas, purify it, then cool it down to become 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, however staff recommends demonstrating the technology using $300,000 from the Clean Fuels Fund originally allocated by the Board for the demonstration of experimental LNG production technologies using landfill gas as feedstock. Total funding requested was $1,500,000 for a total project cost of $5.5 million. Staff recommends 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 proposal 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 Cryogenic Equipment & Services LTD’s request on a prorated basis in an amount not to exceed $176,079. 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 Basin.

SunLine Tansit, in association with ENRG, Inc. and Cosmodyne, Inc., proposes to build a new natural gas liquefaction plant using traditionally technology at Sun Line’s Thousand Palms transit facility, using pipeline natural gas. Total funding requested was $1,500,000 for a total project cost of $9.8 million. Staff is recommending that additional time be given to further clarify the technology and discuss with project proponent the viability of project going forward with less dollars than requested. Staff may go back to the Board with contract recommendation for remaining funds in RFP.

Sole Source Justification

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 projects 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 did not meet the minimum 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. WM Energy Solutions is requesting $300,000 in support for the project from the AQMD and will commit the remaining $5.2 million to complete the project.

Resource Impacts

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 $1,226,079 from the Clean Fuels Fund. The Clean Fuels Program, under Health and Safety Code 40448.5 and 40512 and Vehicle Code 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.

Attachment

Table 1, Evaluation of Proposals RFP #P2003-13 Recommended for Awards
Table 2, Proposal Summary

ATTACHMENT
TABLE 1
Evaluation of Proposals RFP #P2003-13 Recommended for Awards
 

TABLE 2
Proposal Summary
 

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