BOARD MEETING DATE: May 6, 2005
AGENDA NO. 11

Execute Contracts to Cosponsor Incentive Buy-down Program for CNG Home Refueling Appliance

SYNOPSIS:

Light- and medium-duty natural gas vehicles (NGVs) have been used primarily by centralized fleets, and expanding the use of alternative fuel vehicles to the general consumer market will further reduce air pollution in the Basin. Market research indicates that a major concern of consumers owning alternative fuel vehicles is availability of fueling infrastructure. Similar market research has indicated that availability of a home refueling appliance (HRA) to the vehicle consumer market would broaden the consumer base for NGVs. The AQMD has funded the development and commercialization of a HRA and the appliance is now available to the consumer. Due to the extensive research development efforts, the initial rollout cost of the HRA is significantly more expensive than anticipated. As such, last month the MSRC approved a buy-down program for the HRA. This action is to request Board approval to match the MSRC buy-down incentive for the HRA to further incentivize consumer interest in alternative fuel vehicles. Specifically, the proposed action is to execute sole-source contracts with American Honda Company at a cost not to exceed $300,000 and Fuelmaker Corporation at a cost not to exceed $100,000, to provide an additional $1,000 in incentive funding per HRA. The total cost will not exceed $400,000 (for 400 units) from the Clean Fuels Fund.

COMMITTEE:

Technology, April 22, 2005, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Executive Officer to execute the following sole-source contracts to provide buy-down incentive funding equal to the MSRC buy-down incentive funding approved on April 1, 2005 for up to 400 CNG home refueling appliances (HRAs) in amount not to exceed $1,000 per HRA, and a total cost not to exceed $400,000 from the Clean Fuels Fund:

1. A contract with American Honda Company in an amount not to exceed $300,000 to provide a $1,000 per HRA unit buy-down incentive, for up to a total of 300 HRA units.
    
2. A contract with Fuelmaker Corporation in an amount not to exceed $100,000 to provide a $1,000 per HRA unit buy-down incentive, for up to a total of 100 HRA units.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Currently, natural gas vehicles (NGVs) are the cleanest internal combustion powered vehicles on the market with the NGV being a platform to hydrogen fueled vehicles and zero emission vehicles. Light- and medium-duty natural gas vehicles (NGVs) have been used primarily by centralized fleets and expanding the use of alternative fuel vehicles to the general consumer market will further reduce air pollution in the AQMD.

Although light-duty passenger NGVs have been commercially available for more than 20 years, market research indicates that one of the major concerns of consumers owning alternative fueled vehicles is availability of fueling infrastructure. Similar market research has indicated that availability of a home refueling appliance (HRA) would broaden the consumer base for NGVs. The AQMD has funded the development and commercialization of the HRA manufactured by Fuelmaker Corporation of Canada; this appliance is now available to the consumer.

Fuelmaker Corporation with sponsorship from CARB, the Department of Energy (DOE), Technology Partners Canada, and the AQMD (funding approved at the Board’s August 2001 and October 2002 meetings) set out to develop a safe, cost-effective, standardized CNG home refueling appliance. The HRA is a small, compact, gas compressor capable of delivering 3,000 or 3,600 psig natural gas at a rate of 0.3 ft³/hour, making it a suitable overnight fueling appliance for light-duty NGVs. The unit measures 30"x14"x13" (HxWxD) and weighs approximately 85 pounds and is wall mounted (it can fit between studs of a standard unfinished residential wall) either indoors in an unoccupied area (i.e. garage) or outdoors.

On February 4, 2005, the Fuelmaker HRA known as Phill received CSA (Canadian Standards Association International) certification for use in the United States as an outdoors or in-garage vehicle refueling appliance. Commercial production of Phill began February 9, 2005. Due to the extensive amount of research and development efforts the initial production cost of the HRA is significantly more expensive than anticipated. Market research in 2000 showed consumers willingness to pay $1,500 to $2,000 for a home refueling appliance. The initial cost of the HRA is expected to be $3,100 plus about $700 average cost for installation.

Fuelmaker and American Honda have agreed to sell and market Phill based on vehicle ownership status. Existing NGV owners will purchase Phill directly from Fuelmaker, while Honda NGV buyers can purchase the unit through Honda dealerships. Fuelmaker will be responsible for all site inspections and installations through a network of Fuelmaker trained and certified installers. Fuelmaker’s will provide a site inspection within 24 hours of request and a cost quote within 48 hours of the site inspection. Delivery time is currently two weeks from order date.

Proposal

This action is to request Board approval to execute contracts with American Honda Company ($300,000 for up to 300 HRA units) and Fuelmaker Corporation ($100,000 for up to 100 HRA units) to match the MSRC buy-down incentive for the CNG home refueling appliance to further incentivize consumer interest in alternative fuel vehicles. Specifically, the proposed action will provide an additional $1,000 in incentive funding per HRA at a total cost not to exceed $400,000 from the Clean Fuels Fund. If approved, the incentive funding from the MSRC and AQMD will total $2,000 per HRA for a total of 400 HRAs. In addition, if this proposal receives Board approval, staff recommends these funds be made retroactive to April 1, 2005 to coincide with Board approval of the MSRC funds for this same program. Funding for the proposed buy-down program is available from the Clean Fuels Fund.

Benefits to AQMD

Gasoline and diesel fueled mobile sources are a significant source of emissions in the AQMD and alternative fueled vehicles are a means of reducing these emissions. This project will incentivize consumer interest in alternative fueled vehicles by adding to and matching the buy-down incentive approved on April 1, 2005 for MSRC funds for the newly developed home refueling appliance by Fuelmaker Corporation. This project is included in the Fuels Program Plan Update for 2005 as "Demonstrate Natural Gas Vehicle/CNG Home Refueling Appliance Buydown."

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 provision B.2.c.(2), the project involves the use of proprietary technology of Fuelmaker, and B.2.c.(1), the unique experience and capabilities of the proposed contractor (Honda, which is the only supplier of NGVs for the residential market).

Resource Impacts

The amount of incentive funds provided to this buy-down program total $800,000. On April 1, 2005, the Board approved MSRC funding in the amount of $400,000 for this same program. Staff recommends the AQMD match the MSRC funds in an amount not to exceed $400,000 from the Clean Fuels Fund.
 

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.

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