MEETING BEFORE THE CALIFORNIA AIR RESOURCES BOARD LINCOLN PLAZA AUDITORIUM 400 P STREET SACRAMENTO, CALIFORNIA THURSDAY, SEPTEMBER 7, 2000 8:30 A.M. Vicki L. Ogelvie, C.S.R. License No. 7871 James F. Peters, C.S.R. License No. 10063 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 ii MEMBERS PRESENT Alan C. Lloyd, Ph.D., Chairman Dr. William A. Burke Joseph C. Calhoun Dorene D'Adamo Mark DeSaulnier Dr. William Friedman C. Hugh Friedman Matthew R. McKinnon Barbara Patrick Barbara Riordan Staff: Michael Kenny, Executive Director Tom Cackette, Chief Deputy Executive Officer Mike Scheible, Deputy Executive Officer Lynn Terry, Deputy Executive Officer Kathleen Walsh, General Counsel Marie Kavan, Board Clerk PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 iii I N D E X --o0o-- Page Proceedings 1 Call to Order 1 Pledge of Allegiance 1 Roll Call 1 Opening remarks by Chairman Lloyd 1 AGENDA ITEMS: 00-8-1 Public Meeting to Consider the Support for the National Environmental Respiratory Center Introductory remarks by Chairman Lloyd 5 Staff Presentation: Barbara Waller 5 00-8-3 Public Meeting for the Biennial Review of the Zero Emission Vehicle Regulation Introductory remarks by Chairman Lloyd 7 Staff Presentation: Mike Kenny 9 Chuck Shulock 11 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 iv I N D E X (Continued) --o0o-- Page Public Comment: William Kleindeist 120 Jim Boyd 127 Dan Jacobsen 137 Eric Sletten 140 Larry Greene 147 David Harrison 151 Steven Douglas 178 Dave Hermance 195 Reginal Modlin 229 Kelly M. Brown 239 Lynn Edgerton 250 V. John White 256 Michael Field 267 Ellen Garvey 271 Henry Perea 277 Steve Larson 281 Ben Knight 288 Sam Leonard 300 Chris Noram 316 Bob Stempel 317 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 v INDEX CONTINUED Page Mr. Freeman 325 Ms. Bishop 330 Ms. Martin 331 Mr. Kirsch 338 Ms. Frank 343 Mr. Modisette 345 Mr. Hwang 350 Ms. Holmes-Gren 356 Ms. Hathaway 362 Mr. Swan 367 Ms. Hay 371 Mr. Zane 375 Mr. Moseley 379 Ms. Stephensen 385 Mr. Thompson 388 Mr. Scheidler 394 Mr. Finney 399 Mr. Doyle 403 Mr. Gage 412 Mr. Brooks 417 Mr. Hodge 427 Ms. Hastrup 435 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 vi INDEX CONTINUED Page Mr. Hastrup 437 Mr. Oxford 441 Mr. Reynolds 444 Ms. James 448 Mr. Kjaer 452 Mr. Jackson 457 Ms. Tomic 465 Mr. Lipman 470 Mr. Kobb 472 Mr. Huestis 477 Mr. Turrentine 484 Reporter's Certificate 491 Reporter's Certificate 492 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 1 1 P R O C E E D I N G S 2 --o0o-- 3 CHAIRMAN LLOYD: Good morning. The September 4 7, 2000 meeting of the Air Resources Board will now 5 come to order. 6 Supervisor DeSaulnier will lead us in the 7 Pledge. 8 (Thereupon the Pledge of Allegiance was recited.) 9 CHAIRMAN LLOYD: Will the Clerk of the Board 10 please call the roll. 11 MS. KAVAN: William Burke. 12 BOARD MEMBER BURKE: Here. 13 MS. KAVAN: Joseph Calhoun. 14 BOARD MEMBER CALHOUN: Here. 15 MS. KAVAN: Dorene D'Adamo. 16 BOARD MEMBER D'ADAMO: Here. 17 MS. KAVAN: Marc DeSaulnier. 18 BOARD MEMBER DeSAULNIER: Here. 19 MS. KAVAN: Dr. Friedman. 20 Professor Friedman. 21 BOARD MEMBER C.H. FRIEDMAN: Here. 22 MS. KAVAN: Matthew McKinnon. 23 BOARD MEMBER McKINNON: Here. 24 MS. KAVAN: Barbara Patrick. 25 BOARD MEMBER PATRICK: Here. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 2 1 MS. KAVAN: Barbara Riordan. 2 BOARD MEMBER RIORDAN: Here. 3 MS. KAVAN: Chairman Lloyd. 4 CHAIRMAN LLOYD: Here. 5 Thank you very much. 6 Before we get started, I would like to tell 7 everyone in the audience how today's proceedings will 8 be organized. 9 The first item on the Agenda concerning the 10 support for the National Environmental Respiratory 11 Center should take us less than 10 minutes overall. 12 The rest of today's meeting and as much time 13 as we may need tomorrow will be devoted to our Biennial 14 Review of the Zero Emission Vehicle Program. 15 We do not have a final count of witnesses yet 16 since people are still signing in. I would like to 17 remind people that allow they might have called ahead 18 to be put on the witness list, they still need to fill 19 out a card to make sure they get on that list. 20 Please, do that. Do not assume that because 21 you called ahead that you are automatically on that 22 list. You may find that tomorrow afternoon that you 23 are still waiting. 24 I think it is clear that we have many 25 speakers, however. Therefore, in general I will be PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 3 1 imposing a five-minute limit on each speaker to ensure 2 that everybody can be heard. 3 If necessary, and if it gets repetitive, I 4 will reduce that to three minutes. You can help the 5 Board by making your points succinctly as you can by 6 avoiding repetition of other witnesses. 7 As you know, a few parties have requested 8 slightly more time to each their testimony. For 9 example, each auto manufacturer asked for approximately 10 15 to 20 minutes to present their individual 11 experiences in developing, producing and marketing 12 ZEVs. 13 I intend to give them that opportunity since 14 their first-hand perspective is invaluable to the 15 Board's review. 16 As far as other speakers are concerned, I will 17 exercise the perogative of the Chair to extend the 18 five-minute time limit where I believe it is clear that 19 important information is being conveyed. 20 Please, I can't emphasize this enough, for my 21 colleagues and myself here, avoid repetition and be as 22 clear and concise as possible. 23 Now, a couple of housekeeping details. This 24 facility has an excellent cafeteria, and I encourage 25 you to use it throughout the day. We will not be PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 4 1 taking a formal lunch hour, but we will instead 2 continue through. We may take a short break for lunch, 3 but we will decide that as time goes on. 4 We will be stopping for short breaks 5 throughout the day. Although, we do have an additional 6 court reporter so that we should be able to go as much 7 as possible. 8 I suspect we will go into the evening hours. 9 We have made arrangements for the Board to eat dinner 10 here. The expectation that I have at this stage is to 11 go to 9:00 or 10:00, earlier if necessary. That will 12 depend on how many witnesses we have signed up and how 13 fast we can go today. 14 Our goal is to get through the bulk of the 15 witnesses today so that we do not go late tomorrow. 16 The ideal goal is to finish early tomorrow afternoon. 17 I will keep you informed as to the number of witnesses 18 signed up. 19 With that, I would like to move on to the 20 first Agenda Item, 00-8-1, and remind anyone in the 21 audience who wishes to testify on today's Agenda Items 22 to sign up with the staff outside of the auditorium, 23 and please give 30 copies of your written statement, if 24 you can, to the staff. 25 The first item is a Research Proposal. Mr. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 5 1 Croes, does the Research Division staff have anything 2 they wish to say about this proposal? 3 MR. CROES: Dr. Barbara Waller will give a 4 brief statement the item. 5 DR. WALLER: Good morning, Chairman Lloyd and 6 Members of the Board. 7 We are recommending to the Board a sole source 8 co-sponsorship for the National Environmental 9 Respiratory Center, a program located at the Lovelace 10 Respiratory Research Institute. 11 This program is a six-year examination of 12 animals and cells exposed to a series of complex 13 atmospheres. Cardiorespiratory health effects from 14 mixture exposures will be studied using a consistent 15 set of health assays. 16 The center is staffed at Lovelace, with Dr. 17 Joe Motterly, as the Director, and Dr. Rojane Hendersen 18 as the Principal Investigator. 19 The center is directed by independent external 20 scientific advisory committee. The atmospheres to be 21 studied include diesel exhaust, gasoline exhaust, road 22 dust, wood smoke, tobacco smoke, cooking fumes and coal 23 power plant emissions. 24 The health end points will include irritation, 25 and inflammation, asthma and allergies, defenses PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 6 1 against infection, heart and lung function and cancer. 2 We propose to support this program at $25,000 3 per year for two years. The contribution from the Air 4 Resources Board will be leveraged into the total 5 $24-million project. 6 This level of funding entitles the ARB to 7 center affiliate status and gives us access to 8 pre-publication results, attendance at workshops and 9 meetings. 10 Thank you. I will be glad to answer any 11 questions. 12 CHAIRMAN LLOYD: Thank you very much. 13 Any questions from the Board? 14 Yes, Supervisor Patrick. 15 BOARD MEMBER PATRICK: Mr. Chairman, I would 16 just say that, since there are no questions, I will 17 move Resolution 00-2A. 18 BOARD MEMBER RIORDAN: Second the motion. 19 CHAIRMAN LLOYD: All in favor, say aye. 20 So moved. 21 Thank you very much. Indeed, we look forward 22 to the results of that program emerging over a period 23 of time. 24 Clearly on the health effects basis, I think 25 it is very interesting to be involved with that. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 7 1 The next item is obviously the main item of 2 the day, 00-8-3, Public Meeting for the Biennial Review 3 of the Zero Emission Vehicle Program. 4 Almost exactly ten years ago, in September 5 1990, this Board approved far-reaching low emission 6 vehicle and clean fuel regulations. 7 One key feature of the regulations was a 8 requirement that 10 percent of all new light-duty 9 vehicles in model years 2003 and beyond have zero 10 emissions. 11 In the intervening ten years, we have seen 12 tremendous progress in ZEV technology. Now, for the 13 first time, we have extensive, real-world driving 14 experience with production electric vehicles. 15 My fellow Board Members and I have had the 16 pleasure of driving today's EVs, and we know first-hand 17 how well they perform. Many other drivers are in the 18 audience today. 19 When given the flexibility to meet some 20 portion of their obligation with near-zero vehicles, 21 the automobile manufacturers made remarkable progress 22 and advances on that front as well. 23 We have welcomed the recent introduction of a 24 partial zero emission conventional vehicle, and we look 25 forward to further developments. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 8 1 We also applaud the recent launch of hybrid 2 electric vehicles that offer high efficiency and use 3 advanced electric drives. Again, I can't over 4 emphasize the improvements we have seen in these 5 conventional vehicles as well, and I think those of you 6 who have not seen that, if you look at the September 7 issue of Popular Science, highlights some of the 8 achievement there and also some of the challenges 9 remaining. 10 Talking about challenges, we have got a major 11 one ahead of us. In 1990, California's population was 12 just under 30 million, and the light-duty vehicle fleet 13 traveled about 479-million miles every day. 14 Today, ten years later, the population has 15 grown to more than 34 million, and vehicle miles 16 traveled have increased accordingly. 17 Just the growth in driving over these ten 18 years, nearly 50-million miles per day, is enough to 19 drive from here to Los Angeles 125,000 times a day. 20 That's a staggering number. 21 These trends show no signs of slowing, so we 22 can't afford to stand still. 23 I look forward to hearing from all the 24 interested parties as to the path we should take to 25 bring ZEVs into the mainstream, and I appreciate all of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 9 1 you appearing before us today. 2 This will be an intense two days of 3 information exchange. So, without further ado, I will 4 ask Mr. Kenny to please begin the presentation of this 5 Item to the Board. 6 MR. KENNY: Thank you, Mr. Chairman and 7 Members of the Board. 8 When the ZEV requirement was first adopted, 9 zero emission vehicle technology was in a very early 10 stage of development. Consequently, the Board directed 11 staff to provide an update on the ZEV program on a 12 biennial basis. Today's review is the fifth such 13 review. 14 Today's meeting is informational rather than 15 regulatory. That is, there are no regulatory changes 16 that we are proposing for your consideration. 17 Today you will hear the results of an 18 intensive effort by staff over the past year to assess 19 the status of ZEV development. 20 As part of its investigation, staff has made 21 site visits to manufacturing facilities in Japan and 22 Detroit and has had ongoing conversations with EV 23 drivers, automakers, representatives of the 24 environmental community and other interested parties. 25 We have held workshops, over four lengthy PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 10 1 days, at which extensive public testimony was provided. 2 Staff also has received numerous written comments. 3 I might add that the Board and the Governor 4 have also received an unprecedented number of letters 5 on this issue. At last count, we have received more 6 than 75,000 letters in support of the ARB regulation. 7 The vast majority of the letters are before 8 you today. 9 Before the staff makes a detailed 10 presentation, I would just like to hit a few of the 11 high points regarding the things that we have found. 12 ZEVs continue to be the gold standard in our 13 fight against motor vehicle air pollution. As you will 14 hear, ZEVs are significantly cleaner than the 15 alternatives, even taking into account power plant 16 emissions. 17 To provide a comparison, on a per vehicle 18 basis, ZEVs are 15 times cleaner over the life of the 19 vehicle than the cleanest possible gasoline-powered 20 vehicle. 21 Cost, however, does remain an issue. At least 22 in the near term, ZEVs will be more expensive than 23 their conventional counterparts. This is why we need 24 to take a long-term perspective and keep in mind, as 25 the Chairman mentioned, the Board's overall strategy of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 11 1 pushing towards zero and near-zero technologies for 2 California's future. 3 Finally, you will hear significant 4 disagreement over the marketability of today's EVs. 5 Those who have driven the vehicles like them, and think 6 they meet their needs, but cost, range and recharge 7 time remain concerns as we attempt to move into a 8 broader market. 9 Mr. Chuck Shulock of the Mobile Source Control 10 Division will now make the staff presentation. 11 MR. SHULOCK: Thank you, Mr. Kenny. 12 Good morning, Mr. Chairman and Members. 13 We will get things rolling this morning with 14 an overview of the work that the staff has done to 15 support your consideration of the Zero Emission Vehicle 16 program. 17 We have a lot of information to cover, so I 18 will try to follow the admonition by being succinct and 19 to the point. 20 Next slide. 21 I will set the stage with a brief 22 introduction, describe for you the process that we have 23 followed during the course of the review and then 24 provide some background on the ZEV program and current 25 requirements. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 12 1 The main focus of my presentation will be on 2 the issues that we investigated and the results of that 3 inquiry. 4 At two points during the discussion of issues, 5 we will call upon contractors to directly present to 6 you the results of work that they did in support of 7 this review. 8 Other contractors will make presentations as 9 part of today's public testimony. 10 Finally, I will wrap things up with a brief 11 summary of the "state of the world" as we see it. 12 Next slide. 13 In 1990, the California Air Resources Board 14 embarked on an ambitious strategy to reduce vehicle 15 emissions to zero. This objective was to be achieved 16 through the gradual introduction of electric vehicles 17 into the California fleet. 18 The Zero Emission Vehicle requirement for 19 passenger cars has been adjusted twice since then, in 20 1996 and 1998. The underlying goal, however, has not 21 changed. 22 California remains committed to achieving zero 23 emissions performance wherever feasible in the vehicle 24 fleet. The challenge is determining how to achieve 25 sustainable success in the field. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 13 1 One key thing to keep in mind is that the 2 focus of the ZEV program, throughout its history, has 3 been on long-term benefits. This is not just another 4 control program that makes incremental improvements to 5 some small segment of the inventory. 6 Rather, the ZEV program involves a 7 transformation of our vehicle pollution control 8 strategy, towards vehicles with lifetime durability. 9 This has implications not just for ozone but for air 10 toxics, global warming, water pollution, hazardous 11 waste generation, energy supply and other issues. 12 The ZEV program also is technology forcing. 13 We are already beginning to see its spin-off results in 14 the form of ongoing advances in vehicle and clean 15 energy technologies. 16 These issues will be covered in more detail 17 later on in the presentation. 18 For now, however, I would like to walk through 19 the process that we have followed during the course of 20 our review. 21 I will touch on our goals as staff supporting 22 this review, our activities and some highlights of the 23 extensive public participation in this process to date. 24 Our primary goal throughout the Biennial 25 Review process has been to develop an accurate PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 14 1 portrayal of the status of ZEV technology and the 2 various related issues. 3 To ensure that we address all of the relevant 4 topics, and do so in a fair and evenhanded manner, we 5 wanted to be sure to provide ample opportunity for 6 public review and comment. 7 All of this work has been aimed towards 8 providing a solid factual foundation for the Board's 9 consideration of this complex and controversial issue. 10 Our work began more than one year ago, when we 11 first met with the automakers to discuss what we 12 expected to see covered in their 1999 product plan 13 submittals. 14 At that time, we met with other interested 15 parties to let them know how we planned to approach 16 this effort, how they could fit in and our major 17 milestones. 18 We then embarked on a lengthy period of staff 19 investigation, which included site visits to the 20 manufacturers' research and development facilities in 21 Japan and in Detroit. 22 To provide additional expertise on 23 particularly important issues, we contracted with 24 outside experts to assist us. 25 First of all, we established a new Battery PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 15 1 Technology Advisory Panel, to review battery cost and 2 availability. Dr. Kalhammer and Dr. Anderman, from the 3 Battery Panel, are here with us today and will 4 summarize their findings in a few minutes. 5 We also undertook several other contract 6 efforts. These included, first of all, an analysis of 7 full fuel cycle emissions, by Arthur D. Little, and an 8 analysis of full fuel cycle energy efficiency, 9 co-funded by the California Energy Commission, and also 10 performed by Arthur D. Little. 11 This work formed the basis of the indirect, or 12 upstream, vehicle emission results and the energy 13 efficiency slide that I will present later on. 14 We also funded a review of the secondary 15 economic benefits by the ZEV regulation, by the 16 Institute of Transportation Studies, at UC Davis. They 17 will present their results later on as well. 18 In addition, the ARB has co-funded and 19 participated in an EPRI comparison study of various 20 hybrid electric vehicles. There has been a very active 21 working group directing that effort, and you will hear 22 from them during the public comment portion of the 23 meeting. 24 Finally, ARB is co-funding a review of the 25 possible use of EV battery packs to provide distributed PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 16 1 energy services, which could reduce the effective cost 2 of a battery pack. 3 This study is being prepared by the Institute 4 of Transportation Studies and by AC Propulsion, and 5 they will speak in the public comment period as well. 6 In March of this year, we wrote up a 7 preliminary assessment of our findings at that time and 8 held a workshop to receive public comment. 9 We then revised and expanded the document, 10 released it for review and held a two-day workshop in 11 late May. 12 We received significant public comment at that 13 workshops and later on in writing. We then reviewed 14 all comments, modified the document as appropriate and 15 released it a month ago as the Staff Report for this 16 Board meeting. 17 Throughout this process, there has been a 18 great deal of public interest. I would just like to 19 touch on two aspects, letters from the public and 20 participation of today's EV drivers. 21 There have been some new deliveries, and as 22 you see before you, and as Mr. Kenny mentioned, we have 23 received around 75,000 letters expressing a view on 24 this program. The vast majority have been supportive 25 of the ARB's efforts. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 17 1 I'd like to share with you one observation on 2 the content of these letters. 3 I mentioned earlier that the ZEV program is a 4 long-term and forward-looking strategy. This seems to 5 have captured the imagination of many citizens. 6 If you open one of those boxes of letters and 7 grab a handful, you soon will run across references to 8 our future here in California, phrases such as: We owe 9 it to our children and future generations, I want the 10 air to be clean enough for my kids' kids to breathe, 11 and it is essential for the health and growth of our 12 children. 13 It is clear that the long-term nature of the 14 program is one key area of emphasis in these letters 15 that we have received. 16 One other noteworthy aspect of the review has 17 been the interest and participation of EV drivers. 18 Unlike during past reviews, when it was just a concept, 19 today there are real vehicles on the road and many 20 people using them on an everyday basis. 21 These drivers are enthusiastic about the 22 vehicles and have used a great deal of their personal 23 time to follow our efforts and sit through the 24 workshops waiting for a chance to speak. 25 The photo on the screen was taken at our March PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 18 1 workshop, where we had some 40 drivers who lined up to 2 give us a rapid fire summary of their experience. 3 That is a row of drivers waiting to speak in 4 the March workshop. 5 The next photo is from the May workshop, where 6 again a large contingent of drivers attended to voice 7 their support for the program. You will no doubt hear 8 from several of the drivers today. 9 Now that we've touched on the process, I will 10 start on the substantive discussion, beginning with 11 some brief background on the program. 12 I will mention the need for air quality 13 improvements, the environmental advantages of ZEVs and 14 the current status of the ZEV program. 15 Why are we looking for ZEVs in the first 16 place? 17 Because health-based State and Federal air 18 quality standards continue to be exceeded. Areas 19 exceeding the Federal one-hour ozone standard include 20 the South Coast Air Basin, San Diego County, the San 21 Joaquin Valley, the Southeast Desert, the broader 22 Sacramento area and Ventura County. 23 With promulgation of the new Federal 24 eight-hour ozone standard, more areas of the State are 25 likely to be designated as non-attainment. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 19 1 Meanwhile, we can't afford to stand still. 2 Population and economic growth exert continued upward 3 pressure on emissions. 4 That is why the environmental benefits of ZEVs 5 have such appeal. I will speak more specifically about 6 these benefits later on. 7 For now, I will just note that ZEVs have no 8 tailpipe, evaporative or fuel marketing emissions, they 9 have reduced emissions of toxic and greenhouse gases, 10 they have no emission control equipment that can 11 deteriorate or fail, the indirect emissions from power 12 plants are extremely low in California, and ZEVs bring 13 with them benefits to other media as well as clean air. 14 I noted on the previous slide that ZEVs have 15 no emission control equipment that can deteriorate or 16 fail. This graph looks more closely at that point and 17 compares the emissions of a ZEV with those of a LEV II 18 gross emitter. 19 As you can see, the conventional vehicle in 20 failure mode puts out more emissions in two weeks than 21 the ZEV will in 100,000 miles. 22 Next I will touch on the current status of the 23 ZEV program. 24 In 1996, when the program was modified to 25 remove the early deadlines, the ARB entered into a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 20 1 Memorandum of Agreement with the major automakers. The 2 MOAs set out obligations for the manufacturers and for 3 the ARB. 4 In those agreements, the manufacturers 5 committed, for example, to offset the emission benefits 6 that were lost due to the elimination of the early 7 years of the program, to place 1,800 advanced battery 8 vehicles and to prepare annual product plans outlining 9 how they will comply with the 2003 regulation. 10 Examples of the ARB commitments include 11 marketing EVs to public fleets, making sure that 12 various implementation issues, such as financing, 13 insurance and emergency response, are dealt with prior 14 to the large scale production of ZEVs and also ARB 15 working on infrastructure issues. 16 ARB staff has concluded that the manufacturers 17 and the ARB have met their MOA commitments. 18 The MOAs have not, however, resulted in the 19 anticipated production ramp-up as we approach 2003. In 20 fact, what we are seeing is a ramp-down as 21 manufacturers have curtailed production upon the 22 completion of their MOA requirements. 23 During the 1996 modifications, the ten percent 24 requirement for 2003 was retained. Specifically, for 25 six major manufacturers, ten percent of the passenger PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 21 1 cars and light-duty trucks offered for sale in 2 California must be ZEVs. 3 At least 40 percent of this requirement must 4 be met by ZEVs or full ZEV allowance vehicles. The 5 remaining requirement may be met by other near-zero 6 technologies earning PZEV allowances. 7 For intermediate manufacturers, the entire 8 requirement may be met by partial ZEV allowance 9 vehicles. There is no ZEV obligation for small 10 manufacturers. 11 To provide some sense of what ten percent 12 requirement means, staff has prepared base-case 13 estimates of the number of ZEVs needed for 2003 and 14 subsequent years. 15 There are a lot of assumptions that go into 16 these types of estimates. Our estimates assume that 17 1998 production levels and manufacturer market share 18 still hold to 2003. 19 They also assume that the vehicles produced in 20 2003 have the same range as the vehicles today. This 21 is relevant, because the longer range vehicles would 22 get extra credit and the manufacturers have to build 23 fewer of them. 24 Finally, you need to keep in mind that these 25 are just estimates. The actual numbers will change PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 22 1 depending on how many PZEVs are built, how many 2 vehicles are introduced prior to 2003 and a number of 3 other factors. 4 I want to add a caveat to that. In 2003, to 5 reach four percent, that is about 22,000 vehicles. To 6 reach ten percent, that is 56,000. 7 The requirement is ongoing and increases over 8 time as the range multipliers phase out. The bottom 9 there, in 2008, when the multipliers go away 10 completely, the numbers increase to 38,000 for four 11 percent, and 97,000 to get to the ten percent. 12 Our thumbnail description of the current 13 status of the manufacturers is that they have the 14 technical capability to produce the needed number of 15 ZEVs. They know how to built the vehicles, and they 16 could build more. 17 On the PZEV side, however, some manufacturers 18 will be unable to take full advantage of the PZEV 19 flexibility in the early years. 20 Meanwhile, manufacturers have expressed 21 significant concern regarding EV battery cost, vehicle 22 range and customer demand. 23 You will have a chance to hear from the 24 manufacturers in the hearing. 25 Next, I will go through the major areas that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 23 1 we investigated during the course of our review. 2 These areas include vehicle technology, 3 battery technology, infrastructure, the EV market, cost 4 and the environmental, energy and economic benefits of 5 ZEVs. 6 Turning first to vehicle technology, we 7 focused the bulk of our effort on those technologies 8 that we expect to be available during the initial years 9 of the ZEV requirement. 10 Thus, we took a detailed look at full function 11 battery electric vehicles, vehicles that go on the 12 highway, from a performance standpoint, as a 13 replacement vehicle, and we looked closely at the 14 partial ZEV, the city and neighborhood electric 15 vehicles. 16 We devoted less attention to fuel cell 17 vehicles because they are not expected to be available 18 in significant quantities until beyond 2003. 19 Battery electric vehicles are the leading 20 near-term candidate to satisfy the ZEV requirement. 21 From a technical standpoint, they clearly are 22 feasible. The vehicles are here today and performing 23 well. 24 For instance, last month the Air Resources 25 Board and the State Department of General Services held PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 24 1 the ZEVent, showcasing various technologies and 2 highlighting the success of the EV-Sacramento program 3 that is placing EVs in public fleets in the Sacramento 4 area. 5 This slide shows the Chairman waving the green 6 flag to start a road rally of EVs that went from 7 downtown Sacramento, past the State Capitol and out to 8 Mather Field and back. 9 Seven models of battery vehicles are on the 10 road and in use today. We had more than 100 vehicles 11 assembled for this event. They are successfully being 12 used in a variety of applications. 13 For most of these vehicles, the real world 14 range is around 70 miles. The GM EV1, which is 15 lightweight and very efficient, achieves ranges in 16 excess of 100 miles, and with the nickel-metal hydride 17 battery, even more. 18 The efficiency of the drivetrain and the 19 complete vehicle continue to improve. Battery cost, 20 however, clearly remains an issue. Dr. Kalhammer and 21 Dr. Anderman will talk about that in a minute. 22 We also looked at fuel cell vehicles. Major 23 development efforts are underway at the auto 24 manufacturers and at many other companies. 25 They are investing significant resources as PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 25 1 they work to commercialize the technology. As I 2 mentioned, however, large volume production of fuel 3 cell powered passenger vehicles is not expected until 4 beyond 2003. 5 The major challenges for fuel cell vehicles 6 include the system cost and the refueling 7 infrastructure. 8 The California Fuel Cell Partnership has been 9 formed to demonstrate fuel cell powered vehicles under 10 real day-to-day driving conditions and address fuel 11 cell commercialization issues. 12 Fuel cell vehicles will be an important piece 13 of the long-term ZEV compliance pathway, and the work 14 of the California Fuel Cell Partnership is intended to 15 hasten their widespread introduction. 16 Turning next to partial zero emission 17 vehicles, the Nissan Sentra CA has been certified by 18 the Air Resources Board as a PZEV. This is the first 19 vehicle to achieve this status. 20 Just what is a PZEV? 21 It is a vehicle that meets several challenging 22 but feasible criteria that collectively result in 23 near-zero emissions. 24 The manufacturer must certify the vehicle to 25 meet the 150,000 mile SULEV exhaust emission standards, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 26 1 the zero evaporative emission standards and the OBD II 2 requirements for SULEVs. 3 The manufacturer also must extend the 4 performance and defects warranty to 15 years or 150,000 5 miles. 6 A vehicle that meets these criteria earns a 7 partial ZEV allowance of 0.2. Higher allowances are 8 possible for vehicles with other desirable 9 characteristics, such as all electric range, low fuel 10 cycle emissions or the use of advanced components. 11 As was mentioned before, according to 12 manufacturers' testimony at the workshops, some 13 manufacturers will be unable to take full advantage of 14 the PZEV option in 2003. 15 In addition to the Nissan Sentra shown 16 earlier, there are several other vehicles in production 17 that have some PZEV characteristics. They do not meet 18 all of the requirements as marketed today, but they do 19 have some characteristics. 20 The Toyota Prius, for example, has been 21 certified to meet the SULEV standard, and because it is 22 a hybrid, it potentially could earn extra credit for 23 its use of electric drive. 24 Honda, meanwhile, offers the Insight hybrid, 25 as well as an Accord that meets the SULEV standards, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 27 1 and the Honda Civic GX natural gas vehicle that meets 2 the SULEV standard and also offers low fuel cycle 3 emissions. 4 We expect to see other vehicles offered in the 5 future that also use advanced components. Ford, for 6 example, has announced that its new Escape SUV will be 7 offered as a hybrid in future years. 8 We have also investigated some new categories 9 of vehicles, known as City and Neighborhood EVs. These 10 vehicle types are of increasing interest to the 11 manufacturers. 12 They have a smaller battery pack, which 13 reduces cost. They also have the potential to create a 14 new market niche, so this would be a new vehicle being 15 sold rather than just a replacement for a conventional 16 vehicle. 17 Under the current ARB regulation, all such 18 vehicles are eligible for ZEV credit. They would not, 19 however, be able to earn multiple credits, because 20 their range is not great enough to qualify. 21 You should also note that the various types of 22 vehicles differ in how they would be used and the 23 resulting air quality impact. 24 Of the two new types of vehicles, City EVs are 25 the larger and the more car-like. If you had a chance PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 28 1 in the earlier Board meeting, we had several in the 2 parking lot to look at. 3 They need to meet all Federal crash protection 4 and safety standards. They typically have a top speed 5 of about 60 miles per hour and a test cycle range of 40 6 to 80 miles. Real world range is less. 7 Such vehicles use a battery pack about 8 one-third the size of that used in the larger EVs. 9 Examples of such vehicles include the Toyota e-Com, the 10 Nissan HyperMini, shown here, the Think City and the 11 Honda City Pal. 12 Think has announced plans to market the Think 13 City in the United States beginning in 2002. 14 As you can see, neighborhood electric 15 vehicles, also known as low speed vehicles, are very 16 different and have different characteristics. 17 They fit into a new DOT classification with 18 its own set of safety standards. So, for Federal 19 purposes, these are not considered passenger cars. 20 They are called low speed vehicles, another 21 thing entirely. They have a 25 mile per hour top 22 speed. They can only be driven legally on roads with a 23 speed limit of 35 miles an hour or less. 24 Possible market applications for such vehicles 25 include gated communities, business and college PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 29 1 campuses and similar settings. Examples include the 2 GEM, the Think Neighbor, shown here, and the 3 Bombardier. 4 The next area of staff investigation was 5 battery technology. 6 Batteries make up most of the cost of EVs, and 7 thus, affordable battery packs are crucial for a 8 sustainable market. Because of the importance of this 9 issue, ARB staff contracted with experts to form a new 10 Battery Technology Advisory Panel, and asked the panel 11 to prepare an in-depth review. 12 The objectives of the Panel were to determine 13 the status of advanced battery technology and 14 development programs and assess the prospects for EV 15 batteries for 2003 and beyond. 16 The Panel looked at battery technology, cost 17 and prospects for availability. 18 The scope of the Panel was advanced batteries 19 with EV potential and likely availability in the near 20 term. The review included leading battery developers 21 in North America, Japan and Europe. 22 The Panel also visited domestic and Japanese 23 automakers to gain their perspective. 24 The ARB asked the Panel to concentrate on 25 advanced batteries. The Panel did, however, provide at PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 30 1 our request some comments and perspectives on recent 2 developments in lead acid batteries. 3 Dr. Fritz Kalhammer and Dr. Menahim Anderman, 4 from the Battery Panel, are with us today. 5 I now would like to introduce to Dr. Kalhammer 6 and ask him to brief the Board on the Panel's efforts. 7 DR. KALHAMMER: Good morning, Mr. Chairman and 8 Members of the Board. 9 It is a privilege to report to you briefly the 10 key findings and conclusions of the Battery Technical 11 Advisory Panel that completed its report in June of 12 this year. 13 The Panel has been introduced by Mr. Shulock, 14 so I do not have to belabor this. I do want to show 15 you by way of acknowledgment the members of the panel 16 and others who were critical to the success of our 17 mission. 18 Between three of us, Menahim Anderman, myself 19 and Don MacArthur and also our technical support, Dr. 20 James George, you are looking at more than a hundred 21 years of experience in battery R and D, engineering and 22 also costing and economic evaluation. 23 I do want to acknowledge the Air Resources 24 Board staff from bottom to top for being very open 25 minded and preserving the independence of the Panel, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 31 1 and last but not least, we all owe a great debt of 2 gratitude, and I think that includes everybody in this 3 room, to the battery developers and car manufacturers 4 that we visited and went back to with many more 5 questions, and they spent a very large amount of their 6 time and they were very patient with us. 7 The batteries that we reviewed are on this 8 slide, and there are no surprises here. 9 The focus of our investigation was on the 10 nickel-metal hydride system, because of its potential 11 for near-term application. It is already being proved 12 in over a thousand cars under the MOA in California. 13 We also looked pretty hard at lithium-ion 14 because of possible advances in performance, and of 15 course, the prospect that these batteries might be less 16 expensive. 17 Lithium polymer was a long shot, but there are 18 some aggressive developments underway in two 19 organizations, so we at least took a quick look at 20 that, also thinking about the future. 21 Of course, lead serves as the baseline, 22 although, as Chuck Shulock was saying, our scope really 23 was to look for advances over lead acid in terms of 24 performance. 25 One thing that you all can note from this PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 32 1 slide is that of all of the organizations on here, and 2 these are truly the leading battery developers in the 3 world, only a single company is from the United States. 4 That is somewhat sad. 5 The next four slides, I do not intend to go 6 into very long. They contain a lot of detail on our 7 technical findings, and they are also in the report. 8 I would just very briefly make one or two 9 comments on each system, and then turn to the four 10 summary graphs that I believe tell the story. 11 First, on lead acid battery, a key point, of 12 course, is that low specific energy, there is no real 13 advance on that, and that is a limitation. 14 Another limitation that is being improved on 15 is the limited life. I will return to that. 16 Advances in lead acid apply mostly to the 17 power, which is now adequate for EV propulsion, and of 18 course, reliability is improving as well, another 19 important factor. 20 Cost is the attraction of lead acid battery. 21 Lead acid, of course, promises to be considerably less 22 expensive than all of the advance batteries. 23 Unfortunately, if you have shorter life, some 24 of the advantage is being offset. 25 Availability, the type of lead acid batteries PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 33 1 that are now in the vehicles in California are being 2 produced in limited quantities, but as I say on the 3 slide, within probably two years these batteries could 4 be produced in the required quantities. 5 Looking next at nickel-metal hydride, the 6 focus of our investigation, the first point to focus on 7 is the much better specific energy performance these 8 batteries are going to have twice as much energy per 9 unit weight as lead acid, a very important 10 consideration, also the long-life potential of 11 nickel-metal hydride is superior to that of lead acid. 12 The batteries have shown very high reliability 13 and safety, very attractive. The problem, of course, 14 is cost. They are very expensive now. 15 A thousand dollars per kilowatt hour 16 translates into is $30,000 for a 30-kilowatt battery, 17 in low production volumes. 18 We looked very hard at the larger production 19 volumes for the kind of 10,000 to 20,000 levels that 20 would be required in 2003 and the years beyond, and you 21 see the costs there, $300 to $350 per kilowatt hour. 22 In the longer term, these costs are going to 23 drop somewhat, but even at 100,000 packs per year, 24 costs are not likely going to drop below these prices 25 here, and these tend to be on the optimistic side. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 34 1 Whenever we made assumptions, our attitude was 2 let's give the benefit of the doubt and let's make it 3 cautiously optimistic assumption on cost and also on 4 performance. 5 The availability story is quite positive. The 6 technology is essentially ready, but of course, there 7 are no plants right now and there are no commitments 8 for plants to produce these batteries in the numbers 9 that would be required in 2003. 10 We ought to look at lithium-ion batteries, and 11 of course, the attractive point here it the very high 12 specific energy, that means the batteries are going to 13 be light, power is more than adequate. 14 The issue with lithium-ion at this point is 15 still how along they are going to live. Three to five 16 years is probably the best now. 17 Improvements are expected, but what the 18 ultimate potential is, is not too clear. They are 19 rather reliable in the vehicles in California that are 20 now operating on these batteries, in the Nissan 21 vehicles. 22 Safety requires a much tighter electronic and 23 electric control of these systems, but so far the 24 safety has been excellent. 25 The problem again, cost. Right now, these PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 35 1 batteries cost several thousand dollars per kilowatt 2 hour in smaller numbers, that is not the pertinent 3 number, of course, but what is pertinent, what these 4 batteries are going to cost in perhaps 20,000 packs per 5 year, and here you see a pretty wide range. 6 Some manufacturers are fairly optimistic. 7 Others not so. This is probably the range, and the 8 bottomline is, they are not going to be less expensive 9 in these quantities than nickel-metal hydride, which 10 had been one of the hopes when we began this study. 11 There may be materials breakthroughs with 12 these systems, but they're not going to come over the 13 next three to four years in time to make inexpensive or 14 less expensive lithium-ion batteries available by 2003. 15 The technology is really still at the 16 pre-pilot or pilot production stage, and commercial 17 availability is probably four or five years away. 18 Lithium polymer batteries is kind of the dark 19 horse. These systems have gotten a lot of development 20 funding from the US Advanced Battery Consortium, and 21 Canada, actually, and the French group is having an 22 independent effort that is quite aggressive. 23 Of course, the hope is, again, high specific 24 energy. Power should be adequate. 25 Life is a big question right now. There are PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 36 1 just not good answers whether these batteries have 2 enough life. 3 That has to do with the fact that there is 4 metallic lithium in these batteries that needs to 5 cycle. We don't know anything about reliability, 6 because these batteries have not yet been in vehicles. 7 Costs are projected to be, again, about the 8 same as nickel-metal hydride and lithium-ion in the 9 20,000 packs or 30,000 packs per year volume. The goal 10 is less, but we have not seen any supporting basis for 11 these more optimistic assumptions. 12 This technology is probably seven to eight 13 years away, given where it is right now in the 14 development cycle. 15 Now, let me go to four slides to graphically 16 summarize our key findings. The first one will be on 17 performance, the second one on life, the third one on 18 cost and the fourth one on availability. 19 This one, this slide speaks to performance. 20 It is a calculated, by the Panel, a calculated weight 21 of a 30 kilowatt hour battery for a four to five 22 passenger electric vehicle, and there are two legends 23 or keys to these bars. 24 The green bars is the battery weight. If you 25 want 90 to 100 mile range approximately in real life. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 37 1 The yellow and red bar is for a 50 to 60 mile battery. 2 If you look at this graph, you can see that 3 the lead acid battery suffers from that high -- low 4 specific energy, high weight, and even without 5 accounting for reinforcement of the vehicle for such a 6 heavy battery, such a battery would almost weigh as 7 much as the rest of the vehicle, if you wanted to have 8 90 to 100 mile range. 9 Now, look at the next graph and the next bar 10 set and compare these two bars here, yellow of lead 11 acid, green of nickel-metal hydride, what that says for 12 the same weight, the nickel-metal hydride battery will 13 give you 90 to 100 miles, when lead acid is giving you 14 50 to 60. 15 You can continue this comparison between 16 nickel-metal hydride and lithium-ion and basically say 17 that a nickel-metal hydride battery of say 350 18 kilograms will give your 50 to 60 miles, and 19 lithium-ion will give you 90 to 100. 20 That's the most important performance 21 parameter, particularly after, as I said, that all of 22 these batteries have adequate power for electric 23 vehicles of today. 24 That was a question still several years ago. 25 It is not now. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 38 1 Battery life, again, this is a calculated 2 number in order to illustrate what the cycle life 3 capabilities of these batteries mean for lifetime 4 electric vehicle miles. 5 Lead acid demonstrated in vehicle now is 6 probably 25,000 to 30,000 miles of life for a single 7 set of batteries. Nickel-metal hydride is more, 8 probably around 40,0000. 9 Lithium-ion is just starting, probably around 10 15,000. Lithium polymer, of course, doesn't have any 11 vehicle batteries yet on test. 12 The interesting questions is, the next area, 13 the battery bench test data, which are the yellow and 14 red bar sections, in lead acid, it indicates that there 15 may be hope for perhaps as much as 40,000 -- 16 Excuse me. There is data of as much as 35,000 17 to 40,000 miles on test stands. On nickel-metal 18 hydride, this reaches almost 100,000 miles, calculated 19 from the bench test data. 20 Lithium-ion perhaps 50,000, and over and above 21 that, and it's hard to see in this graph, you see the 22 diagonally yellow stripe bar sections on top, which are 23 hopes, if you will, from module and cell tests that 24 show even greater mileage, or I should say, greater 25 cycle life that could translate into greater mileage, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 39 1 if these advances can be captured in real-life battery 2 performance. 3 The bottomline from all of this is that the 4 nickel-metal hydride looks awfully good, although it is 5 also fair to say that 100,000 miles has not yet been 6 demonstrated in vehicles, and it is one of the points 7 of controversy, as you are probably going to hear 8 today. 9 Next, cost. That, of course, is a 10 particularly critical issue. The primary findings of 11 the Battery Panel were module costs. 12 This is where we got very good data, 13 particularly on nickel-metal hydride, which were in the 14 focus of our investigation. 15 What you can see is a so-called learning 16 curve. The price in dollars per kilowatt hour per 17 module, which is the right scale, you see from 200 to 18 500, drops, of course, from low volumes of a few 19 thousand packs per year, to high volumes, 100,000 or 20 200,000 packs per year, this are obviously projected 21 data, because no such plant exists, not even a plant 22 for 10,000 packs exists, but we are quite confident in 23 these data, because we spent a lot of time, and there 24 is a lot of consistency between different manufacturers 25 of these batteries. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 40 1 Now, as you can see, nearly $350 to $400 in 2 the range of 10,000 to 20,000 packs per year is the 3 price for the modules. If you now add the balance of 4 plant, and you calculate for 30 kilowatt hours, what 5 this means for the cost of the battery, you get to the 6 left axis here, and you can see at 10,000 packs per 7 year, around $12,000, for the 30 kilowatt hour battery, 8 at 20,000 packs per year, about $10,000 for the pack. 9 This cost is going to drop when you get to 10 100,000 packs per year. You look at perhaps $8,000, 11 give or take, for a single battery pack. 12 That is pretty much the bottomline, because 13 you would have to get to extremely high numbers, and 14 even then it is a question whether the pack costs will 15 still drop, because at some point you will simply 16 replicate a plant. 17 You are not going to build a bigger plant yet. 18 My final slide is availability, which was an 19 important question, and what you see in front of you 20 here, is a graph that the first Battery Technical 21 Advisory Panel developed in 1995 to understand how long 22 it takes to develop a battery, from where it comes out 23 of the laboratory to the point where it comes out of 24 factory. 25 It is about a ten-year period. If anything, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 41 1 experience shows that that time is longer. 2 Here you see all the activities that have to 3 be gone through. I will not belabor the points. 4 If we now place the battery systems that we 5 have investigated on that time scale, then we see that 6 this nickel-metal hydride and also the advanced lead 7 acid battery systems are at this point where that front 8 blue bar is, about two to three years away from the 9 availability of such batteries from a plant. 10 The two to three years is mostly the time to 11 decide on the plant, to build a plant, to shake it down 12 and to have mature production from it. 13 Lithium-ion is about four to five years away, 14 assuming that all the other steps can be gone through 15 promptly and there are no delays or no technical 16 hang-ups. 17 Any technical problems with these systems, the 18 lithium systems, are going to increase these times. 19 The lithium polymer battery is clearly seven 20 to eight years away, so not a candidate until, at best, 21 near the end of this decade. 22 That is eventually the bottomline, together 23 with the cost. 24 That completes my report. I will be available 25 all day for questions. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 42 1 Let me point to Menahim Anderman, who is also 2 a tremendous resource, particularly in battery costing, 3 so we are prepared to answer questions in just about 4 any depths. 5 Thank you. 6 CHAIRMAN LLOYD: Dr. Kalhammer, thank you very 7 much, and thank you and your colleagues for an 8 excellent report. 9 I would like to ask you one question. You 10 made the comment there that the battery manufacturers 11 are not gearing up. 12 DR. KALHAMMER: I'm just trying to reclaim my 13 seat here. 14 I didn't hear the complete question. 15 CHAIRMAN LLOYD: I didn't complete the 16 question. 17 The question was, you indicated that there are 18 no plans for the battery manufacturers at this time to 19 gear up. 20 What is the major impediment to that? 21 DR. KALHAMMER: Cost. 22 CHAIRMAN LLOYD: So, if there are plenty of 23 orders -- 24 DR. KALHAMMER: Obviously, cost translates 25 into a perception of lack of market. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 43 1 I cannot really speak to the market question, 2 since we did not investigate it, but we do know that 3 the cost is the major concern of both the battery 4 developers/manufacturers as well as the car makers. 5 CHAIRMAN LLOYD: Yes, Dr. Burke. 6 BOARD MEMBER BURKE: Thank you. 7 You mentioned in your testimony that the 8 nickel-metal hydride batteries looked good, and then 9 you flipped the page or changed the page to the cost. 10 I was kind of confused on what looked good, 11 what looked good meant, ability to perform, ability to 12 perform versus cost, ability to perform versus 13 durability, I was not quite sure what it meant by 14 looking good. 15 DR. KALHAMMER: If you would like me to 16 answer, today they look good with respect to everything 17 expect cost, I would say. 18 This is not a statement that could've been 19 made with the same confidence five years ago, of 20 course. 21 We now have more than a thousand vehicles in 22 California that have these batteries in them. They 23 have been generally very reliable, which is not 24 trivial, and they have been performing quite well. 25 We did not do an extensive investigation of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 44 1 the life of these batteries in the current vehicle, 2 because this is still an ongoing investigation, and it 3 actually wasn't too easy to get data on that. 4 Fundamentally, the potential of this system to 5 get large cycle life is very good, because there is 6 very little that can go wrong in these batteries. 7 BOARD MEMBER BURKE: I drove one from the 8 airport to come here. 9 What would it take in your view, other than 10 volume, and volume is always the answer to everything 11 from the business perspective, but if you do not create 12 instant volume, is there another method by which you 13 can reduce the price of these batteries? 14 DR. KALHAMMER: In the volumes that we are 15 looking at for say 2003, as required, 20,000 packs per 16 year, materials cost already dominate the cost of the 17 battery, so you would have to reduce materials. 18 We looked at the prospects of reducing the 19 cost of the materials, and I do not want to go into 20 detail here, but there is very little that can be done 21 in the cost of these materials. 22 It is also true that the materials that are in 23 these batteries are also in consumer market 24 nickel-metal hydride batteries, which use a far larger 25 amount of material than would be needed in 2003. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 45 1 So, the electric vehicle market or electric 2 vehicle battery market is not going to be a driver of 3 cost for these materials. 4 When you get to very large volumes, 100,000, 5 200,000 packs per year, then the materials needed for 6 these batteries become comparable to the consumer 7 market, and you can hope that you can get some cost 8 driving from the electric vehicle battery market, and 9 that is in large part the explanation why the cost is 10 still dropping from the 20,000 to 100,000 packs per 11 year level. 12 BOARD MEMBER BURKE: Thank you. 13 CHAIRMAN LLOYD: Yes, Ms. D'Adamo. 14 BOARD MEMBER D'ADAMO: One of the slides that 15 you had, and first of all, do we have a copy of your 16 presentation for the individual Board Members? 17 It would be nice to go back and look at some 18 of these things that you presented. 19 On the issue of range, what was the kilowatt, 20 or watt hour that you were utilizing in the slide that 21 looked at range? 22 DR. KALHAMMER: We were using essentially the 23 best, highest efficiency of the current crop of cars. 24 This is the correct slide, of course, that is 25 on there now, and the number that we were using was PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 46 1 approximately 300 watt hours, 300 to 330 watt hours per 2 mile. 3 CHAIRMAN LLOYD: I'm sorry. 4 BOARD MEMBER D'ADAMO: Perhaps the Chairman 5 can help me out here. 6 What I am getting to is perhaps a different 7 comparison, and maybe the Chairman can help me out 8 because he has a technical background and I don't, but 9 I understand that some of the batteries that are 10 currently being used are 70 watt hour, and there are 11 certain battery manufacturers that have a watt hour 12 that is much greater, and the range would be increased. 13 CHAIRMAN LLOYD: I think, Dr. Kalhammer, Ms. 14 D'Adamo characterized correctly, what we are looking at 15 here, is it possible that some of the nickel-metal 16 hydride batteries that are maybe just about out there 17 could actually push the, say the RAV-4, or the Honda 18 EV, up to the 100 mile range, that's the bottomline on 19 some of those? 20 DR. KALHAMMER: When you want to determine 21 what range you get from a battery, of course, you need 22 to know two things, the capacity of the battery, we 23 assume 30 kilowatt hours, and secondly, you need to 24 know the efficiency of the vehicle, how many kilowatt 25 hours does it use per mile, usually one talks about PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 47 1 watt hours, but you could call it kilowatt hours, and 2 you could say it is about say .33 kilowatt hours per 3 mile. 4 If you want to have 100 miles, you need about 5 30 kilowatt hours. 6 Now, the other characteristic that you alluded 7 to was the specific energy, I believe, that simply 8 tells you how heavy the battery is once you've decided 9 how much capacity you want. 10 In this case, the capacity of 30 kilowatt 11 hours, at the specific energy that the batteries have, 12 about 60 watt hours per kilogram, gives you a 500 13 kilogram battery. 14 So, battery capacity and vehicle efficiency is 15 what you need for range. For the battery weight, you 16 need the specific energy. 17 BOARD MEMBER D'ADAMO: What was your range of 18 watt hour that you were utilizing for this chart? 19 DR. KALHAMMER: As I told you, about 330 watt 20 hours per mile, which is pretty much the best that you 21 get in the current testing. 22 Actually, I would propose, this is going off a 23 little bit, but it would help all us if we use, instead 24 of watt hours per mile, the miles per kilowatt hours, 25 just like we use miles per gallon. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 48 1 That would be a whole lot easier to 2 understand, and the number that corresponds to what I 3 just told you, is about three miles per kilowatt hour. 4 This is a much easier thing to understand, 5 because now you know that with 30 kilowatt hours I have 6 on the battery, I get three miles per kilowatt hour, I 7 get 90 miles. 8 BOARD MEMBER D'ADAMO: Just to clarify, 9 though, the batteries that you were considering are 10 batteries that are currently in use, not batteries that 11 the battery manufacturers have available to them, but 12 the one's that are currently being used on the 13 vehicles? 14 DR. KALHAMMER: Yes. 15 But you have to remember, even if you now have 16 a much more advanced battery with higher specific 17 energy, it does not pertain to this calculation. If 18 you have 30 kilowatt hours and you have a vehicle of a 19 certain efficiency, that's what gives you range. 20 Even if the battery becomes much better, 21 weighs less, then you're going to get the same miles 22 for a battery that weighs less, which is some help, but 23 you have to remember that you pay for the kilowatt 24 hours. 25 Right now, at the time of high cost, if you PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 49 1 want a greater range, you also will have greater cost. 2 If you want to put in a 40 kilowatt battery and get 120 3 miles, for example, then your cost of your battery 4 going up from say $12,000 in 2003, to $16,000. 5 So, in many ways, it is the cost that limits 6 how much battery you can put on the vehicle with the 7 advanced. 8 With lead acid, I think it is basically the 9 weight that limits you, whereby the cost, of course, is 10 significant, too, because you are certainly going to 11 replace your electric vehicle battery, lead acid, at 12 least once over the life of the vehicle, and probably 13 more than once. 14 CHAIRMAN LLOYD: Yes. Mr. Calhoun. 15 BOARD MEMBER CALHOUN: Dr. Kalhammer, staff 16 cited the fact that the changes were made in the 17 program in 1996, and the fact that a Battery Panel had 18 been appointed, and, as I recall, you chaired that 19 particular Panel, and today we're hearing from you 20 again, and I guess my question to you is, were you 21 surprised at your findings in your recent 22 investigation, or were you disappointed? 23 DR. KALHAMMER: The focus five years ago was 24 more on performance and life than on cost. 25 This time we focused primarily on cost, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 50 1 because the performance and the reliability of the 2 batteries clearly is now pretty well established, and 3 the issue is cost. 4 I was surprised, frankly, that the lithium-ion 5 batteries did not come in at lower cost. 6 I was a little bit disappointed that there was 7 still a significant issue with the lithium-ion 8 batteries on life. 9 So, the focus now is much more clearly on 10 nickel-metal hydride today than it was five years ago. 11 That was somewhat of a disappointment. 12 I was positively, I shouldn't say surprised, 13 but it was confirmed, the expectation that the 14 nickel-metal hydride is a very rugged battery and has 15 good reliability. 16 So, overall, I would say somewhat 17 disappointing not totally surprising. 18 CHAIRMAN LLOYD: Mr. McKinnon. 19 BOARD MEMBER McKINNON: I want to ask you a 20 question, and this may be outside of what you studied, 21 and if it was, let me know that, and we will leave it. 22 I'm sure there are other folks today. 23 It seems like part of what we are evaluating 24 or moving on or looking at today, is whether or not the 25 mandate is moving technology in the direction of a zero PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 51 1 emission vehicle, whether it be electric or fuel cell 2 or whatever, and it occurs to me when you are talking 3 about nickel-metal hydride batteries, that I have often 4 heard that there is some possibility that that 5 technology has led to something that may be used in 6 fuel cell for hydrogen storage. 7 Do you have any other observations in terms of 8 battery development, or if you want to comment on that 9 subject -- are we moving other things forward in this 10 development? 11 DR. KALHAMMER: I think I can provide a 12 partial answer, which I think is still based on the 13 information collected by the Panel. 14 Your first question was, has the mandate moved 15 technology in the direction of viable ZEV technology, 16 and as long as you say in the direction, I would say 17 absolutely, yes. 18 I think you asked the Advanced Battery 19 Consortium and this effort of the manufacturer and the 20 government to develop advanced batteries for the 21 electric vehicles, in my own humble opinion, I don't 22 think it would not have happened as aggressively as it 23 did without the mandate. 24 A lot of the progress particularly in the U.S. 25 comes from there, and if you saw, only one U.S. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 52 1 company, and do not forget that some of the foreign 2 companies were also funded by the US Advanced Battery 3 Consortium. 4 Every one of the organizations worldwide, 5 including the Japanese developers are very aware of the 6 mandate, and certainly give it credit for having 7 spawned a lot of development. 8 That is one answer. 9 Your other point is a rather specific 10 technical point. Does the nickel-metal hydride battery 11 development help you with hydrogen storage metal 12 hydrides in general? 13 I would say, they are certainly some help, but 14 you must not forget that metal hydride alloys have been 15 investigated for hydrogen storage a long time actually 16 before nickel-metal hydride batteries were developed, 17 so, it is almost the other way around, at least in the 18 beginning, that there may be some fallout still, and it 19 may well happen. 20 The problem, of course, again, is that these 21 alloys are not cheap. So, hydride, hydrogen storage in 22 hydrides, is not cheap, and also tends to be on the 23 heavy side per unit of hydrogen stored. 24 CHAIRMAN LLOYD: Professor Friedman. 25 BOARD MEMBER C.H. FRIEDMAN: You addressed the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 53 1 materials cost, and if I heard you correctly, you 2 indicated that other than some continued reductions for 3 volume, that would not be vast, but I did not hear you 4 comment on whether we might reasonably anticipate a 5 reduction in the manufacturing process cost by volume 6 streamlining. 7 I gather that the manufacturing process of 8 these batteries is still relatively in its infancy, and 9 with greater experience and perhaps mechanization, or 10 that sort of thing, there might be automation, there 11 might be ways to further reduce the cost to the 12 consumer. 13 Do you think that is a reasonable expectation? 14 DR. KALHAMMER: Yes. 15 I could say this, of course, underlies much of 16 the cost reduction from the $1,000 per kilowatt hour 17 that we have now, to say the $300 to $400 per kilowatt 18 hour for the 20,000 packs per year volume, that is 19 manufacturing cost reduction in good measure. 20 If you want to discuss this more specifically, 21 Dr. Anderman, of course, is an expert in this area, and 22 he covered much of that. 23 Yes, even at 20,000 or certainly 10,000 packs 24 per year, there still is some manual operation, because 25 complete automation does not yet pay-off at that level. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 54 1 That is why you're gong to get some reductions 2 to the 100,000 packs per year level where you will need 3 a totally automated plant. 4 But it is not realistic to believe that you 5 are going to cut say the $350 to $400 per kilowatt hour 6 in half through automation. That is not realistic, in 7 our view. 8 CHAIRMAN LLOYD: Supervisor DeSaulnier. 9 BOARD MEMBER DeSAULNIER: Dr. Kalhammer, two 10 questions, particularly based on what Matt asked, I 11 anticipate that the auto manufacturers will get up here 12 and say that we have reached diminishing returns in 13 terms of further advances in batteries, and in terms of 14 what Matt asked, if the Board were to remove the 15 mandate, what would happen to the push for further 16 technology improvements for batteries? 17 DR. KALHAMMER: Again, I want to preface my 18 comment here with a caveat that we really did not 19 investigate this question systematically, but we 20 certainly heard a fair number of comments that say that 21 if the mandate were abandoned, and this is the battery 22 manufacturers talking, of course, not the car makers, 23 that would be considered a considerable blow, because 24 they all feel that maybe at the costs that are now 25 projected, there might be some kind of market in the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 55 1 future, not that they really know, of course, but they 2 definitely would feel that purely psychologically that 3 this abandonment of the electric vehicle would be 4 negative. 5 On the other hand, it is also fair to say that 6 the emerging hybrid vehicle market for nickel-metal 7 hydride batteries in particular, of course, is going to 8 sustain some of that technology development for the 9 specific technology that is needed for hybrids, which 10 is not the same as EVs, although from a materials point 11 of view, it is largely the same. 12 CHAIRMAN LLOYD: Dr. Burke. 13 BOARD MEMBER BURKE: In the battery companies 14 that you discussed this with, was there any attempt to 15 discern whether they were owned or constructively 16 controlled by auto manufacturers? 17 DR. KALHAMMER: I'm not sure how to answer 18 this. 19 They have obviously close ties to the car 20 makers in one way or the other, and to a varying 21 degree, ranging from essentially partial ownership by 22 car makers to complete independence by car makers. 23 So, there is not a single pattern here. 24 Yet, they were all responding to us in a very 25 similar way. So, I would not think that car maker PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 56 1 ownership put any particular bias on any of these, 2 certainly not from what we've seen, which is obviously 3 a very small sliver. 4 BOARD MEMBER BURKE: There are only like four 5 or five, and two we know for sure, one is partially 6 owned by an auto manufacturer, and another one has got 7 one client who is an auto manufacturer, so that is 8 constructive control in the reduction, because, I think 9 that kind of skews the information that you get. 10 If there are only four and two know what the 11 other two are saying, it is not hard to give you what 12 the other two are giving you. 13 I'm not the great conspiracy theory here, but 14 it's obvious to that there are half of the battery 15 manufacturers who are either owned or constructively 16 controlled by the auto manufacturers, that is obvious. 17 DR. KALHAMMER: Well, when you say that it 18 influences the information, of course, I can't -- 19 BOARD MEMBER BURKE: I said it could. 20 I did not say it did, but I said it could. 21 DR. KALHAMMER: I think the key point is what 22 information, and since cost is such a central theme 23 here, it is a question of whether the cost information 24 is in any way influenced, and I think we did enough 25 independent work on costing and acquiring materials PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 57 1 cost estimates from other sources, that we feel quite 2 confident that the costs are not affected by any kind 3 of bias. 4 BOARD MEMBER BURKE: So, when my colleague 5 asked you if the automation, the manufacturing process 6 would reduce the cost, you said, yes, which is the 7 logical answer, but then by the time that you got 8 through, you said, yes, it was a modified yes, it would 9 be not a small percentage, because you said earlier 10 that the bulk of the cost of the batteries are the 11 material cost themselves. 12 So, you said it won't not drive it in half, 13 probably just drive it some marginal percentage; is 14 that true? 15 DR. KALHAMMER: Well, let me answer it just 16 quickly, and then ask my colleague, Dr. Anderman, who 17 is really an expert in this area, to add a comment. 18 But you have to be somewhat precise. When you 19 look at the beginning of the learning curve from where 20 we are now to let's say 20,000 packs per year, a lot of 21 that steep decline of costs from 1,000 to maybe 300 or 22 400, is manufacturing, because the materials can 23 already be purchased, because of the consumer market, 24 at consumer market type prices, so there is not going 25 to be that much to that. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 58 1 Further reductions, eventually at very large 2 volumes might happen due to materials cost reduction, 3 which we have not taken into account in our estimates 4 at really large numbers, that is when the electric 5 vehicle battery market might start driving the costs. 6 I will let Menahim Anderman add his comments 7 here. 8 Thank you for the opportunity. 9 DR. ANDERMAN: I have a couple of comments on 10 the last issue. 11 One, regarding the cost code, the cost code 12 assumes considerable investment in manufacturing that 13 will reduce the cost beyond the materials. We have 14 done independent studies, and we got the number of $240 15 per kilowatt hour for nickel-metal hydride, independent 16 study of the car manufacturer or other battery 17 manufacturers, which happen to be right in the middle 18 of the band of the data that we have got from the 19 supplier, and in that cost assumption, we have material 20 at 75 percent of manufacturing cost, which is way 21 beyond the standard in the battery industry, and we 22 have gross margin of 23 percent, 77 percent, 23 manufacturing cost of 77 percent of sales price. 24 That is with everything, all of the company 25 overhead, the shipment, the warranty, everything else PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 59 1 is 33 percent of price, which is beyond the effort for 2 high volume manufacturing. 3 So, we assume some very aggressive assumptions 4 on the cost of materials, and if you look at the 5 material alone, the three material drivers are the 6 electrodes themselves, the positive and the negative 7 electrodes in the battery, and those all are produced 8 at very, very high volume for the consumer market, and 9 the material used in the EV batteries is essentially 10 the same, bought from the same high volume supplier 11 that are competing in the free market. 12 So, the three main drivers of the material of 13 nickel-metal hydride will go farther down, there really 14 is not base to it. Plus the study done in 1999 was 15 low. 16 I will discourage all optimism for the next 17 six to ten years for numbers below the cost that you 18 have seen are likely to happen. 19 There have been a lot of positive optimistic 20 assumptions to get to that cost, which are reasonable, 21 but still optimistic. 22 That is the first answer. 23 The answer to, what I would like to add on the 24 next question, turn it around and don't forget that the 25 reason the car companies are involved with the battery PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 60 1 developer for producing EV batteries is that it is 2 existent in industrial battery and automotive community 3 refuse to invent and EV battery on their own because 4 they felt it was too risky, and it took the car 5 companies to get involved to get those companies to 6 even start producing EV batteries. 7 So, now it is somehow turned around to say the 8 car companies are controlling those companies, because 9 of the information that we are getting is correct. 10 The one battery company in Germany that some 11 years ago was the largest battery company in the world 12 and is still a very significant battery company has 13 actually dropped out of the race, and it was controlled 14 by a car company, because of lack of belief for viable 15 markets available for full EV. 16 The car companies had to invest to get the 17 battery companies going to develop those pilot lines. 18 CHAIRMAN LLOYD: Dr. Friedman. 19 BOARD MEMBER FRIEDMAN: Dr. Kalhammer, I just 20 need a little quick instruction about battery life. 21 The slide slows the determinate being miles. 22 Is time an independent variable? 23 Does time also by itself also determine 24 battery life? 25 DR. KALHAMMER: That is a very good question. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 61 1 Of course, the answer is different for each 2 battery system. Time is definitely a factor. 3 There is very little information available, 4 whether batteries really are going to have calendar 5 life of ten years. 6 After all, it would take a ten-year test to 7 verify that. We are not there yet. 8 For some systems, there is reason to believe 9 that calendar life is likely to be very long. 10 Nickel-metal hydride is one. 11 On the other hand, at least up to now, there 12 are some questions on calendar life on lithium-ion. 13 There are also some questions on calendar life 14 of lead acid, by the way. 15 CHAIRMAN LLOYD: So, the crisp answer in that 16 case is? 17 What is the crisp answer? 18 DR. KALHAMMER: The crisp answer to that, for 19 nickel-metal hydride, you probably are not going to 20 compromise the life in miles by limited calendar life. 21 For the other systems, we really do not know 22 yet, but there is concern. 23 CHAIRMAN LLOYD: Even lead acid? 24 DR. KALHAMMER: Even lead acid. 25 CHAIRMAN LLOYD: Yes, Mr. McKinnon and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 62 1 Professor Friedman. 2 BOARD MEMBER McKINNON: I hate throwing a 3 hypothetical, but I kind of what to sort something out. 4 So, if, for example, I went through a battery 5 plant, and to me it was very close to a prototype 6 plant, in terms of, the place could make a lot of 7 different things, the equipment was specialized but not 8 specialized for mass production. 9 So, if we were to assume for a minute that we 10 were able to have the available machinery, machine 11 tools and manufacturing processes, that cut the 12 material cost to a minimum, and the other costs to a 13 minimum, with that assumed, what would the cost of 14 nickel-metal hydride and some of the materials, what is 15 the maximum that we could gain out of everything other 16 than changes in the materials with nickel-metal 17 hydride, what is the maximum percentage reduction? 18 DR. KALHAMMER: The answer is in the cost 19 curve that I showed you. 20 The blue curve on the one graph, it was making 21 all the assumptions that you are talking about. 22 It was assuming, as Menahim Anderman was 23 pointing out a moment ago, that the materials costs 24 procured for such a plant would be essentially volume 25 production costs, because these materials are traded in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 63 1 large volumes to the large volume of consumer type 2 nickel-metal hydride batteries. 3 So, there is no other magic in other words. 4 CHAIRMAN LLOYD: Professor Friedman. 5 BOARD MEMBER C.H. FRIEDMAN: I think Dr. 6 Anderman answered my question indirectly. 7 I was struck by the fact that there was only 8 one U.S. battery manufacturer of consequence that you 9 studied, and I think I heard the answer. 10 Thank you. 11 CHAIRMAN LLOYD: I don't know if you saw this, 12 Doctor, the quote in here from the Electric Vehicle 13 Progress, an electric car with a 300 mile range, fully 14 capable, capable of fully recharging in one hour, could 15 be available by 2005, according to Robert Lutz, known 16 to us as a former Chairman at Chrysler, and now of 17 Exide Corporation, which is not in there, and they say, 18 okay, this could be demonstrated by October and in 19 production in five years. 20 Could you comment on that? 21 There may be some people still looking at this 22 market as maybe having a -- 23 DR. KALHAMMER: First of all, of course, you 24 have to be very careful as to what the 300 miles means. 25 We are all aware of the fact that you can PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 64 1 drive both conventional and electric vehicles in ways 2 that give you astounding efficiencies. 3 I am reminded that there is this annual 4 mileage contest, or at least there was in the past 5 there was, of conventional cars with a normal gas tank, 6 and they would get a thousand miles. 7 I'm not sure how many people here get a 8 thousand miles. 9 There are these electric vehicle distance 10 competitions where consistently some vehicles get more 11 than 200 miles, but if you take the same vehicle and 12 put on it a representative urban cycle, representative 13 of the types that your own staff is using to evaluate 14 the vehicles, they probably would get 100, in other 15 words, half of it. 16 So, I do not know what the 300 miles means. 17 CHAIRMAN LLOYD: I was not worried about the 18 interpretation but whether the technology that Exide 19 might be developing, are you aware of that? 20 DR. KALHAMMER: The answer to that is, no. 21 I would also submit if that is a technology 22 that is truly novel on the battery side, and no one 23 knows anything about it, then I would say it is at the 24 very earliest ten years away, because it takes that 25 long to take a battery from the beginnings of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 65 1 technology to a finished product. 2 I have to tell you from my experience, I can't 3 even imagine what kind of battery that should be. I 4 have looked at longer term systems under a different 5 study for ARB, and the kind of systems that offer 6 themselves like lithium sulfur, they are in very, very 7 early stages with far more questions than answers, and 8 certainly a long time away from practical realization, 9 if ever. 10 CHAIRMAN LLOYD: Thank you very much, Dr. 11 Kalhammer and Dr. Anderman. 12 Back to you. 13 MR. SHULOCK: Thank you very much. 14 Once again, thank you, Dr. Kalhammer. 15 The work of the Panel and the cost numbers and 16 cost curves that you saw, that formed the basis for the 17 battery cost information that we used in our cost 18 analysis that I will be talking about in a couple of 19 minutes. 20 They did the investigation to come up with the 21 numbers. We then plugged them in and came up with some 22 vehicle-type numbers. 23 We also looked at infrastructure issues. The 24 public infrastructure continues to expand. Currently 25 there are about 400 public charging stations statewide, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 66 1 with about 700 chargers and -- thank you very much -- 2 she is great. 3 The photo shows a charging installation at the 4 Arden Fair Shopping Mall in Sacramento. 5 Unfortunately, there are still two major 6 competing charging standards and no convergence on a 7 single standard is in sight. 8 Finally, fast charging has been demonstrated 9 and is effective for fleet applications. There is a 10 Daimler-Chrysler EPIC minivan which uses fast charging, 11 and that has been demonstrated for a range of greater 12 than 300 miles per day. 13 Charging equipment for fast charging, however, 14 is expensive. 15 Our fundamental conclusion with respect to 16 infrastructure is that it does not appear to pose a 17 significant barrier to the expansion of the ZEV fleet. 18 Next we turn to what is certainly the most 19 contentious issue, the EV market. 20 There is significant disagreement amongst the 21 various stakeholders regarding the true nature of the 22 EV market. It has proven very difficult for staff to 23 develop reliable estimates. 24 In particular, because at the moment vehicle 25 ability is limited, there is no easy way to assess PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 67 1 existing demand as we speak today, so this greatly 2 complicates the projection of future demand. 3 Nonetheless, the ability to successfully place 4 the number of vehicles required in the regulation is 5 one of the key issues facing you today. 6 I will briefly summarize some of the main 7 points, but rest assured, you will hear a great deal of 8 discussion on EV marketing from other witnesses over 9 the course of this Board meeting. 10 From the manufacturers' standpoint, the 11 limited response to EVs when they were available 12 initially is powerful evidence of limited customer 13 demand. 14 The manufacturers contend that cost, range and 15 recharge time are significant barriers to customer 16 acceptance and that when faced with a choice, customers 17 will choose other more attractive options. 18 EV advocated in our workshops and other public 19 comment presented markedly different views. They argue 20 that the initial demand for EVs during those early 21 years was constrained by a difficult leasing process as 22 well as by lack of advertising and manufacturer 23 emphasis. 24 They believe that the market needs time to 25 build. In particular, in the public fleet sector, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 68 1 which as you all know moves slowly when you talk about 2 requests and budgets and then finally having money 3 available to do something, so in the public fleet 4 sector, we are only beginning to see the results of 5 earlier efforts. 6 Then finally, EV advocates point to current 7 waiting lists as examples of evidence of demand that 8 there is no product available to keep the momentum 9 going. 10 From staff's standpoint, we have concluded 11 that, first of all, there are many potential 12 applications that could be well served by EVs given 13 competitive pricing. 14 We recognize, however, that placement of the 15 vehicles in these applications will be challenging 16 given the competing choices available to consumers. 17 This is one area where cooperative efforts 18 among the automakers, State government, EV supporters 19 and other interested parties could prove fruitful in 20 trying to move the placement of these vehicles. 21 Several things are needed in order to take 22 full advantage of the available market applications. 23 First of all, EVs must be available at prices that are 24 competitive on a life cycle basis with those of similar 25 conventional vehicles. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 69 1 In addition, there needs to be continuity, a 2 smooth orderly build-up from current levels to 3 increased market penetration. This sort of boom and 4 bust cycle doesn't increase consumer confidence, so 5 what we are looking for and what we think is necessary 6 is just a smooth penetration. 7 Several vehicle platforms must be available in 8 order to meet customer preferences and satisfy 9 different needs. 10 Public education is important to inform 11 consumers as to the vehicles that are available and 12 what they can and can't do. 13 Finally, having vehicles available to retail 14 customers as well as to fleets would expand the sales 15 base. 16 Market demand is closely related to our next 17 issue, cost. 18 I mentioned that in looking at the market, we 19 are saying that the vehicles need to be available at a 20 competitive cost, so obviously cost is relevant as to 21 what it means to do that. 22 We have developed a simplified methodology 23 that is intended to show the relative cost over the 24 entire vehicle type life of various vehicle types. So, 25 this is a way to try and compare cost in the various PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 70 1 vehicles. 2 In order to do that, many assumptions must be 3 made. For example, you need to take into account the 4 cost of the initial battery, the cost of the 5 replacement battery, how much it costs to put in a 6 replacement battery, the cost of the vehicle itself, 7 price of gasoline and electricity, vehicle efficiency, 8 maintenance cost, all of these things will affect the 9 final cost of the vehicle. 10 In our work, we drew upon, to get these 11 assumptions, we drew upon information from other 12 published reports wherever possible. We also drew upon 13 information from manufacturers. 14 So, we took a very careful look and tried to 15 generate the best assumptions that we could based upon 16 the information that is out there. 17 Overall, in trying to characterize our 18 assumptions, I would say that we were fairly 19 conservative looking at 2003 and the early years, that 20 we didn't assume a lot of progress beyond what is 21 currently known. 22 We feel that those numbers are fairly 23 conservative. Looking at volume production in future 24 years, we were a little more optimistic, I think 25 similar to what Dr. Kalhammer described in their part PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 71 1 of the discussion, we used what we could consider 2 optimistic but plausible assumptions for volume future 3 productions. 4 So, the 2003 we think is pretty conservative. 5 Volume is a little more optimistic but still 6 reasonable. 7 The details of our methodology and our results 8 are given in the staff report. This morning, I'll 9 provide just an overview of our findings and a few 10 examples to illustrate the points. 11 One basic message is that in the near-term 12 ZEVs will be more expensive than other comparable 13 vehicles. 14 This is due to the cost of the battery, plus 15 the added cost of the vehicle, due to the low 16 production volume. Just as you were discussing on 17 batteries, the way that volume leads to reduction, the 18 same thing is true for the rest of the vehicle. 19 ZEVs are expected to be cheaper to operate 20 than conventional vehicles due to lower fuel costs and 21 lower maintenance costs. 22 These operating cost saving do not, however, 23 fully offset the higher initial cost in the near-term. 24 Because vehicle prices are set in a 25 competitive market, staff does not expect that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 72 1 manufacturers will be able to recover the full cost of 2 the vehicle through the prices charged to consumers. 3 In high volume production, the picture 4 changes. Under the optimistic but plausible 5 assumptions that I mentioned, high efficiency battery 6 EVs could become cost competitive with comparable 7 conventional vehicles in high production volumes. 8 This slide provides some examples of near-term 9 incremental costs, with a lot of information that I 10 will just hit on a couple of things. 11 By incremental cost, we mean the extra cost of 12 a specific vehicle as compared to a SULEV of similar 13 size. So, these numbers deal only with the upfront 14 cost of the vehicle. 15 They don't take into account any operating 16 cost savings over time. 17 The main thing that we wanted to illustrate 18 here is that the total incremental cost for the 19 vehicle, so the right-hand column, ranges from about 20 $7,000, $7500, for a lead acid CEV to more than 21 $20,000, down at the bottom, for a freeway capable, 22 long-range nickel-metal hydride vehicle. 23 This slide presents similar information but 24 for future vehicles in volume production. By volume 25 production, similar to what Dr. Kalhammer used, we mean PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 73 1 100,000 vehicles per year or more. 2 First thing to notice is that the numbers here 3 are quite a bit smaller, over on the right-hand column. 4 Volume production certainly makes a difference. 5 Another point to bear in mind is that the 6 efficiency of the vehicle and the range of the vehicle 7 also are very important when you're looking at cost. 8 The reason is that higher efficiency and lower 9 range allow for smaller battery packs, which decrease 10 the cost. 11 So, for example, the highest cost over here, 12 $9,980 for an MOA-type four-passenger vehicle, that is 13 for a vehicle with efficiency of today's MOA vehicles. 14 If you compare that to the high efficiency 15 vehicles that are shown above, in the middle of the 16 chart, you can see that a hundred mile range high 17 efficiency vehicle is less expensive, and the 60-mile 18 range vehicles are considerably less expensive. 19 Again, making the vehicles more efficient and 20 lowering the range, reduces the cost. 21 Once again, these numbers are for initial 22 costs only and do not take into account any operating 23 cost savings. 24 The next slide says that when you do include 25 operating cost, the relative cost of electric vehicles PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 74 1 improves. 2 This slide shows that for volume production, 3 this is not 2003, this is volume production in future 4 years, shows the comparative life cycle cost per mile 5 over the entire life of the vehicle. 6 So, if you look, for example, at the 60-mile 7 range, high efficiency vehicle, there is a lead acid 8 and nickel-metal hydride version, you see that the cost 9 per mile is 7.9 cents and 8.2 cents, that compares 10 favorably to the PZEV, up at the top, at 7.8 cents. 11 So, what this is saying, this is illustrating 12 my point that with some of our assumptions, these 13 vehicles can become competitive in future years. 14 One other point to notice here is the relative 15 cost of the lead acid and the nickel-metal hydride 16 60-mile vehicles. During our staff work and workshops, 17 there was considerable discussion of the relative cost 18 of lead acid and nickel-metal hydride. 19 Lead acid has a lower first cost but also a 20 shorter life, so, therefore, you need to replace the 21 battery pack more often. 22 In our cost analysis, using our basic 23 assumptions, it turns out that for vehicles with the 24 same range, so what you are looking at there, the life 25 cycle cost for lead acid and nickel-metal hydride PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 75 1 vehicles is pretty much the same. 2 Lead acid starts out with an advantage due to 3 its lower initial cost, but that advantage is used up 4 by the need to replace the battery pack more often. 5 One note, the life cycle cost numbers for the 6 PZEV and hybrid vehicles, so the gasoline vehicles, 7 have been revised slightly since the publication of the 8 staff report. 9 There was a minor calculation error in the 10 staff report. We have an errata sheet out on the table 11 and it has been distributed on the Web that explains 12 this. 13 It is a very, very minor difference. So, we 14 have not bothered to revise the graphs that we have in 15 the staff report, because if you are looking at a 16 graph, you can't see it, but these numbers are slightly 17 updated. 18 So, to summarize, battery electric vehicles 19 will be significantly more expensive in the near-term 20 but could be cost competitive in volume production. 21 Next, I will speak to the environmental, 22 energy and economic benefits of ZEVs. 23 ZEVs provide a range of benefits. First of 24 all, there are the gold standard for vehicular air 25 pollution control. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 76 1 They reduce both criteria and toxic pollutant 2 emissions to the maximum extent feasible. 3 High efficiency ZEVs and hybrids also cut 4 emissions of carbon dioxide and other greenhouse gases. 5 I will discuss these points in more detail in 6 a moment, but they are not the only benefits. 7 ZEVs also have the potential to reduce 8 community level impacts. Research in the South Coast 9 Air Basin has shown that mobile sources are the 10 greatest contributor to carcinogenic risk from air 11 pollution in the Basin. 12 Mobile source pollution from highway traffic 13 has the greatest effect on nearby neighborhoods. Thus, 14 reduction in toxic emissions from motor vehicles can 15 help address community and neighborhood level public 16 health concerns. 17 ZEVs minimize the multi-media impacts of 18 vehicle operation, eliminating the need for upstream 19 petroleum refinery, storage, delivery, so there's 20 various multi-media benefits. 21 ZEVs also provide energy diversity and reduce 22 energy demand, and they also have secondary economic 23 benefits. 24 Our emission benefit analysis relied on two 25 primary sources, the EMFAC2000 model and contract work PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 77 1 performed on our behalf by Arthur D. Little. 2 This next slide presents the bottomline. On a 3 per vehicle basis, ZEV emission reductions are 4 significant. 5 ZEVs are much cleaner than even the cleanest 6 conventional vehicle. This is true even when you take 7 into account the upstream emissions, what we call 8 indirect emissions, from the power plants that generate 9 the electricity used by the EV. 10 On a fleetwide basis, looking at the impact in 11 tons on the entire fleet, ZEV emission reductions are 12 modest in the near-term but grow over time. 13 This next slide shows the vehicle reduction in 14 NMOG emissions. Direct emission, those on the 15 right-hand part, are those from the vehicle itself, 16 both tailpipe and evaporative. 17 For battery electric vehicles, direct 18 emissions are zero. 19 Indirect emission are those that result from 20 vehicle fueling, electricity generation for the battery 21 vehicle or the gasoline production and transport for 22 other vehicles. 23 As you can see, if you total direct and 24 indirect emissions, battery vehicle emissions of NMOG 25 are far below those of any of the other vehicles. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 78 1 These calculations, by the way, are for the 2 South Coast Air Basin, but since it's on a per vehicle 3 basis, I guess it doesn't matter, so, never mind. 4 The next slide presents similar information 5 but for NOx emissions. I will note that these numbers 6 have been revised slightly from those shown in the 7 staff report, again, as discussed on the errata sheet. 8 As can been seen from th is graph, NOx 9 emission are much lower for the battery vehicles. 10 The next slide shows air toxics. Let me -- I 11 guess I haven't shown or talked about the vehicles that 12 we're considering here. Let me touch on that for a 13 second. 14 At the top is the battery vehicle. Next is a 15 PZEV SULEV. Next is a PZEV hybrid, non grid. That 16 means something like an Insight or Prius, that doesn't 17 plug into an electricity grid, but all of its energy 18 comes from the gasoline tank. 19 Next is a SULEV. Next is a SULEV with LEV II 20 deterioration rate. What that means is let's assume 21 that the vehicle deteriorates a little more rapidly 22 than we think. What happens if we are wrong, 23 essentially. 24 That says if we assume a higher deterioration 25 rate, similar to what we see for older vehicles, what PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 79 1 would the emissions be? 2 Finally, at the bottom, is the model year 2002 3 vehicle. So, for all of the pollutants, those are the 4 vehicles that we looked at. 5 Once again, as you can see here, as was the 6 case for the other pollutants, the battery vehicle 7 emissions are substantially below those of all of the 8 other vehicles. 9 Finally, this slide shows CO2 emissions. 10 These are presented in a slightly different format, 11 because this information comes from an energy 12 efficiency analysis performed by Arthur D. Little. 13 I will let you note right away that these 14 results have been refined from the results presented in 15 the staff report. 16 They show a further reduction in the electric 17 vehicle emissions of about 20 percent as compared to 18 the graph that was in the report. 19 What this is due to is a change in the assumed 20 mix of power plants. Essentially the contractor felt 21 that there were some better assumptions that could be 22 made. 23 At our workshop, the contractor mentioned 24 this, and this has been shared with the working group, 25 but I would like to emphasize that this is actually the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 80 1 first time that these numbers have been publicly shown. 2 So, others in the audience would not have had 3 a chance to digest them or respond to them. So, there 4 is a minor difference, but it is a difference of about 5 20 percent. 6 What this shows is that the graph of total CO2 7 emissions over the entire fuel cycle. By fuel cycle, I 8 am referring to the emission impact from fuel 9 extraction, production, distribution and then use in 10 the vehicle. 11 This is, you start way at the well-head and go 12 all the way to the vehicle going down the road, what is 13 the CO2 impact over that entire cycle. 14 These estimates represent marginal emissions 15 in the South Coast Air Basin in 2010. 16 Finally, the light green portion of the bar, 17 up on the right, represents uncertainty due to varying 18 projections for fuel economy. Obviously the fuel 19 economy that you assume makes a difference here. 20 Is there a question? 21 BOARD MEMBER BURKE: Does that take into 22 account the downstream CO2 emissions caused by when you 23 get rid of the battery? 24 MR. NASH: I'm with Arthur D. Little. 25 The battery recycling energy impacts aren't PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 81 1 considered, nor are the energy impacts from production 2 facilities, tanker ships or building the vehicles. 3 Those have been looked at in other studies and 4 do not vary greatly amongst the fuel choices. 5 BOARD MEMBER BURKE: I think the Board would 6 be interested in the impact of that figure on electric 7 cars. 8 If it makes the number go up significantly, it 9 changes the picture. 10 MR. NASH: Certainly. 11 That number also is subject to a lot of 12 assumptions on the lifetime, of recycling, whether lead 13 or nickel-metal or lithium is used. 14 BOARD MEMBER BURKE: But that is information 15 that they would need in order to make an informed 16 decision. 17 If you look at this chart, and I will not say 18 anything about the South Coast chart, because Mr. Chung 19 is sitting here, and he'll beat me to go home, but if 20 you have a significant -- and I don't know if it is or 21 isn't, but it is a question, everyone keeps telling me 22 that the downstream effect of the destroying of these 23 batteries is significant. 24 Nobody has told me so far how significant. 25 MR. NASH: There was a study done about four PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 82 1 years ago on the toxics and criteria pollutant impacts 2 from recycling all of the batteries, but that didn't 3 include CO2. 4 BOARD MEMBER BURKE: Thank you. 5 MR. SHULOCK: As I was saying, the light green 6 portion has to do with varying assumptions for fuel 7 economy. 8 As you change the fuel economy on the vehicle, 9 certainly the related CO2 emissions will change, so 10 that showed a couple different set of assumptions. 11 As shown, electric vehicle CO2 emissions are 12 less than the other technologies evaluated, using the 13 assumptions that we've talked about. 14 Next, I would like to turn to fleetwide 15 emissions. 16 This slide shows the emission reductions in 17 tons per day in the South Coast Air Basin for various 18 scenarios. 19 The details of the scenarios are in the staff 20 report. I won't belabor them here. They are just 21 variations on 10 percent. 22 The point to be made here is the 2010 23 reductions are modest. They range from about 1.2 to 24 1.9 tons per day, as compared to the baseline, for 25 various versions of a ten percent ZEV regulation. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 83 1 If you look at the 2020, the emission 2 reductions grow. For scenarios one, two and three, 3 which represent the ten percent requirement variations, 4 the reductions range from about 2.9 up to 3.5 tons per 5 day. 6 We also did another scenario, which is 7 scenario four up here, which models an aggressive 8 ramp-up, such that in 2020, 50 percent of the vehicle 9 fleet are ZEVs. 10 Under those assumptions, the reduction is 11 almost of 12 tons per day, and this is a decrease of 12 more than 30 percent from baseline level. 13 So, this is really driven by vehicle 14 penetration. When you have small numbers of vehicles, 15 the tonn