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 tonnage results are modest. As you get more 16 vehicles out there, the tonnage results pump up. 17 Now that we have discussed cost and emission 18 reductions, the next question to be touched on is 19 cost-effectiveness. 20 For near-term vehicles, the cost per ton of 21 criteria pollutants reduced will be high relative to 22 other ARB programs. 23 As vehicle costs decrease, so if you look out 24 into the future, or as gasoline prices increase, which 25 certainly has an effect, cost-effectiveness improves. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 84 1 In volume production, the cost of ZEVs can be 2 similar to that of conventional vehicles on a life 3 cycle basis, and in that instance, the emission 4 reductions, if the vehicles are cost-competitive, the 5 emission reductions from the ZEV is in essence free, 6 and cost-effectiveness is not an issue. 7 So, short term, you have one picture, and 8 long-term, the picture could change. 9 Next I would like to discuss the energy 10 benefits of ZEVs. Vehicles powered by grid electricity 11 increase the diversity of California's transportation 12 energy system. 13 This reduces the State's dependence on foreign 14 oil and contributes to greater stability in the overall 15 transportation fuels market. 16 ZEVs have the potential to be powered by 17 renewable sources of energy, such as wind, hydropower 18 or solar energy. 19 Finally, advanced battery ZEVs and hybrid 20 electric near-ZEVs are also highly efficient, reducing 21 absolute energy demand per mile of vehicle operation. 22 This next graph illustrates the point. This 23 is looking at fossil fuel energy consumption, per 24 vehicle, once again, fossil fuel per vehicle. 25 As you can see, total energy consumption of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 85 1 fossil fuel resources on a per mile basis by electric 2 vehicles is lower than all other technologies and fuel 3 options. 4 Once again, the green portion at the end of 5 the bar represents the range of energy consumption 6 based on different assumed fuel economies. 7 Given recent shortfalls in electricity supply, 8 you may questions regarding the impact of electric 9 vehicles on electricity demand. 10 In short, there would be no observable effect. 11 First of all, the amount of energy needed for 12 EVs is trivial compared to the statewide total supply. 13 Just some calculations here, 20,000 EVs would 14 use only four/ten-thousandths of one percent of 1999 15 annual demand, and six/one-hundred-thousandths of one 16 percent of available capacity. So, these numbers are 17 quite small in the context of the overall grid. 18 Moreover, and perhaps more importantly, most 19 EV charging is off-peak, and therefore, would not 20 contribute to peak demand shortfalls. 21 In fact, EV demand can really would work in 22 the other direction. If you have EVs charging off-peak 23 and using that off-peak power, they can help pay for 24 additional needed peak capacity. 25 So, from an energy use standpoint, off-peak EV PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 86 1 demand is really not an issue. 2 Next we will cover economic benefits. The ZEV 3 requirements have lead to advances in technology. 4 Because of their high technology leadership, California 5 companies have the technical and scientific capability 6 to play significant roles in the design, development 7 and production of advanced technology vehicles. 8 To take a more rigorous look at this issue, 9 ARB contracted with the Institute of Transportation 10 Studies, at UC Davis, to study what we call, they call, 11 the secondary benefits of the ZEV mandate. 12 Dr. Ken Kurani, of ITS, is here to briefly 13 present their findings. 14 We are on the home stretch. He will present 15 his findings, and when he completes his work, I have 16 just a few wrap-up comments, and then we will be 17 finished with the staff presentation. 18 Dr. Kurani. 19 DR. KURANI: Good morning. My name is Ken 20 Kurani. I'm a Research Engineer at the Institute of 21 Transportation Studies, at UC Davis. 22 I would like to thank you, Mr. Chair, and the 23 Members of the Board, for the opportunity this morning 24 to quickly summarize the results of our study. 25 This was done under the direction of Dr. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 87 1 Andrew Burke, at ITS, Davis, and with the assistance of 2 Erin Kenney, at Westart-CALSTART. 3 I suppose we need to first of all identify 4 what we mean by secondary benefits. We can talk about 5 what the primary benefits are, which, of course, are 6 the placement of zero emission vehicles on the roads, 7 streets and highways of California and the attendant 8 air quality and energy benefits that Chuck has just 9 described. 10 Secondary benefits are then almost anything 11 else. Since that carries a wide variety of things, let 12 me list just a few of the specific types of secondary 13 benefits that we addressed. 14 These include government and industry programs 15 and consortia related to EVs but that also have other 16 research and policy components to them, new economic 17 activity related to production zero emission vehicles, 18 advances in non-electric vehicles that come out of 19 advances in zero emission vehicles, new emissions 20 programs outside of California, given constitutional 21 arrangements between Federal and State governments on 22 what types of emission programs are permitted in other 23 states depend on what happens in California with its 24 zero emission vehicle program, development of electric 25 low speed travel modes, a number of applications in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 88 1 electric utilities, and non-EV applications of advanced 2 battery, electric motors and electronics. 3 And finally, I will summarize these impacts by 4 taking an overall invented activity and innovation. 5 Let's go down the list and give you a few 6 examples. Of course, one set of consortium programs 7 started specifically for zero emission vehicles was the 8 U.S. Advanced Battery Consortium, the Advanced Lead 9 Acid Battery Consortium, EVAA and the Japanese Electric 10 Vehicle Association. 11 In the time period of 1991 to 2002, we 12 estimate that the USABC and ALABC will have spent over 13 $500-million on developing advanced batteries. 14 Another set of consortium programs not 15 initiated primarily for ZEVs but have a strong electric 16 vehicle component to them include all of the DARPA, 17 PNGV, focused primarily on fuel, efficiency, and of 18 course, the California Fuel Cell Project, all of these 19 programs have significant electric vehicle, hybrid 20 electric vehicle or fuel cell electric vehicle 21 programs. 22 Westar-CALSTAR performed a survey of companies 23 in California with ZEV-related economic activity, and 24 this is just one of their results. 25 From 22 such companies doing business in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 89 1 California, the total sales in California, from 1990 to 2 1999, were on the order $188-million. They estimated 3 their sales to be $65-million in the year 2000, and 4 another $250-million in the next coming three years. 5 Turing your attention to low emission vehicle 6 programs in other states. The National Low Emission 7 Vehicle Program was initiated in response to requests 8 for the California ZEV program to be put into place in 9 states in the Ozone Transport Region. 10 The Ozone Transport Region is the northeastern 11 states, stretching from the Washington, DC, 12 metropolitan area, up through Maine. 13 States there requested that they be allowed to 14 adopt California's Low Emission Vehicle Program, 15 including the ZEV mandate. 16 The National Low Emission Vehicle Program was 17 a negotiated settlement between the Federal EPA, the 18 car companies, the states and environmental interests. 19 It does not include zero emission vehicles, but it does 20 allow the Federal EPA to require cleaner conventional 21 vehicles sooner than it would have otherwise been able 22 to. 23 The benefits for the Ozone Transport Region 24 have been estimated by one EPA study on the order of 25 496 tons per day in NOx reductions, and 311 ton per day PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 90 1 in non-methane organic gas reductions. 2 In California, what this means is that 3 vehicles brought into the state by residents of the 49 4 states moving to California with vehicles they bought 5 outside of California would be bringing in cars that 6 are cleaner than they otherwise would have been. 7 The four states in the Ozone Transport Region 8 that still wish to adopt California's program rather 9 than the National program, are New York, Maine, Vermont 10 and Massachusetts. 11 The decision, of course, that you make today 12 are being watched with great interest by 13 representatives of those states. 14 If they can sustain ZEV requirements in their 15 own states, this will nearly double nationally the 16 number of zero emission vehicles required. 17 Historically, California has represented about 18 ten percent of light-duty vehicle sales. Combined, 19 these four states represent about seven to eight 20 percent. 21 One way to get to large scale production is 22 to, of course, require more ZEVs in California. 23 Another way is require ZEVs in other states, and these 24 states have said they desire to have California's 25 program, complete with ZEVs. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 91 1 Another development since 1990 and 1991 has 2 been that of low speed electric vehicles. These 3 include bicycles and conversion kits for bicycles, 4 scooters and motorcycles, neighborhood electric 5 vehicles, city electric vehicles and three-wheeled 6 motorcycles. 7 The neighborhood electric vehicles in 8 particular have been codified now in the National set 9 of vehicle definitions. They are what are known now as 10 low speed vehicles. 11 One example of the growth in market for these 12 types of vehicles is the chart shown here for electric 13 bikes and scooters. This is worldwide sales. 14 The source for this is a report done by Frank 15 Jameson of the Electric Battery Bicycle Company. 16 The first two years are just aggregate sales 17 for the entire world. The later years we have broken 18 it down by regions. 19 The bottom, light purple, is China, and next 20 is Japan, and Taiwan, and here the U.S. 21 That shows since 1996, growth in electric 22 bikes and scooters has increased from about 160,000 23 units to over 600,000d units, and the sales are also 24 increasing in the U.S. 25 These modes plus low speed vehicles, city EVs, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 92 1 have all benefitted by advances in traction batteries, 2 electronics and motors that were intended primarily for 3 the fully freeway capable zero emission vehicles. 4 In addition, these other vehicles incorporate 5 materials advances. All of the city electric vehicles 6 use aluminum space frames and plastic body parts to 7 achieve light weight, and therefore, longer range, with 8 smaller batteries. 9 Industrial consumer applications of advanced 10 batteries, ultracapacitors and pulse power batteries 11 are used to meet peak power demand. 12 One example is in the hybrid electric vehicles 13 where these devices are used for peak power for 14 acceleration, and equally importantly, peak power 15 devices are required to get the maximum efficiency out 16 of regenerative braking. 17 That is, braking is also a high power, high 18 energy per time activity, and in order to capture all 19 of the possible energy out of regenerative braking, you 20 need a high power device. 21 Zinc-air batteries. We see these, of course, 22 real popular in camcorders, laptop batteries, laptop 23 computers, cellular phones. 24 As a class of things specifically still used 25 in zero emission vehicles, we have the large prismatic PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 93 1 nickel-metal hydride batteries and the lithium 2 batteries. 3 An early contender for use in EVs that we 4 don't see too much any more because of the toxicity of 5 bromine is the zinc bromine battery. 6 The next slide I list a few of applications of 7 these in particular, the nickel-metal hydride, the 8 lithium and the zinc-bromine. 9 Battery electronics aid in utility 10 applications for load leveling, power quality and clean 11 energy. 12 In particular, many of the clean energy 13 technologies, such as wind and solar, have a very 14 strong daily pattern. You only generate solar when the 15 sun is shining, and of course, you may need some 16 storage capacity to get you through your nighttime 17 energy needs. 18 Perhaps the largest potential market for these 19 advanced batteries outside of zero emission vehicles 20 lies in automotive SLI batteries. This is the starter 21 battery in the cars that we drive today. 22 This is a very large market. Annual new and 23 used SLI battery market is estimated to be valued at 24 about $5-billion. 25 The ratio of replacement batteries to new PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 94 1 batteries is about five to one, which means that 2 batteries in the fleet of vehicles, starter vehicles, 3 turns over much faster than the fleet itself does. 4 There are several things making these advanced 5 batteries attractive for the standard SLI application. 6 One is the movement by the automobile 7 manufacturers who would very much like to move to 8 higher power systems on board conventional vehicles. 9 Right now we have 12-volt systems in our cars. 10 The preferred option out there I think is to move to a 11 42-volt system. A 42-volt lead acid battery is a big 12 chunk of lead, and a lighter battery, which we could 13 get with the nickel-metal hydride or any of the others, 14 because they have higher power density and higher 15 energy density, would be a smaller, lighter battery and 16 still a higher voltage application. 17 In addition to the SLI market, there are also 18 industrial markets. The two big pieces of that are 19 communications and uninterruptable power supplies for 20 hospitals and computer systems like what have become so 21 prevalent with the growth of the Internet. 22 Non-EV applications, but still vehicle 23 applications, as opposed to the consumer and industrial 24 applications that I just talked about, include things 25 like the replacement of all sorts of auxiliary systems PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 95 1 in conventional cars. 2 These include things like power steering, 3 power brake systems, things that are run by belts and 4 hoses and pumps. All those belts, hoses and pumps that 5 wear out and break can be replaced by electric motors. 6 This is already happening in some vehicles. 7 The Honda S2000 uses an electrically operated power 8 steering system. 9 And in hybrid electric vehicles, which have 10 the option of either operating off electric or 11 conventional motor, most of those systems will run 12 their auxiliaries with electric, demonstrating that 13 there is a belief that these electrically actuated 14 systems, rather than mechanical actuated systems, will 15 be more reliable over the longer term and probably will 16 even cost less. 17 To summarize, overall inventive and innovative 18 activity around electric vehicles, we took a look at 19 patent activity. 20 The chart shows you the results of a search of 21 the United States Patent and Trademark Office database 22 for electric vehicles. 23 The yellow line is the number of patents that 24 have the phrase electric vehicle or electric vehicles 25 in their abstract. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 96 1 The light blue bars are the total number of 2 patents in which that phrase appears anywhere. 3 Clearly something happened in and around 1990 4 and 1991, given the length of time it takes to file 5 patents. 6 Throughout the 1980s, there had been a 7 Federally-funded program for electric and hybrid 8 vehicles. Many of the auto manufacturers had their own 9 programs outside that Federal program. 10 But overall patent activity remained low. We 11 got to 1991, and what I cannot show you on the chart is 12 not only the tremendous growth in the numbers of 13 patents, but also who was filing. 14 The patent numbers were low throughout the 15 80s. We can identify the Federal Government, Federal 16 DOE were the prime recipients of patents. 17 In 1990, we start to see all kinds of other 18 companies coming into the patent activity. In fact, to 19 highlight the degree of change, let me give you two 20 things. 21 One is the comment up there, looking only 22 since 1980, 81 percent of all EV related patents issued 23 since 1980 have been issued since 1991, as it took us 24 11 years to get the first 19 percent and only 9 years 25 to get the next 81 percent of patents. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 97 1 Also throughout the 80s we can actually fit 2 lines to this, patents declined on average by minus one 3 per year. One per year from 1980 to 1991. 4 Since 1991, there have been more than 20 more 5 patents per year for EVs. 6 Prior the 1990, EVs were borrowing from other 7 applications. Marine batteries, jet engine starter 8 motors, all kinds of misfits and attempts by home 9 mechanics and home converters to build vehicles. 10 The auto companies did have advanced research 11 programs. The General Motors EMPAC was announced prior 12 to the ZEV mandate. 13 Prior to even that, Ford delivered to 14 ECO-Stars to the USDOE. GM had one EMPAC, Ford had 15 delivered two ECO-Stars, and if you were a consumer 16 hoping to buy an EV, you were buying a mismatched set 17 of parts from other applications. 18 Today, following ten years of development in 19 the ZEV field, advances in ZEV research are now leading 20 to reliability, cost and operational improvements in 21 other fields. 22 Finally, the Zero Emission Vehicle mandate 23 through the development of low emission vehicles to the 24 facilitation of LEV programs in other states is leading 25 to improve emissions throughout the U.S. and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 98 1 California. 2 Thank you. 3 Any questions or comments? 4 CHAIRMAN LLOYD: Thank you very much, Dr. 5 Kurani. 6 Any questions from the Board? 7 I know it is not germane to the study you have 8 done, that you have just done there, but I think you 9 have been involved in a lot of the work, again, UC 10 Davis which has been helpful to staff in providing the 11 data that we need in this program. 12 Were you involved in some of the market 13 research? 14 DR. KURANI: Yes. 15 CHAIRMAN LLOYD: Can you give us any guidance 16 how we might help to work with the auto manufacturers 17 here in translating a large number of letters here in 18 support of EVs to actually getting vehicles into the 19 market place? 20 Do you have any insights into that? 21 DR. KURANI: I have a recent proposal I would 22 like to share with you. 23 We will be coming to see you next week. 24 CHAIRMAN LLOYD: We will be delighted to hear 25 your response. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 99 1 DR. KURANI: Yes, I do. 2 It has to do, I think, with creating increased 3 opportunities for direct experience with electric 4 vehicles, and with the initiation of, for now I call 5 social processes about information, information spread 6 around electric vehicles. 7 EVs are different. There is a different 8 tactile feel to driving one that many people find to be 9 beneficial. Those types of tactile physical sensations 10 can't be conveyed very well through information. 11 Getting people out there just to drive an EV, 12 and certainly there have been lots of programs I would 13 like to give credit to, to everyone in government and 14 industry and advocates, who would have been promoting 15 opportunities and creating opportunities for people to 16 drive EVs. 17 This is very important. I think the 18 information about the relevance of our personal choices 19 to air quality, local air quality, global CO2, is 20 important. 21 In discussions with people outside of the 22 Institute, friends and neighbors, I'm often struck by 23 the fact that people aren't as aware as I would hope 24 that they would be as to the possible impact of their 25 choices, that they really can make a difference. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 100 1 That an EV is qualitatively and quantitatively 2 a different vehicle when it comes to emissions and 3 energy consumption. 4 There are a variety of things we need to do to 5 move electric vehicles into people's, what is called, 6 choice set. That is with the limited set of vehicles 7 that they're willing to consider when it actually comes 8 time to purchase a vehicle. 9 These have to do with, frankly, what we are 10 developing as an approach around what is called social 11 marketing, which is the marketing of ideas, primarily, 12 that are not right now driven by private choice. 13 That is, a lot of private choices are driven 14 by things that makes a big difference to us, how many 15 seats do I need in a car to carry my kids and me 16 around, what is my budget like for buying a car, will I 17 buy a new or used car. 18 Social marketing tries to introduce these 19 other ideas of things like air quality, which is hard 20 for people to imagine that their choice, as a private 21 citizen, makes a difference. 22 Efficiency is another one. It is hard for an 23 individual to imagine their choices make a difference, 24 but collectively they do, and it's social in that it 25 requires lots of us to start to make these choices, and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 101 1 it requires the support of social institutions as part 2 of our discussion about what is important to us. 3 One of the things we like to do is to promote 4 that dialogue. 5 So, there is the direct experience with 6 vehicles. There is the marketing of the private 7 advantages and then there is promotion of dialogue 8 around how it is that our personal choices do matter. 9 CHAIRMAN LLOYD: Thank you very much, Dr. 10 Kurani. 11 MR. SHULOCK: Thank you from us as well. 12 I mentioned at the outset that this ZEV 13 requirement has been technology forcing, and this work 14 has certainly supported that assertion. 15 Mr. Chairman and Members, you have heard a 16 comprehensive overview of the staff's efforts. I will 17 sum things up as follows. 18 The technology is ready. Market applications 19 exist given competitive pricing. 20 ZEVs provide a full range of environmental and 21 energy benefits. Cost clearly remains an issue. 22 Then one final thought. If you think back to 23 1990, there has been tremendous progress in the 24 development of these vehicles over the course of these 25 ten years. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 102 1 Up until now, that is what is really different 2 about this review, up until now, pretty much people 3 were talking about concepts of hypotheticals and all 4 that sort of stuff. 5 Today we have real vehicles out there in the 6 world, meeting needs and being used. You just heard 7 about all of the technical progress that there has been 8 related to this requirement, and directly in the 9 vehicle area and in other areas. 10 I would just like to leave you with the 11 thought, I suppose, that over the course that we have 12 discovered in the course of our review is over the 13 course of these years, there really has been tremendous 14 technical progress. 15 Thank you very much. 16 CHAIRMAN LLOYD: Thank you very much indeed. 17 Does the Board have any questions of staff at 18 this time, before we move on? 19 Dr. Burke. 20 BOARD MEMBER BURKE: First of all, I would 21 like to say thank you for the staff report. 22 I thought it was excellent. I just thought it 23 was particularly articulate on how complex and compound 24 this problem is. 25 I think it was fairly balanced. Some people PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 103 1 would like to argue some points one way or the other, 2 but I think we were out there and did a good job in 3 laying the case out to listen to the testimony today. 4 One of the things that has been ruminating 5 through my mind in the last couple of days, in 1980 6 when this ZEV mandate was introduced -- I'm sorry 1990. 7 The South coast District had approximately 51, 8 52 percent of the cars in the State of California 9 operating. 10 Currently the number is over 60 percent of the 11 cars in the State of California. 12 So, to say that a ZEV mandate is important to 13 the South Coast District is the understatement of the 14 year. 15 How it is implemented, one of things that I 16 would like to ask, Mr. Chairman, if we could request 17 the staff, to put together a number for us so that we 18 can share with our colleagues this afternoon, if we 19 could find out the current percentage of autos, 20 vehicles in the South Coast District, times the 21 percentage of cars per person in the rest of the state. 22 Do you understand what I'm saying? 23 You are shaking your head, yes. You got it, 24 because when my colleagues see this, and with three 25 Members on this Board who live in the South Coast, we PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 104 1 may almost be in a crisis position. 2 In the implementation of the ZEV, you know, we 3 may need, as I discussed with you the other day, some 4 kind of increased activity or pilot project in the 5 South Coast. 6 Because when you talk about environmental 7 justice, this is environmental justice not for black 8 people or brown people or white people, this is 9 everybody who is there, because I think these numbers, 10 and I do not have a clue, I haven't run the numbers 11 ahead of you, so don't think I'm cheating here, but I 12 think that we will find that the impact on the people 13 in those four counties is so dramatically more than the 14 rest of the state, that we may want to consider some 15 kind of additional action in that area. 16 If the staff can do that for us, I would 17 appreciate it very much. 18 CHAIRMAN LLOYD: I think there are two issues 19 there. 20 I think the later comment is something that we 21 will have to talk about, and I would like to talk later 22 about that one. 23 The first part seems to be just a simple 24 exercise. 25 BOARD MEMBER BURKE: I did not mean to make it PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 105 1 now. I was just throwing it out there. 2 CHAIRMAN LLOYD: Our staff, in conjunction 3 with Dr. Lui, that should be a simple exercise, but it 4 may be in a period of time the problem down there may 5 revert back to you, because if there are so many 6 people, then the mobile will turn into stationary 7 sources, so we'll solve it that way. 8 BOARD MEMBER BURKE: They said the other day 9 that it's decreasing our freeway fatalities, so, you 10 know, when it gets to gridlock, we're going to go to 11 zero. 12 CHAIRMAN LLOYD: Good point. 13 We will get the number. 14 Ms. D'Adamo, and the Supervisor DeSaulnier. 15 BOARD MEMBER D'ADAMO: I had a question 16 regarding the charging stations. 17 You indicated that there are approximately 18 400, and that would be public charging stations, or 19 does that include stations that are operated by fleets? 20 MR. SHULOCK: I believe that the 400 refers to 21 public stations, publicly accessible. 22 If I am wrong -- 23 BOARD MEMBER BURKE: It is actually 390, 24 because I drove to the airport, and 10 of the 11 25 charging stations there were not operating. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 106 1 BOARD MEMBER D'ADAMO: Beyond the 390, does 2 staff have information about the number of charging 3 stations that have been installed for fleets? 4 MR. SHULOCK: I do not have that at this 5 moment. 6 I'm sure we can get that for you. 7 There are probably people in the audience that 8 have a good feel for that. 9 BOARD MEMBER D'ADAMO: That would be great. 10 The point that I would like to make on that 11 issue in particular is that we have received quite a 12 few letters from municipalities that have invested in 13 the infrastructure, so, if you could also provide 14 information as to where they are located, what the 15 breakdown would be of larger cities versus smaller 16 communities. 17 Thank you. 18 CHAIRMAN LLOYD: I certainly think as we move 19 ahead with all of the information systems on board, I 20 think there are already places now where, in fact, you 21 can get vehicles and you can actually dial in where 22 these recharging stations are. 23 I think associated with that also is a 24 disturbing trend that we cannot come up with a uniform 25 recharging system. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 107 1 I guess, I don't know whether staff would like 2 to comment on that. 3 Is there any progress in that, or is this 4 still an area of concern? 5 The more we talk about cost, the idea of 6 having to put duplicate recharging systems out there is 7 a concern. 8 MR. CACKETTE: So far, the staff has taken the 9 position that the market will sort this out. 10 It is not clear over the past year if and when 11 that's going to happen. Some manufacturers have 12 switched from one to the other. There seems to be 13 healthy competition. 14 At the volumes of charging stations that we 15 have right now, the duplication I don't think adds 16 great amount of extra cost. 17 If the number of public charging stations were 18 to increase greatly to match the increased demand in 19 these vehicles, I think that is an issue that needs to 20 be addressed. 21 CHAIRMAN LLOYD: That is something that we may 22 want to come back tomorrow as we deliberate further 23 actions. 24 Supervisor DeSaulnier. 25 BOARD MEMBER DeSAULNIER: Chuck, considering PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 108 1 the PUC is meeting today in San Francisco, I appreciate 2 your comments about the grid system. 3 So, I am going to assume that we are in 4 constant contact with our sister agency about what we 5 are doing here, the PUC and the Energy Commission? 6 MR. SHULOCK: Yes. 7 BOARD MEMBER DeSAULNIER: Good answer. 8 You had one graph about how the use of fossil 9 fuels in the different vehicles are, and have we 10 quantified in any degree, and what I am getting at 11 here, there has been a lot of pressure in the 12 Legislature, and there is a lot of price sensitivity to 13 the amount of CARB certified fuel to supply, can we 14 quantify or project how EVs and also how hybrids might 15 help to take the pressure off that? 16 There's, I think, the Batton bill that came 17 out of legislation this year to look at studying giving 18 more credits for variances to make it easier to bring 19 dirty fuel in, and I would be interested in finding out 20 if we can quantify whether this is significant at all 21 as we project the number of EVs in the market. 22 MR. SHULOCK: We have not done that directly 23 so far, but I think the information exists to do that 24 in the model runs and in the other work that's been 25 done. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 109 1 BOARD MEMBER DeSAULNIER: Last question, 2 regarding the marketability, given that California, we 3 Californians always think we are at the head of 4 everything, have we looked at, either in Japan or in 5 Europe, where there have been more successful 6 applications, particularly of the neighborhood cars and 7 the city cars? 8 When we were in Torrance, we saw a video where 9 they are doing a successful car sharing with the 10 neighborhood cars around transit in Japan. 11 I wonder if we have started looking at that 12 kind of use? 13 MR. SHULOCK: There are applications like that 14 that have been tested in California. 15 There was one in the Bay Area, and I believe 16 some other tests of that type are actively being 17 complicated -- contemplated. 18 The Energy Commission, I think, is supporting 19 some studies of that type. 20 BOARD MEMBER DeSAULNIER: Are you referring to 21 the Bay Area to the ridesharing at Lawrence Livermore? 22 MR. SHULOCK: No, I believe it was a BART -- 23 BOARD MEMBER DeSAULNIER: At the Dublin BART 24 station, that's with Lawrence Livermore. 25 Okay. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 110 1 CHAIRMAN LLOYD: Just a comment, Mr. Jim Boyd, 2 from The Resources Agency and Steve Larson, Executive 3 Director with CEC, will be appearing before us, so you 4 will have a chance to follow up on your question with 5 them. 6 MR. CROSS: Just quickly in response to the 7 question about fuel use, it's connected to market 8 volume, and that's still quite small for both HEVs and 9 EVs. 10 So, I think that the long-term answer is that 11 they can be a tremendous contributor for using less 12 fossil fuel, but the near-term, as I said, they 13 wouldn't make much difference or any difference in a 14 crisis which would occur in the next few years, for 15 example. 16 BOARD MEMBER DeSAULNIER: Well, it will be 17 interesting, at least for me, having four refineries in 18 my county, to look at that both in the near-term and in 19 the long-term -- not that I want them to produce more. 20 CHAIRMAN LLOYD: Professor Friedman. 21 BOARD MEMBER C.H. FRIEDMAN: You were 22 discussing cost, and you had several charts, near-term 23 incremental cost and long-term incremental initial 24 cost, which is sort of, I guess, a premium above the 25 equivalent internal combustion vehicle? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 111 1 MR. SHULOCK: That is correct. 2 BOARD MEMBER C.H. FRIEDMAN: Those costs which 3 range from 500 for a PZEV, at least the near-term, up 4 to 24,000, I guess it's not up there, but do you know 5 which charts I am referring to? 6 MR. SHULOCK: Yes. 7 BOARD MEMBER C.H. FRIEDMAN: Those do not take 8 into account any transitional subsidies, local 9 government or tax credits, Federal subsidies or State 10 other subsidies? 11 MR. SHULOCK: That is correct. 12 This is prior to any attempt to buy down that 13 difference. 14 BOARD MEMBER C.H. FRIEDMAN: That is, from 15 your point of view, arguably, a worst-case scenario? 16 MR. SHULOCK: True costs, if you will. 17 CHAIRMAN LLOYD: Mr. Calhoun. 18 BOARD MEMBER CALHOUN: Just zeroing in on 19 market penetration, can you very briefly tell us what 20 the primary hinderance has been to market penetration? 21 I think the staff report alludes to it, in 22 terms of -- I will just let you answer the question. 23 MR. CROSS: I'm sorry, I couldn't hear part of 24 your question. 25 BOARD MEMBER CALHOUN: What are the primary PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 112 1 reasons for lack of market penetration? 2 MR. CROSS: I think, I'm not going to give you 3 much of an answer, because I think that you are going 4 to hear that from the witnesses today. 5 It is a combination of availability, cost, 6 public perception, and I think that you need to listen 7 to the witnesses today. 8 BOARD MEMBER C.H. FRIEDMAN: Doesn't the staff 9 have a current view on that? 10 MR. CROSS: That was it. 11 MR. KENNY: If I could add something, Mr. 12 Calhoun, Professor Friedman, I think the primary 13 concern that we have with regard to the lack of market 14 penetration ties directly to the lack of vehicle 15 availability. 16 We do not see very many vehicles being offered 17 for sale. 18 BOARD MEMBER CALHOUN: Let me pursue that. 19 Did the market penetration, when the vehicles 20 were available, did they come up to you expectations? 21 MR. KENNY: I think the answer to that is, 22 yes. 23 We have had roughly a little over 2,000 24 vehicles being offered for lease, and we have roughly a 25 little over 2,000 vehicles that have been placed. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 113 1 So, we are in a situation today, and this has 2 been essentially the result of that penetration in 3 which 100 percent of the vehicles that were offered for 4 lease are being leased. 5 BOARD MEMBER CALHOUN: I'm sure we will hear 6 an adequate discussion of that later on today. 7 CHAIRMAN LLOYD: Dr. Burke. 8 BOARD MEMBER BURKE: Since we know that there 9 are 75,000 letters, the assumption is that somebody 10 counted them. 11 Since we know the vast majority of them are in 12 support, I assume that somebody read them. 13 Those assumptions are not evidence, but we 14 assume that. 15 Did we, if we read them, did we do any 16 charting as to the origination points as it relates to 17 geography? 18 Now, I have another question while you 19 figure -- 20 MR. SHULOCK: The answer to the first question 21 is, no, sir, we did not do that. 22 MR. CROSS: But I ended up responding to the 23 first wave of them -- 24 BOARD MEMBER BURKE: The first 18,000? 25 MR. CROSS: No, but the first several hundred PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 114 1 that could make it through the Governor's Office 2 processing system to be responded to, but they were 3 handwritten and typed, not form letters, and 4 geographically distributed all over the place. 5 BOARD MEMBER BURKE: I'm obviously looking for 6 South Coast. 7 They did to support this. I want to know if 8 in fact they did, the people of the South Coast didn't 9 need to depend on the people in the rest of the state 10 to carry their water on this issue. 11 MR. CROSS: Absolutely, it was both. 12 They were distributed throughout the state. 13 BOARD MEMBER BURKE: When I look at your 14 summary of the California State Legislators who sent 15 letters of support, I am just astounded that there is a 16 lack of South Coast Legislators on both sides of the 17 aisles who are non-existent in this, and I wonder if 18 there was a reason for that? 19 BOARD MEMBER C.H. FRIEDMAN: They are all 20 addressed to Santa Claus, aren't they? 21 BOARD MEMBER BURKE: I know that our people 22 had to talk to them. 23 And so, why -- you know, if I was from San 24 Francisco -- I don't know where Wesley is, Chesbro, or 25 Martin, but I know they're not from -- where -- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 115 1 CHAIRMAN LLOYD: I don't think, Dr. Burke, 2 that we can control the Legislature. 3 BOARD MEMBER BURKE: I understand that. 4 But John Burton didn't sit down and decide to 5 write you a letter. Somebody asked him to write you a 6 letter. 7 MR. KENNY: Actually, Dr. Burke, we didn't 8 solicit the letters. 9 To the extent that letters did come in or did 10 not come in, they came in generally because the writers 11 wanted to send them. 12 CHAIRMAN LLOYD: Their may be somebody behind 13 that, Dr. Burke, but again, I agree with Mr. Kenny, as 14 far as, no, we did not go out actively and solicit 15 this. 16 We had interaction with people in the 17 Legislature on the issue, but those were the one's that 18 were interested. 19 Some, of course, wanted to find out what we 20 are doing here, and they were concerned about the extra 21 time, but there were -- 22 BOARD MEMBER BURKE: But there were no people, 23 no Legislators, Assembly or Senate, from the South 24 Coast area who were interested that we talked to? 25 CHAIRMAN LLOYD: That is a different question. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 116 1 They didn't send a letter. 2 BOARD MEMBER BURKE: Then I will change the 3 question. 4 Were there Members from the South Coast area 5 that were talked to, and if so, who? 6 CHAIRMAN LLOYD: I think our Leg Director is 7 here. 8 MR. KENNY: I just talked to our Leg Director, 9 and he says none. 10 BOARD MEMBER DeSAULNIER: Does this mean, Mr. 11 Chairman, that we can restrict the mandate to the Bay 12 Area? 13 BOARD MEMBER C.H. FRIEDMAN: We have an 14 electric problem in San Diego, so I am not going to 15 raise any questions. 16 CHAIRMAN LLOYD: Mr. McKinnon. 17 BOARD MEMBER McKINNON: I want to address one 18 thing with staff before we dealing with this in the wee 19 hours of the night in what may be a very, very long 20 hearing. 21 I had the pleasure of watching the process 22 this time sitting in the back of the room in workshops. 23 For the tone the last few minutes, I want to 24 make sure that we are clear, I think you all did a 25 tremendous job in making sure that the public had an PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 117 1 opportunity to have input in all different parts of 2 this State at all different hours of the day. 3 Certainly working people had the opportunity 4 to show up in the evening and testify at the workshops, 5 and I'm really, really proud in the way that you 6 represent our Board and making sure that the process 7 opens up to the California people. 8 Thank you. 9 CHAIRMAN LLOYD: I would certainly echo those 10 comments, Mr. McKinnon, and as I think staff knows, we 11 really appreciate all their efforts and also the way, 12 and I second that, I wasn't all the time at those 13 hearings, but I would also second the attitude of the 14 staff and the way that they were willing to listen 15 attentively and take the information there. 16 BOARD MEMBER BURKE: I did not want to 17 represent that I was being disparaging of the staff, 18 but I do find it unusual that a Legislative Department 19 doesn't go to the highest impacted area of the State to 20 discuss it with the Legislators in that part of the 21 State. 22 That to me just doesn't portend to build the 23 kind of support that this organization needs. 24 MR. KENNY: If I could just add one thing, Dr. 25 Burke, we actually have not gone out of our way to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 118 1 lobby any Legislators. 2 Generally, what we do, is we do respond to 3 essentially questions. Actually, if there are 4 questions, we do generally inform them, but essentially 5 one of the things that we tried not to do is engage in 6 a process in which it became a lobbying effort on our 7 part. 8 BOARD MEMBER BURKE: I'm not saying lobbying. 9 Just informing them of what we are talking 10 about and what we are about to do. 11 I think it is a courtesy. I don't think it's 12 a necessity. 13 I don't think it's germane to the issue that 14 we are reviewing today anyway. It is just something 15 that I think we should be doing. 16 CHAIRMAN LLOYD: I think we have a break now, 17 if there are no more questions from the Board, before 18 we get into public testimony. 19 The court reporter would like a ten-minute 20 break. So, we will break for ten minutes, at 11:30, we 21 will restart. 22 The first witness we have here is Mayor of 23 Palm Springs, William Kleindeist. Then we have some 24 other members, Dan Jacobson, Eric Sletten. 25 (Thereupon a brief recess was taken.) PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 119 1 CHAIRMAN LLOYD: We have nearly 60 witnesses 2 so far and that number is climbing rapidly. 3 We have decided that the Board will not take a 4 lunch, and we will take turns to go back and eat, and 5 we will listen to the proceedings as we have lunch, and 6 I will turn it over to Professor Friedman here in my 7 absence and continue on that basis. 8 I would like to wrap up some of the discussion 9 that we had at the end of the first session in terms of 10 communicating with the Legislature. 11 We did in fact send letters over to the 12 Speaker, Speaker Burton and Speaker Hertzberg, inviting 13 them -- informing them of this hearing and inviting 14 them to participate. 15 That was delivered to all of the Members of 16 the Senate and the Assembly. We did not show any bias 17 in that case. Our Leg Director obviously distributed, 18 just for clarification there. 19 Our first witness is, in fact, a public 20 member, and the only public member that I have signed 21 up so far, and I delighted to say he is from Southern 22 California, from the South Coast Basin, and of course, 23 they have shown a lot of leadership there. 24 This Mayor William Kleindeist, from Palm 25 Springs. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 120 1 We are delighted to have you, sir. 2 MAYOR KLEINDEIST: Good morning, Mr. Chairman, 3 Members of the Board. 4 I am indeed Mayor Will Kleindeist, from the 5 City of Palm Springs, and I am here representing today 6 the MSRC, which is the Mobile Source Air Pollution 7 Reduction Review Committee. 8 I can't help but to recall a story I heard 9 years ago that Senator Kennedy told when he was the 10 upteenth speaker at a Democratic Convention. 11 He recalled feeling much like Zha-Zha Gabor's 12 fifth husband on wedding night, he said, I know what 13 I'm supposed to do, I just hope I can make it 14 interesting. 15 With that charge, I will try to give you sort 16 of an overview of what we do in the MSRC working in 17 conjunction with the AQMD Board in the South Coast. 18 As you know, the MSRC was created by the State 19 Legislature in 1990 to implement programs that reduce 20 mobile source air pollution within the jurisdiction of 21 the South Coast Air Quality Management District. 22 Our funding source is motor vehicle 23 registration fees collected under AB 2766, 24 Discretionary Fund Program. 25 Since 1995, the MSRC has made significant PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 121 1 funding investments in electric vehicle programs 2 preparing our region for the introduction of large 3 number of EVs once the Zero Emission Vehicle mandate 4 takes effect in 2003. 5 Although I would like to describe in detail 6 all the good work that the MSRC has put forth in 7 support of the ZEV mandate, in consideration of time, I 8 will keep my remarks brief and will focus on three 9 points. 10 First, I'll recap the funding investments made 11 by the MSRC that are removing the barriers to the 12 introduction and use of the EV in the South Coast 13 region. 14 Second, I will discuss what investments the 15 MSRC has committed to make in the near-term to sustain 16 the momentum, although, as you are aware, this is 17 providing somewhat of a challenge given the current 18 scarcity of available vehicles. 19 And finally, I shall share MSRC's perspective 20 in continuing the ZEV mandate, including a few closing 21 comments related to the proposed eligibility of smaller 22 city electric vehicles. 23 Since 1995, the MSRC has undertaken several 24 initiatives aimed at removing barriers to the 25 introduction of electric vehicles into the South Coast PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 122 1 District. 2 To date, the MSRC has committed in excess of 3 $14-million in discretionary funds to prepare Southern 4 California for the ZEV mandate. 5 To briefly summarize, the MSRC has committed 6 over $7-million towards electric vehicle buy-down 7 incentives. The automobile manufacturers participating 8 in our incentive programs have been reimbursed over 9 $5-million, corresponding to over 1,000 EVs either sold 10 or leased in the South Coast. 11 I can assure you this number would have been 12 considerably higher had more EVs been made available to 13 our region. 14 To help alleviate EV drivers concerns related 15 to vehicle range and to increase the overall utility if 16 EVs, the MSRC has invested over $4-million in electric 17 vehicle charging infrastructure, the vast majority of 18 which is publicly accessible and supports both 19 inductive and conductive charging modes. 20 The MSRC's infrastructure contribution was 21 matched in many cases, dollar for dollar, by using both 22 public and private funding, resulting in an EV charging 23 network in the South Coast consisting of over 250 24 charging locations, hosting almost 700 individual 25 charging units. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 123 1 Without question, the South Coast Air Quality 2 Region is prepared to accommodate significantly greater 3 numbers of battery electric vehicles. 4 If you happen to operate an EV in the South 5 Coast, you will probably notice freeway and roadway 6 signs directing you to your nearest public accessible 7 charging station, courtesy, again, of MSRC's EV signage 8 program. 9 Other noteworthy investments include MSRC's 10 recent award of $2.3-million to the U.S. Post Office to 11 help offset the incremental purchase of over 400 12 electric post office vehicles, including charging 13 infrastructure. 14 The MSRC has recently partnered with the CEC 15 to jointly fund a demonstration and comprehensive 16 evaluation of smaller city and neighborhood electric 17 vehicles. 18 The purpose of this demonstration program is 19 to evaluate the utility and air quality improvement 20 potential of these smaller EVs. 21 A decision by MSRC to extend incentives to the 22 city and neighborhood class of batteries will be made 23 once the results of our joint MSRC-CEC demonstration 24 program has been reviewed and analyzed. 25 However, let me state that the MSRC views the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 124 1 city and neighborhood class of battery vehicle, 2 electric vehicles, to be an augmentation and not a 3 replacement for the benefits that will be realized by 4 significant deployment of full-sized vehicles. 5 In closing, the MSRC has continuously 6 supported the efforts of the California Air Resources 7 Board over the past five years in preparing for ZEV 8 mandates. 9 We ask that you maintain the mandate in its 10 current form. The MSRC will continue to do its part 11 for successful completion. 12 Thank you, sir. 13 CHAIRMAN LLOYD: Thank you very much. 14 Yes, Dr. Burke. 15 BOARD MEMBER BURKE: As you know, you are one 16 of my favorite mayors, and a leader in the South Coast, 17 and we always look forward to you testifying. 18 We usually prefer you to bring Susan Anton 19 with you, which you normally have, but since you are 20 here by yourself today, we'll take it. 21 THE WITNESS: Suzanne Summers was not able to 22 attend, so I came in her stead. 23 BOARD MEMBER BURKE: You mentioned that the 24 MSRC had helped facilitate the acquisition of 1,000 25 electric vehicles. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 125 1 Is that only -- is that all in the South 2 Coast, I would assume? 3 MAYOR KLEINDEIST: Yes, sir. 4 Our conditions under MSRC is whatever we fund 5 remains in the District. 6 BOARD MEMBER BURKE: But that is not the total 7 number of electric vehicles in the South Coast? 8 MAYOR KLEINDEIST: No, sir. 9 BOARD MEMBER BURKE: Right. 10 So, what you are saying is, of the 2200 cars 11 in the State of California, well over half are in the 12 South Coast? 13 MAYOR KLEINDEIST: Yes, sir. 14 And we believe that the infrastructure is 15 clearly in place in the South Coast. 16 What we need, sir, are more vehicles. 17 CHAIRMAN LLOYD: Any other questions from the 18 Board? 19 BOARD MEMBER RIORDAN: Mr. Chairman, just a 20 follow-on question. 21 I was interested in what you had done with the 22 U.S. Post Office. 23 Are there any plans to do more? 24 Was their reception good? 25 Are there more opportunities there? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 126 1 MAYOR KLEINDEIST: Again, I will reiterate, we 2 have assisted them in acquiring 400 vehicles and 3 establishing their infrastructure. 4 The program is under way at this time. We 5 will review it and analyze it, and if there is a need 6 to grow it and expand it, I'm sure that MSRC, as we 7 have done in the past, will support it financially. 8 BOARD MEMBER BURKE: But I must tell you that 9 the Post Office is opposed to moving more electric 10 vehicles to California. 11 CHAIRMAN LLOYD: Of the thousand vehicles, 12 does that include the 400 postal vehicles? 13 MAYOR KLEINDEIST: I would have to turn to 14 staff on that question. 15 I'm not sure. 16 CHAIRMAN LLOYD: Any other questions from the 17 Board? 18 Thank you very much for taking the time to 19 come up. 20 We now have Jim Boyd, with The Resources 21 Agency, and after that we have Dan Jacobson. 22 Many of you will recognize the Executive 23 Officer at the time in which these regulations were 24 passed in 1990. 25 It is a great pleasure to have you here, Jim. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 127 1 I don't know whether this is the first time 2 you have testified before the Board, but it certainly 3 couldn't be at a better time. 4 MR. BOYD: Thank you, Mr. Chairman. 5 It is an extreme pleasure, let me say, to be 6 here and to address you today, although my first urge 7 was to go sit at one of the seats to speak to you, 8 unaccustomed as I am to standing at this podium, having 9 sat down there for 15 years, but nonetheless, Mr. 10 Chairman, Members of the Board, some of whom, a few of 11 you left who were my employers, and a few more who are 12 friends for a long time, it is my pleasure to be here 13 represent the Secretary for Resources. 14 A bit of irony, a bit of maybe fate involved 15 in this appearance, but nonetheless, the Secretary 16 regrets being unable to be here today, the demand of 17 our office being such, that she had to be elsewhere, 18 but frankly, I was ready, willing and anxious to step 19 forward and take this opportunity. 20 She's asked me to read a letter, that I know 21 was just distributed to you, in the record for her, and 22 then perhaps as her Energy Advisor, and in the capacity 23 sitting on the California Energy Commission for the 24 past year and a half, I could make a few comments about 25 the staff's energy analysis or answer any questions in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 128 1 that vein, then finally, if I haven't blown all the 2 time, speaking just personally for a moment or two, I 3 would like to share a thought or two with you, 4 particularly in reference to Mr. Calhoun's questions 5 about public response. 6 But let me read the letter. 7 Dear Chairman Lloyd, as Chairwoman of the Air 8 Resources Board under Governor Jerry Brown, as well as 9 USEPA Assistant Administrator for Air and Radiation 10 under President Clinton, I consistently fought for the 11 cleanest, most efficient and most technologically 12 advanced motor vehicle standards possible. 13 Now, as Secretary of the California Resources 14 Agency, the wisdom of those strategies and of the 15 California Motor Vehicle Control Program are even more 16 apparent. 17 I urge you to maintain California's Zero 18 Emission Vehicle mandate. California's environment and 19 environmental and energy challenges are full entwined. 20 The pollution that impairs our air, water and land, its 21 adverse impacts on all living species, and the 22 increasingly certain threat of global climate change 23 are all driven by the choices we make in producing, 24 applying and consuming energy. 25 California's prosperous economy and continuing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 129 1 population growth make these choices all the more 2 pressing. 3 I am convinced that our State needs every 4 energy-efficient, fuel diversity strategy at its 5 disposal. 6 A sound energy policy is the heart of 7 sustainable environmental programs. Your Zero Emission 8 Vehicle mandate has stimulated the introduction of not 9 just battery electric cars but also hybrid electric 10 technologies, near-zero alternative fuel vehicles, and 11 superior internal combustion engines. 12 This mandate has also accelerated the 13 development of the next major generation of automotive 14 technology, the fuel cell vehicle. 15 We need the entire portfolio as we move 16 towards our common future. California has led the 17 world with its vision for advanced vehicles and zero 18 emitting technology. 19 It is crucial that the Board maintain that 20 vision and the drive towards zero. 21 I stand ready to help you in any way that I 22 can. 23 Yours sincerely, Mary D. Nichols, Secretary 24 for Resources. 25 CHAIRMAN LLOYD: Thank you very much, Jim. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 130 1 Would you convey our personal thanks to the 2 Secretary for that letter. 3 MR. BOYD: Thank you. 4 A comment or two. 5 We find ourselves in the throws of an energy 6 crisis or sorts, electricity, gasoline, diesel, natural 7 gas on any given day. So, there is a lot of concern, 8 of course, in this State, and a lot of action being 9 taken to address that, particularly in the electricity 10 arena. 11 Some people may have concerns, electric cars, 12 they use electricity, it's a scarce resource, I would 13 concur with the staff's presentation about 14 infinitesimal amount of electricity associated with 15 electric vehicles, vis-a-vis the other components of 16 our growing economy. 17 I assure you that the Administration, as many 18 of us were with the Governor yesterday when he signed 19 two pieces of Legislation in electrical energy, and we 20 are taking all steps to address the current crisis. 21 I think the steps you take with this program, 22 though, can address it in the long haul and help us 23 address our energy situation. 24 In that capacity, I concur this is a positive 25 step and urge your selection and retention of the Zero PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 131 1 Emission Vehicle program. 2 Just a quick personal observation from having 3 participated in this program for many, many years. I 4 remember well in 1986 when we started to look at what 5 are we going to do to meet the air quality standards 6 that California had a SIP that said it wouldn't make 7 air quality standards by the Federal deadline of 1987. 8 It was the only honest SIP in the nation, as 9 far as I'm concerned. We said we couldn't do it. 10 We had done more than anyone in the world had 11 done, and we had an honest SIP as compared to others. 12 We began to look at what we could do. Some 13 people had said in the automotive industry, I won't 14 look at Mr. Calhoun when I say this, that we had driven 15 the industry to practically zero. There is nothing you 16 could do in the auto industry. 17 Your fine technical staff didn't buy that and 18 didn't believe that that was true, and also found that 19 with the burgeoning population growth and the 20 continuing growth of vehicles, that some part of the 21 vehicle population had to be zero emitting if we were 22 ever to see clean air in this State. 23 Well, I think that is even more true today 24 than it was in 1986. When we made that finding in 25 1990, when the Board concurred with that and passed the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 132 1 Zero Emission Vehicle mandate, and all I can say in my 2 many, many, many years, more than half of my working 3 career was at the ARB, but in a lot of years, there may 4 have been question about pushing technology and the 5 wisdom of the ZEV mandate or the ZEV regulation -- I 6 think every regulation is a mandate of sorts -- but 7 this has become infamous as the mandate -- that it 8 would drive technology and that it was a big risk. 9 There is no question in my mind looking at 10 this and having been fortunate enough to have traveled 11 the world the last few years consulting to others on 12 the subject that the wisdom of that decision, as 13 Secretary Nichols said, is just underscored on almost a 14 daily basis. 15 The technology that has evolved, I know folks 16 will say it was coming anyway, I personally don't 17 believe that. 18 The technology that evolved as a result of 19 that push has proven itself. 20 Secondly and lastly, a quick sum up, on the 21 issue of public response and where's the market, supply 22 and demand. 23 There are not many of them. It costs a lot to 24 make. The price is high. It is difficult to sell. 25 If we can increase the supply, we will PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 133 1 diminish the price, and if we drive technology, we can 2 cut the price, and you can get a greater attraction. 3 I would suggest, don't let the auto industry 4 hide behind the fact that the big push is to get 5 private vehicle owners, families, to be the sole 6 customers for these vehicles. 7 I have had one or two pangs of guilt when I 8 think of General Motors saying, well, we did it without 9 you, the air Board. 10 Well, yes, the electric Corvette was a fun 11 car. I loved it. There were a few people who would 12 have bought it, i.e., the EMPAC, but nonetheless, the 13 wisdom of the total mandate and what it has brought in 14 technology and the application of that technology to 15 other sectors besides just the family homeowner, I 16 don't see enough of a push in the commercial sector. 17 I don't see enough of a push into medium and 18 light-duty delivery vehicles. 19 The promise of the Olympic experience in Los 20 Angeles many years ago showed what people can do if 21 they get behind an issue. 22 I don't know why we don't push harder, why the 23 industry doesn't seek the light-duty delivery fleet 24 vehicles, why every intercity and around the city 25 delivery vehicle isn't an electric vehicle, why many PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 134 1 medium-duty vehicles and all campus-type manufacturing 2 and industrial and commercial facilities that need 3 transportation can't have electric vehicles, that is a 4 huge market. 5 I think there is a huge potential out there, 6 and I see no reason why they can't meet that need. 7 My personal opinion. Thank you very much for 8 the opportunity. 9 I will be glad to answer any questions. 10 CHAIRMAN LLOYD: Thank you very much, Jim. It 11 means a lot that you're here. 12 Any questions from the Board? 13 BOARD MEMBER CALHOUN: One observation. 14 Mr. Boyd, had your testimony been different 15 from what you gave, I would have been shocked. 16 MR. BOYD: We know each other well, Mr. 17 Calhoun. 18 BOARD MEMBER CALHOUN: Very well, very well. 19 The two prime hinderance to market 20 penetration, based on the staff report, are the miles, 21 lack of range and cost. 22 I think that until such time as we improve the 23 technology and get the cost down and get the range up, 24 and cost down, it is going to be difficult to get the 25 kind of desirable market penetration, at least that's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 135 1 my view of it. 2 MR. BOYD: Well, Mr. Calhoun, as I said, I 3 think demand, volume will start driving the cost down. 4 Technological advancement will continue to 5 drive the cost down. But range, for the kinds of 6 applications that I have mentioned, as well as what we 7 know about the average commute length, I think the 8 range is there and can be satisfied and satisfactory to 9 a large segment of the consuming population of the 10 State of California. 11 CHAIRMAN LLOYD: A comment, Mr. Boyd, and 12 thank you for addressing the issue of energy, because 13 that is important, but in that context, it is important 14 for people to recognize the very close working 15 relationship between Secretary Hickox and Secretary 16 Nichols, and I think the issues you are talking about, 17 we are talking about those issues, thank you. 18 MR. BOYD: Thank you, Chairman Lloyd. 19 My earliest mission at The Resources Agency 20 was to cement the marriage between the Energy and Air 21 folks and to keep that going. 22 I appreciate you bringing that up. 23 CHAIRMAN LLOYD: Excellent. 24 Thank you very much. 25 Dr. Burke. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 136 1 BOARD MEMBER BURKE: I really appreciate your 2 comments on fleets. 3 Because we at South Coast believe that public 4 fleets initially and private fleets eventually are a 5 key component in the reduction of our problem there. 6 We were hailing the delivery of 400 Post 7 Office vehicles to the South Coast District. 8 I've got to tell you, the Post Office fought 9 us tooth and nail. It was an 18-month fight. 10 One of my best friends in the world was the 11 Vice Chairman of the Post Office Committee of the 12 United States Congress, and he was on the phone daily 13 for a year trying to make that. 14 So, you know, we don't seem to be getting 15 cooperation from the Federal government, and then when 16 we pass the 1190 series, the ARB had some concerns 17 about it itself, which would have mandated the fleets 18 of public vehicles into cleaner burning vehicles. 19 So, I think that the attitude is absolutely 20 right, but the proof is in the pudding, as you know, 21 when you support these things, and in all agencies, 22 including the Federal government, State government and 23 local governments to get involved. 24 MR. BOYD: Dr. Burke, I think it's deja vu all 25 over again in the energy arena. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 137 1 It reminds me of 25 years ago when the Energy 2 Commission was first created. There seemed an 3 insatiable demand in this State for energy. 4 The Energy Commission was created to deal with 5 not only electricity but all forms of energy, energy 6 conservation, energy efficiency, not just supplying new 7 forms of energy. 8 We seem to be back there again, and there is a 9 revitalization of interest in that, and I think that 10 subject and alternative fuels and the electric vehicle 11 go hand in glove. 12 I am quite familiar with the Post Office 13 project. One of the Energy Commissioners got 14 intimately involved with that and shared your concerns. 15 I think that we may be turning a corner on 16 interest and enthusiasm for those kinds of projects. 17 Thank you. 18 CHAIRMAN LLOYD: Thank you very much, Mr. 19 Boyd. 20 We appreciate it. 21 MR. BOYD: Thank you. 22 CHAIRMAN LLOYD: Next is Dan Jacobson, Cal 23 PIRG, and then Dr. Sletten and then Larry Greene. 24 MR. JACOBSEN: Thank you very much, Mr. 25 Chairman and Members of the Board. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 138 1 My name is Dan Jacobsen, and I'm with the 2 California Public Interest Research Group, Cal PIRG. 3 We are a statewide consumer and environmental 4 and good government organization, and we have been 5 working on public health and environmental issues for 6 25 years. 7 Just three months ago, Cal PIRG launched The 8 Clean Air Clean Cars campaign. It was during this 9 campaign that we knocked on over 500,000 doors 10 throughout the whole State of California and spoke to 11 literally hundreds of thousands of people about air 12 pollution. 13 I'm sure that what we discovered is no 14 surprise to people on this Board, and it's that people 15 are very concerned about air pollution and about their 16 health. 17 Almost every conversation that we had, the 18 reaction was the same. People were telling us the same 19 thing. 20 We need to take serious steps to clean up our 21 air quality here and protect our health here in the 22 State of California. 23 These were not just empty gestures that people 24 were making. They were saying things like, I'm going 25 to start to carpool more. I'll start to ride my bike PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 139 1 more. I'll take public transportation more. 2 But one of the things that they really wanted 3 to make sure was an option to them was that they had 4 the opportunity in which to participate within the ZEV 5 program. 6 We collected a lot of the 75,000 signatures 7 and petitions that you see here were actually collected 8 by Cal PIRG staff at the door, to answer the question, 9 all up and down the State. 10 I've heard some reference from staff that it 11 was a very heavy burden to lug these from the 12 Governor's Office over to here. I would just say that 13 would be the weight of public opinion in saying that 14 they support the ZEV program, and they are incredibly 15 strong in support of it. 16 But aside from all of the signatures and all 17 of the letters that you have here, the other 18 interesting part about the ZEV program is the amount of 19 support that it enjoys in the State, certainly the 20 largest environmental groups here in the State, 21 including the Sierra Club, the NRDC and the Planning 22 and Conservation League and the Coalition for Clean Air 23 are in strong support of it, but the support goes 24 beyond that. 25 It goes to labor unions. It goes to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 140 1 environmental justice groups. It goes to the two 2 Senators in the State, and 14 members of Congressional 3 delegation and several Members of the State Assembly 4 and State Senate. 5 The list goes on and on, and it really is as 6 diverse as the State of California is. The people, I 7 think, clearly hear have said that they are in support 8 of it, and so have a lot of the top organizations here 9 in the State. 10 We would urge you to do the right thing to 11 help protect the air in the State of California and to 12 make it cleaner by supporting a strong ZEV program. 13 Thank you very much for your time. 14 CHAIRMAN LLOYD: Thank you very much for your 15 time. Thank you very much for your efforts. 16 Any questions from the Board? 17 Thank you very much. 18 Dr. Sletten. 19 DR. SLETTEN: My name is Eric Sletten. 20 I am not a politician. I'm not a public 21 speaker. I'm not an actor. I'm a physician. 22 I care a lot about the air that we breathe. 23 Thank you for considering my thoughts on the subject. 24 I come to you representing and on behalf of 25 the American lung Association and its Medical Section, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 141 1 which is called the California Thoracic Society. 2 I would like to urge the Board to maintain a 3 strong Zero Emission Vehicle program that doesn't 4 change or weaken this program to reduce the ZEV 5 production requirements. 6 A little bit about me. I'm a sports medicine 7 physician. I'm the key physician for Cal State 8 University, Northridge. 9 There I take care of 500 intercollegiate 10 athletes in the San Fernando Valley. I also practice 11 Emergency Medicine at three hospitals, both in Los 12 Angeles and Ventura Counties. 13 As a clinician, I can tell you that when the 14 smog gets bad, our ER visits go up, when the smog gets 15 bad, my intercollegiate athletes have to curtail their 16 work outs, including track and swimming, especially the 17 outdoor sports. 18 This is an issue that is near and dear to my 19 heart. I grew up in the San Fernando Valley. 20 I remember the days of smog alerts, when we 21 had to stop playing at recess, when we would be playing 22 in the summertime, and I'd take a deep breathe, and I 23 would stop because of the ozone pneumonitis that you 24 can experience. 25 So, now I work with the American Lung PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 142 1 Association to help them with what is called the Breath 2 Games. This is at Cal State, Northridge. 3 We encourage asthmatic little kids to come and 4 participate in an Olympic-type of venue, and if there 5 is too much smog, these kids can't do it. We are 6 trying to get asthmatic kids to exercise more. 7 Because of my deep concern about vehicle 8 pollution, I too am committed to public transportation. 9 I take what is called the Metrolink train from 10 Ventura County into my office at Cal State Northridge. 11 I actually take my bicycle on the train and ride it 12 over to the campus, so I get a little bit of exercise, 13 too. 14 I believe in public transportation, but that 15 doesn't mean that I am anti-car. I actually still own 16 my '63 Chevy from high school, and I'm not going to get 17 rid of it, and I drive it recreationally. 18 I have great memories of working on the car 19 with my dad, handing him tools, him telling me what to 20 do. 21 So, we have this love affair with the cars, 22 but we also have a problem with air. 23 Smog certainly is a major public health 24 problem. Over 90 percent of Californians are still 25 exposed to poor air quality because they live in areas PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 143 1 that do not meet health-based Federal or State air 2 quality standards. 3 It's a major cause of lung-searing ozone, 4 nitrogen oxides, carbon monoxide, as well as some 5 particulates and toxic air pollution. 6 These things can cause transient and permanent 7 lung damage, as you know, and it makes it difficult to 8 breathe. 9 Air pollution decreases lung function, 10 decreases -- effects the lung tissue. It can 11 exacerbate lung diseases such as emphysema and asthma, 12 lung cancer can be increased in risk because of the 13 pollution. 14 It certainly can cause premature death. The 15 third leading cause of death in our country is from 16 lung disease. 17 It especially hurts the lungs of those who 18 suffer from asthma and emphysema, as I mentioned the 19 young children with asthma, chronic lung disease, heart 20 disease and the elderly, infants and children. 21 For some reason asthma is children is on the 22 rise. It has increased about 75 percent from 1980 to 23 1993. 24 We know that asthma is exacerbated by poor air 25 quality. There are 2.5 million people in California PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 144 1 who have asthma, and 500,000 of those are children. 2 A study examining the link between ozone 3 pollution and childhood asthma in the Sacramento area 4 found persistently high levels of ozone, and that was 5 in direct relation to a 14 percent increase in the 6 number of asthma-related hospital admissions and ER 7 admissions. 8 I can attest to that from a clinical 9 standpoint from my own practice. This especially 10 effects low-income children in high pollution dense 11 areas and teenagers. 12 We have seen an 83 percent in school 13 absenteeism in some studies from children living in 14 high ozone areas in Southern California as well. 15 Vehicles not only produce smog forming 16 emissions but they also emit toxic air contaminants. 17 Three of the most toxic air contaminants are benzene, 18 formaldehyde and butadiene. 19 Benzene has been associated with the formation 20 of some leukemias. Formaldehyde has also been 21 associated with some cancers forming in lab animals, 22 and butadiene has been associated with numerous cancers 23 in multiple organs, including lung, ovary and breast. 24 So, we have a conflict here. We are in love 25 with our cars, but in fact, we have an addiction to the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 145 1 cars, I think. 2 More than anywhere in the world, we have 3 become addicted to this internal combustion engine, and 4 the vast majority of our transportation needs, freeways 5 are now covering areas that had a vast network of 6 street cars in Los Angeles. 7 My mother used to tell me that she could take 8 the street car from Long Beach into Los Angeles back in 9 the early 50s. Those days are gone. My hope is that 10 they will come back. 11 Pollution emissions are generated throughout 12 the entire cycle of gasoline production, transportation 13 and use, from drilling, refining to filling up at the 14 gas stations, our addiction to pollution gasoline 15 engines is reaping a legacy of polluted skies and 16 communities suffering from lung disease. 17 Some of us have been able to wean out of our 18 cars and get into public transportation and into zero 19 emission vehicles, but not very many. 20 ZEVs are critically needed to improve air 21 quality and public health. The strides in air 22 pollution control made during the last three decades to 23 reduce emissions have greatly improved the air we 24 breathe, but much more remains to be done. 25 California is still far behind in meeting the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 146 1 State and Federal health-based standards for air 2 quality. 3 Cars and trucks in California represent 60 4 percent of air pollutants that are produced. 5 Increasing the rate of the population in vehicles means 6 that the air pollution problem is only going to worsen. 7 If we do not pursue this zero pollution 8 transportation, I am convinced that we will never 9 really appreciate and be able to attain healthy air, 10 especially in a dense populated area, like the Los 11 Angeles basis. 12 We cannot rely on our existing vehicle 13 standards or smog checks to deliver enough smog 14 reduction. 15 In order to make clean air progress, the State 16 must achieve advanced technology zero pollution 17 vehicles. 18 So in conclusion, one of the motto of the 19 American Lung Association is, when you can't breathe, 20 nothing else matters. 21 I think if California is the leader in our 22 nation, especially with the help of the American Lung 23 Association and other organizations, to get cigarettes 24 out of the public buildings, now it is time to get 25 clean air outside the buildings fixed as well. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 147 1 Again, California is a leader in this country, 2 and I expect us to go forward with that as well. So, I 3 urge the Board and all Californians to continue this 4 leadership role in the country to go through this sort 5 of withdrawal moving from our autos that emit smog to 6 those that do not, and to wean ourselves on to ZEVs and 7 other cleaner sources of transportation. 8 Thank you very much. 9 Any questions? 10 CHAIRMAN LLOYD: Thank you very much. 11 Any questions for Dr. Sletten? 12 Thank you very much. 13 We have Larry Greene, Jim Lyons and Steve 14 Douglas. 15 MR GREENE: Good morning, Chairman Lloyd, and 16 Members of the Air Resources Board. 17 My name is Larry Greene. I'm here to testify 18 on behalf of the California Air Pollution Control 19 Officers Association this morning, and I'm also the Air 20 Pollution Control Officer at the Yolo-Solano Air 21 Quality District. 22 In 1990, your Board displayed remarkable 23 courage and vision by adopting a mandate that 24 automobile manufacturers produce zero emission vehicles 25 in the California market. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 148 1 This mandate was adopted over the strenuous 2 objections of the auto and petroleum industries who 3 declared that ZEVs were impossible to create, would 4 increase pollution from battery manufacturing and 5 electrical power production. 6 These objections have been repeated during 7 each review of the mandate, but have been unequivocally 8 proven to be false. 9 Instead the mandate has resulted in tremendous 10 advancement of automotive -- of electric drivetrains, 11 battery chemistry, ZEV components and other clean 12 technologies. 13 For the first time, California consumers are 14 beginning to have potential choices to the dominate 15 automobile paradigm of the last century, the inherently 16 polluting internal combustion engine. 17 Our surveys of ZEV drivers fortunate enough to 18 have acquired a vehicle have shared their satisfaction 19 of these vehicles in our districts. 20 Regretfully, the manufacturers have made it 21 very difficult to drive a ZEV, to inadequate marketing, 22 inappropriate pricing and simply not making product 23 available. 24 We continue to hear from significant numbers 25 of would-be ZEV drivers who are currently being turned PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 149 1 away from the automobile companies without being able 2 to lease or purchase a vehicle. 3 Without the mandate, California consumers will 4 be denied the clean transportation choices that they 5 deserve. 6 The air benefits and the long-term air quality 7 implications of the mandate are extremely significant. 8 Practically all our member air districts are struggling 9 to meet health-based air quality standards. 10 Statewide, by far the greatest share of our 11 pervasive air quality problems comes from motor vehicle 12 emissions. 13 Emission reductions from the ZEV mandate for 14 an integral part of our plans to provide clean healthy 15 air demanded by both the State and Federal law, even 16 while California's population continues to climb. 17 We believe the Air Resources Board staff has 18 conducted an exemplary, thorough and unbiased 19 evaluation of the mandate. 20 We believe this review clearly shows the 21 mandate, which has already been modified to provide a 22 variety of compliance options to automobile 23 manufacturers should be upheld. 24 ZEVs address nearly every air quality problem 25 associated with conventionally fueled vehicles as well PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 150 1 as many other environmental concerns. 2 These include air emissions of all types, 3 leaking underground tanks, fuel transport issues, 4 gasoline formulation problems, including MTBE, and the 5 list goes on. 6 We urge you to hold the course, continue the 7 mandate and do not be swayed by the clamor from the 8 special interest opposing the ZEV mandate. 9 As an Air Pollution Control Officer myself of 10 what is considered to be a medium size district in 11 California, I can tell you that I consistently hear 12 people who want to buy ZEVs and are not able to. 13 You will receive testimony later today from a 14 representative from Vacaville, which has a very strong 15 electric vehicle program. 16 They have 75-plus people signed up in that 17 city who want to purchase a vehicle and would if they 18 could purchase one now. 19 If you take 75 and multiply it by that size 20 city across California, I think would pretty well take 21 care of the mandate that we are talking about today. 22 So, we believe that, the Air Pollution 23 Officers, that the demand is out there, the people will 24 purchase these vehicles if they are given the 25 opportunity, and we ask you to do that. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 151 1 Thank you. 2 CHAIRMAN LLOYD: Thank you very much, Larry, 3 for taking the time out here. 4 How many of your individual members will also 5 be testifying, do you know? 6 MR. GREENE: I don't know. 7 I know that Ellen is here, but I do not know 8 if she is going to testify. 9 CHAIRMAN LLOYD: Thank you. 10 Any questions? 11 Thank you very much, Larry. 12 We have Jim Lyons and Dr. Harrison from NERA, 13 and Steve Douglas, then Dave Hermance. 14 DR. HARRISON: Thank you very much, Mr. 15 Chairman, Members of the Board. 16 My name is David Harrison. I'm the Senior 17 Vice President of National Economic Research 18 Associates, or NERA. Before joining NERA, I was a 19 professor at Harvard's Kennedy School of Government, 20 and earlier was at the President's Council of Economic 21 Advisors. 22 I'm joined by Mr. James Lyons, of Sierra 23 Research. As you probably note, Sierra has done 24 extensive work modeling emissions from various air 25 quality regulations. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 152 1 The purpose of our presentation is to provide 2 the results of our recent study on the effect of the 3 ZEV mandate on in-use fleet emissions. 4 I think we have inundated you with paper. You 5 will probably see that we have given you a copy of our 6 report. We have also given you a copy of a briefing 7 book and a copy of the presentation. 8 We refer to our study as comprehensive, 9 because it deals with two issues that are typically not 10 included in other analyses, including the analysis that 11 you have been provided by the staff. 12 The first issue is how will the mandate effect 13 the scrappage of existing vehicles? 14 The mandate is a mandate on new vehicles, for 15 new purchased vehicles, and the question is what effect 16 will that mandate have on the existing fleet. 17 The second issue is, to what extent will the 18 battery electric vehicles replace conventional vehicles 19 in ordinary in-use driving? 20 The first issue, if we think about the 21 scrappage effects, what I mean by scrappage effects is 22 that as a result of the higher emission standards, new 23 car prices will rise. 24 That rise in new car prices will encourage 25 owners to keep the existing cars in service longer. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 153 1 Now, why is that a problem for air quality 2 regulations? Well, the problem is that existing cars 3 pollute more, and if you have regulations that increase 4 new vehicle prices, that can have the unintended effect 5 of increasing emissions from the existing fleet, 6 because you're keeping the older vehicles on the road 7 longer. 8 Now, you have seen many, many regulations, and 9 most of them do not include the scrappage effects. 10 That is probably the case, because they are relatively 11 small effects on new car prices. 12 In contrast, these regulations, the ZEV 13 mandate regulations, will have a major effect on new 14 car prices, and so that is why we have concluded that 15 it is critical to include this effects in a full 16 evaluation. 17 What we have done is used the existing 18 literature which has actually looked at these issues 19 for many years. The studies that we have based our 20 results on are about 20 to 30 years old, and we have 21 updated those studies because of major changes in the 22 markets recently and have developed a statistical model 23 relating new car prices to existing, to scrappage. 24 The literature that I mentioned points out 25 that in the case of rising car prices, reducing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 154 1 scrappage of existing vehicles, that those effects can 2 be substantial and can, in fact, overwhelm the effects 3 that come from having more new, cleaner new cars in the 4 fleet. 5 The second issue that we deal that makes our 6 study different from the one's that you have seen and 7 everybody else has seen so far, is the issue of 8 electric vehicle range. 9 I think it is well regarded and this is work 10 that has been done by Sierra, and they have looked at 11 existing information and concluded that there are many 12 trips that gasoline vehicles (sic) won't and can't be 13 used for. 14 And what that means is, that's due to a 15 variety of factors. They are mentioned here, limited 16 range, the charging infrastructure may not be 17 available, and the time to charge may be greater. 18 The advantage that we have now, these issues 19 have been recognized for some time, the advantage is 20 that Sierra was able to use some data that provides 21 information on what effects these changes will have on 22 the trips that EVs can perform and what, therefore, the 23 effects on other vehicle fleet will be. 24 Well, I mentioned that we have a big thick 25 report. Let me summarize the results briefly. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 155 1 This chart shows two figures for 2010 and 2 2020. The red figure is the emission reductions that 3 is based on the staff methodology of looking at the 4 in-use fleet. 5 This is looking at the new vehicles. So, this 6 shows the emission reductions, which are on the order 7 of about two tons per day, for example, for the South 8 Coast, in 2010. That is the number that has been 9 presented to you. 10 The equivalent number in 2020 is a little over 11 five tons per day. So, that is the direct benefit from 12 just looking at the effect on new cars. 13 What if you look at entire effect on the 14 entire fleet, taking into account the scrappage effects 15 and taking into account the increased VMT as a result 16 of the characteristics of electric vehicles. 17 Well, the results change dramatically. Rather 18 than a benefit, the net result is an increase in 19 emissions. 20 This obviously is an unintended effect, but it 21 is an effect resulting from the market transactions 22 that take place and the characteristics of electric 23 vehicles. 24 The next slide shows the alternative cases. 25 The data that we used to analyze the various cases used PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 156 1 the information from the ARB staff report in terms of 2 the cost. 3 So, all of the cost that we've used are from 4 ARB staff report. 5 These costs include the learning curve effects 6 that were described earlier. So that the cost in 2010 7 to 2020, take into account the fact that over time the 8 costs will be lower, and therefore, the price increases 9 for new vehicles will be smaller. 10 This slide shows the results of various cases 11 that we have looked at, and the cases involving 12 different assumptions about the EV, the electric 13 vehicle, fleet will be, and different assumptions about 14 the demand for electric vehicles, and different 15 assumptions about the availability of PZEVs to be 16 substitutes for electric vehicles. 17 Without going into the details, the bottomline 18 is that under all of these plausible assumptions, all 19 of which use the cost assumptions in the ARB staff 20 report, there is a negative effect of the mandate on 21 emissions, that is emission will go up, not down, as a 22 result of the mandate. 23 So, the final slide shows our conclusions, 24 which are brief. 25 The ZEV mandate would result in increases in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 157 1 in-use vehicle emissions if you look at the entire 2 fleet, not just what happens with new vehicles, and 3 secondly that the unintended effect is largely the 4 result of the scrappage effect, that is the effect of 5 higher new car prices on individuals retaining their 6 existing vehicles longer, and because those vehicles 7 are higher emitting, the net result is to increase 8 overall fleet emissions. 9 Thank you very much for your consideration. I 10 mentioned that we've inundated you with paper. We are 11 also proposing to inundate you with computer models. 12 So, we would be very pleased to give you and 13 your staff the detailed statistical and other models 14 that are applied behind our analysis. 15 Thank you very much. 16 CHAIRMAN LLOYD: Thank you. 17 Questions? 18 Two questions. 19 Ms. D'Adamo and Mr. McKinnon. 20 BOARD MEMBER D'ADAMO: Can you tell me a 21 little bit about your association or your organization? 22 I'm not familiar with it. 23 DR. HARRISON: Yes. 24 NERA, National Economic Research Associates, 25 is a firm of about 350 consulting economists operating PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 158 1 in nine offices in the U.S., three offices abroad. 2 The group does a large number of, what are 3 called in the trade, micro economics, so that people 4 work on issues related to antitrust, trade regulations, 5 telecommunications, economics of telecommunications, 6 and there is a group that deals with environmental 7 regulation, and I head that group. 8 BOARD MEMBER D'ADAMO: And how are you funded? 9 DR. HARRISON: This study was funded by the 10 industry, the car industry, the automobile industry. 11 BOARD MEMBER D'ADAMO: Could you name the -- 12 is it the Alliance or is it the individual -- 13 DR. HARRISON: The sponsors were individual 14 companies. 15 I will say that they sponsored the research, 16 but the cost information that we developed was, as I 17 want to emphasize, is the cost information, that has 18 not been prepared by the automobile companies but has 19 been prepared by the staff. 20 BOARD MEMBER D'ADAMO: Okay. Thank you. 21 CHAIRMAN LLOYD: Yes, Mr. McKinnon. 22 BOARD MEMBER McKINNON: The proposition that 23 you propose that cars would remain in the fleet longer 24 because of this, because of cost, I find that 25 incredible. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 159 1 I really -- I'm clear that there are lots of 2 other factors that cause the fleet, cars to stay in the 3 fleet longer or shorter or things like people working 4 and income growing or not growing, that kind of thing, 5 but the other thing that I really would like you to 6 take a shot at addressing, because it seems to me that 7 this State and this nation and certainly other nations, 8 have developed air rules of all sorts over a course of 9 history. 10 Every time that happens, your proposition 11 should be in play. By now, no one should be buying new 12 cars. 13 And, I'm kidding, you know I'm kidding, and 14 I'm exaggerating your point, but I really have 15 difficulty following that one. 16 DR. HARRISON: Well, actually, the proposition 17 is really, as I said, is based on decades of research. 18 The idea is that if you increase, that people 19 are making choices, that when the price of a new car 20 goes up, they are thinking to themselves, well, maybe 21 it makes sense for me to keep that existing car another 22 year instead of scrapping it, or selling it and 23 eventually it gets scrapped. 24 So, the statistical -- that is the basic 25 intuition, and in fact I think that one of the earlier PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 160 1 presenters made the, or maybe it was staff, was talking 2 about choices and talked about the choices -- I think 3 it was the UC Davis researcher -- I don't remember his 4 name -- talked about the choices between new cars and 5 used cars. 6 So, it simply reflects the fact that when you 7 make that choice, one of the issues is the price. So, 8 what that means is -- of course, this is not the only 9 issue, as you said, that there are many other 10 determinates of whether you keep that used car going or 11 not or whether you buy a new car. 12 So, it is just one of the issues, and it's a 13 relatively small issue. 14 The point is that that relatively small issue 15 can have an effect on the overall fleet. So, as I 16 said, we would be glad to present the statistical 17 analysis to the staff. 18 I will say that the results we got were 19 consistent with the literature, which had no particular 20 axe to grind, that the statistical analysis was 21 essentially the same as a researcher got 20 years ago. 22 CHAIRMAN LLOYD: You are implying that your 23 study had an axe to grind? 24 DR. HARRISON: I'm not. 25 The point is that it was not funded, the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 161 1 previous study was not funded by the automotive 2 industry. 3 I think that the point is that these are 4 unintended effects. No one expects these to have an 5 effect on the existing fleet, but they are the effects 6 that can occur nonetheless. 7 BOARD MEMBER McKINNON: I guess, you know, 8 maybe in kiddingly over dramatized it, but what I am 9 really getting at is that the way that you discussed 10 that effect is as if it's open-ended and long lasting. 11 My guess is that it is kind of a blip, that 12 what you are talking about is a fair proposition, and 13 that it happens in the economy when we do things that 14 changes things, but that it is more like a blip. 15 Now, the way that you've represented it, it's 16 like a phenomenon that carries on infinitum. 17 So, what is it? 18 How do you quantify it, or can you take a stab 19 at, is it a blip that lasts a few months or a year or 20 what -- 21 DR. HARRISON: Well, the effect lasts for as 22 long as the price increase lasts. 23 So, if you look at the model, essentially what 24 we -- in the beginning years, the price increase for 25 new cars is relatively high, and that goes down over PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 162 1 time. 2 So, in that sense, the effect changes. 3 But every year, let's take the case of 2007, 4 four years after the 2003 beginning, there still will 5 some increase in the new car price in that year, so 6 people that are deciding in 2007 whether to buy a new 7 car or keep the exiting one in operation, would still 8 have that same choice. 9 Again, it is not the only thing that effects 10 the choice. It's just one of the elements. 11 That's why we needed to do a statistical 12 analysis to correct for all those other things. In 13 fact, the other things that you mentioned that 14 influence car choice, are in this statistical model. 15 We are just trying to parse out the effect of 16 the new car price increase. 17 CHAIRMAN LLOYD: Professor Friedman. 18 BOARD MEMBER C.H. FRIEDMAN: Do I understand 19 that the underlying premise of this reasoning is that 20 the auto manufacturers will increase the price of new 21 cars, internal combustion cars, the standard cars, 22 because they have to absorb the underwriting, if you 23 will, of cars produced under the mandate and made 24 available at some loss; is that the underlying 25 assumption? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 163 1 DR. HARRISON: More or less. 2 BOARD MEMBER C.H. FRIEDMAN: Well, what 3 accounts for the price increase? 4 DR. HARRISON: The price increase is the 5 result of two things. 6 Primarily the cost difference, that is, as I 7 mentioned, we used the staff number, so, you are right. 8 The major point is that in order to -- every 9 electric vehicle that is sold generates a loss, and 10 because of the sales mandate, because every time you 11 sell a conventional car, you have to sell a certain 12 percentage of an electric vehicle, that sale of each 13 one of the cars you sell or a manufacturer sells, 14 carries with it a price penalty. 15 So, it's that price penalty that results -- 16 BOARD MEMBER C.H. FRIEDMAN: I've got the 17 price penalty. I understand that. 18 How does that reflect, or how does that 19 translate into higher price to the consumer for the 20 non-price penalty cars? 21 It can only happen by an unintended, by an 22 intended consequence of management and a board of 23 directors saying, we are going to make the same profit, 24 no matter what. 25 DR. HARRISON: Well, it's based on cost. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 164 1 So, the basic idea is that the prices of the 2 vehicles reflect their costs. 3 So, when the costs go -- it is sort of like a 4 tax. If there is a tax, manufacturers are going to 5 pass that tax on in the form of higher prices. 6 BOARD MEMBER C.H. FRIEDMAN: If we can sell an 7 SUV for 20 percent profit above cost, just using 8 numbers, and I don't know what's real here, but we're 9 having a discussion. 10 I could say if I am in charge of the world, I 11 could say, well, I will only make a 15 percent profit 12 on that. I will take the 20 percent that I can get 13 from the market, but five of it I will lay off over 14 here, being socially responsible, or whatever, to 15 justify it, because I am innovating, and I've got a 16 loss. 17 Now, that's an intended consequence not an 18 unintended consequence. 19 DR. HARRISON: You're saying that it's 20 possible that instead of passing the tax on, that car 21 makers may decide to absorb part of that tax in lower 22 profits? 23 BOARD MEMBER C.H. FRIEDMAN: I think I'm 24 trying to get your underlying assumptions. 25 I think you are starting with a basic PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 165 1 assumption that profits have to remain the same, and 2 therefore, the cost has to be absorbed or the figure 3 recovered fully, the cost, in certain models and 4 products has to be carried by increasing the price on 5 other products. 6 I think that is what I heard. I'm questioning 7 that. 8 DR. HARRISON: I think that's right. 9 What I'm saying is that for every car that's 10 sold because of the ZEV mandate, so for example, the 11 mandate were 10 percent and the cost penalty for a ZEV 12 were $10,000, that would be a $1,000- cost penalty or 13 tax. 14 So, the idea is that tax would be passed 15 through on the assumption that it's like any other tax 16 or cost increase that we've passed on in the form of 17 higher prices, that is sort of the economics behind it. 18 BOARD MEMBER C.H. FRIEDMAN: It is purely an 19 economic approach? 20 DR. HARRISON: That's right. 21 CHAIRMAN LLOYD: Mr. Calhoun. 22 BOARD MEMBER CALHOUN: Dr. Harrison, the 23 statement that you're making is more of a general 24 statement, assuming that's it true, that applies to all 25 new vehicles that are sold, there is a price increase, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 166 1 the turn-over rate will be lower, so, is that to expect 2 the increase for the ZEV must be much higher than the 3 conventional vehicle, then it really wouldn't have much 4 of a difference, would it not? 5 In that generalized statement that you're 6 making that the price increase of the vehicle effects 7 the turn-over rate, and as such, people are going to 8 keep them longer and the air would not benefit from the 9 new equipment, the new technology. 10 Isn't that what you said? 11 DR. HARRISON: Well, the effect I'm looking at 12 is relative to no ZEV mandate. 13 So, yes, the prices of vehicles go up. 14 So, I'm only looking at the price increase due 15 to the ZEV mandate, see? 16 So, it's the price and cost increase due to 17 the mandate that is being estimated, and it's that 18 extra effect. 19 So, you are getting these increases in 20 emissions from the existing fleet are in addition to 21 what is happening. 22 If we had been able to show estimates of the 23 fleet with and without the ZEV mandate, I think it 24 would be easier to see. 25 What you would see is that the ZEV mandate has PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 167 1 the effect of reducing the population of relatively 2 young vehicles, increasing the population of relatively 3 older vehicles. 4 So, it's that effect that we are estimating in 5 this study, and it is only the added. 6 So, what I would add to your statement, it's 7 the incremental new car prices that we are modeling. 8 CHAIRMAN LLOYD: Dr. Burke. 9 BOARD MEMBER BURKE: I am with Mr. McKinnon on 10 this one. 11 You went off the chart with me. You lost me 12 about 20 minutes ago. Because cars are not built with 13 an infinite life. 14 That is why we have collector cars. Okay? 15 Cars, to the credit of this Board, the cars 16 that are currently being manufactured are polluting 17 less than any cars in the history of the world and 18 maybe even polluting to making us have to review this 19 ZEV mandate. 20 So, we've got good cars coming on the road 21 right now, and auto sales are at record numbers. 22 Ford Motor Company has this terrible problem 23 with the Firestone tires, and the SUVs this month, not 24 this month, last month, in California, after the 25 problem, were at record numbers. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 168 1 People didn't care that the tires were falling 2 off of them. They still went out there and bought 3 them. 4 CHAIRMAN LLOYD: Maybe the auto manufacturers 5 are addressing the scrappage issue by getting more off 6 the road. 7 BOARD MEMBER BURKE: Professor Friedman, I 8 think he was going to the heart of it, you know, when, 9 what he was saying was, you know, it is a conscious 10 decision to add the price on it, so, you know, that is 11 a terrible thing, because that gets to be a double-edge 12 sword, because you upset him, and he's going to go home 13 and think about, well, maybe we should contemplate some 14 kind of penalty if they raise the price over a certain, 15 because we are not in a luxury tax situation here, and 16 there is luxury tax on certain vehicles in California. 17 So, you know, there would have to be an air 18 tax. So, you know, it's a double-edge sword. 19 If you try to gouge the consumer on one side, 20 government might have to take an action to offset that 21 to allow the market place to find its own -- 22 DR. HARRISON: Just to be clear, there is no 23 assumption here -- we are assuming that they will treat 24 these increased costs as they would any other costs, no 25 differently, or any tax. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 169 1 So, it is just -- this is sort of economics, 2 standard economics, that when your cost of producing go 3 up, prices eventually do go up. 4 CHAIRMAN LLOYD: Professor Friedman. 5 BOARD MEMBER C.H. FRIEDMAN: Just one 6 follow-on question. 7 Did you take into account that, to the extent 8 that the ZEV mandate is providing healthier air, people 9 will live longer, or there will be more around to buy 10 more cars and the volume will go up, there will be 11 increased volume? 12 DR. HARRISON: We will have to add that to our 13 statistical model. 14 CHAIRMAN LLOYD: Ms. D'Adamo. 15 BOARD MEMBER D'ADAMO: On a more serious note, 16 did you account for the public subsidies, State and 17 Federal, when you did your analysis? 18 DR. HARRISON: No, we didn't. 19 We assumed that the available subsidy amounts 20 would not be sufficient. 21 However, one of our cases assumes that there 22 is no subsidy, that people would view the electric 23 vehicles as equivalent to conventional vehicles. 24 BOARD MEMBER D'ADAMO: Wait a second. 25 You said that first of all you did not PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 170 1 consider the subsidy programs, and you assumed that 2 they would no longer exist, but that you also 3 considered that they would not be sufficient. 4 Sufficient for what? 5 DR. HARRISON: Assume that they would not be 6 sufficient to meet the entire mandate. 7 So, in other words, if there is a $5,000 8 vehicle buy-down, that that would not apply to the 9 large, relatively large volumes that would be required 10 to meet either the four or ten percent mandate. 11 BOARD MEMBER D'ADAMO: I would be concerned 12 about the way that you even prepared your analysis if 13 you did not account for a program that has been in 14 existence for quite some time and there is a great deal 15 of public support for the extension of these programs. 16 I would question, without having read through 17 your report, I would question the methodology that you 18 used elsewhere in the report if you did not consider an 19 existing program. 20 DR. HARRISON: Let me see if I understand. 21 Maybe I misinterpreted your question. 22 What we did is we looked at the difference in 23 the cost and assumed that those would be reflected in 24 the higher prices, and then we asked, well, from the 25 consumer standpoint, would the consumer require a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 171 1 subsidy, some sort of subsidy, a demand, something, you 2 know, dollars paid, and I think that one of the cases 3 that we looked at did include implicitly a $5,000 4 subsidy payment on behalf, in order to purchase an 5 electric vehicle. 6 So, in that sense, our study did include the 7 subsidy program. 8 A number of the cases looked at a requirement 9 that you would -- the $5,000 to make a electric vehicle 10 and a conventional vehicle equivalent. 11 So, I think I misunderstood your question. 12 I guess, to the extent that we took into what 13 we understand to be the subsidy program, we did take 14 that into account in our analysis. 15 BOARD MEMBER D'ADAMO: But you are saying that 16 in one of the cases you made a determination that or 17 your study showed that a $5,000 program would result in 18 a cost equivalence between a conventional vehicle and a 19 ZEV? 20 DR. HARRISON: Not a cost equivalence, but 21 from a consumer standpoint, they would view that as 22 equivalent, that the various potential disadvantages 23 that people have discussed, in terms of range and 24 flexibility and so forth, would be overcome with the 25 subsidy. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 172 1 Not the cost penalty. I want to emphasize 2 that the cost penalties were the one's that were 3 described, and I think very well, in the staff's 4 analysis. 5 The staff pointed out that there are now and 6 we took into account in the long-term, cost differences 7 between electric vehicles and conventional vehicles, 8 and it's those that we included in our analysis. 9 CHAIRMAN LLOYD: I think we will bring this to 10 a close here. 11 I will just say that I have high respect for 12 Dr. Harrison and Jim for your technical abilities. 13 I know Jim and Dr. Harrison by reputation, but 14 in all honesty, knowing a little bit about models, I 15 think in a court of public opinion for you to say that 16 more -- that less is more, is very difficult to 17 understand, and you would have to exercise a lot of 18 data gymnastics with the model in order to come to that 19 conclusion. 20 I just don't understand. I know it's complex. 21 But that is a tough sell. 22 DR. HARRISON: I appreciate that. 23 I know it is in the category of unintended 24 effects, and unintended effects that may not be 25 intuitive. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 173 1 We welcome the chance the present our results 2 of the analysis to you. 3 CHAIRMAN LLOYD: The problem is that there is 4 so much soft data, and when you're dealing with models, 5 that is exactly what they are, and I think that you can 6 contrive a lot of conclusions here, and I don't think 7 that the data support it. 8 In this case, I just go from intuition. If 9 you do not have pollution there, I don't understand how 10 in fact it can be worse for you. 11 DR. HARRISON: It certainly isn't worse unless 12 you take into account the potential effects on the 13 existing fleet. 14 CHAIRMAN LLOYD: I think Mr. McKinnon has 15 something further. 16 BOARD MEMBER McKINNON: I will tell you, 17 number one, I do not think that you ever answered my 18 question about the duration of this effect. 19 Number two, it seems to me that there would be 20 historical data on this proposition of increases when 21 there is air quality improvements that the auto 22 industry has to capitalize, right? 23 It's happened before, several times. 24 So, it seems to me it shouldn't be real 25 difficult to see that or hear that, and how long that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 174 1 lasts and how long that effect lasts. 2 I don't doubt that there is some effect. 3 How long does it last and how deep is it? 4 It is not enough to have a political argument 5 saying this terrible thing is going to happen if we 6 can't quantify that it's going to happen for only two 7 weeks. 8 You know, there is history. I would be 9 interested in that, and that may be able to teach us 10 how this will effect over, how looking at the past may 11 be able to teach us how this will be affected in the 12 future. 13 DR. HARRISON: I thought I did answer your 14 question, and I apologize if I wasn't clear. 15 The effect that I was talking about really 16 exists as long as there are new car price increases. 17 BOARD MEMBER McKINNON: When haven't there 18 been new car price increases? 19 DR. HARRISON: Due to the ZEV mandate, I 20 should say. 21 This effect had been looked at 20 years ago, 22 Howard Bruinsbeck, an economist, looked at this effect 23 and he looked at the effect of the national program, 24 and he found the same, exactly the same effect for a 25 certain number of years. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 175 1 Eventually, as the cleaner fleet takes over, 2 eventually this effect will, in fact, go away. What we 3 found is that up until 2020, these negative effects 4 overwhelm the positive effects of the replacing the 5 cleaner new cars. 6 So, eventually, you are quite right, 7 eventually, all of the fleet will be clean cars. There 8 will be no effect of this effect. 9 It's a transition effect. But what our 10 analysis shows is that it extends through 2020 with the 11 analysis that we did. 12 Jim, would you like to -- 13 CHAIRMAN LLOYD: Jim, you asked us for 20 14 minutes, and you have now had over 30. 15 I realize we have taken the time, too. 16 BOARD MEMBER McKINNON: I'm certainly not 17 helping it, I'm sure. 18 But I have to tell you, I am not going to put 19 off buying another car for 20 years. I still do not 20 understand. 21 MR. LYONS: Let me try, just real briefly, try 22 to address two questions. 23 I will start with yours, Dr. Lloyd, of how it 24 is replacement of a zero emission vehicle for a 25 gasoline vehicle can lead to a net increase in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 176 1 emissions. 2 The staff slide that the staff showed earlier 3 presents ULEV II or SULEV numbers, where you are 4 looking at the difference between zero and maybe a 5 couple of hundredths of a gram per mile for 6 hydrocarbons, maybe a tenth of a gram per mile for NOx. 7 Even if you have been in this business for a 8 while, and you look at the malperforming LEV II 9 vehicles, you are still below what used to be very 10 stringent emission standards in the late 1980s, early 11 1990s. 12 What is happening here is if you look for the 13 benefit of the ZEV is between zero and this low 14 emitting vehicle, and when you look for the impact of 15 using older vehicles, more the deltas between the zero 16 or small number, and a very much larger number 17 associated with the emissions of a very old vehicle 18 that is still being used instead of being replaced with 19 a new vehicle, and that is exactly the source of the 20 emissions disbenefit. 21 It's not because an electric is somehow in and 22 of itself is causing pollution. 23 It's the fact that that vehicle or a 24 gasoline-powered SULEV or LEV II vehicle wasn't 25 purchased and somebody kept the older, higher emitting PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 177 1 vehicle longer. 2 And if I could just have our slides back up 3 for a second. 4 CHAIRMAN LLOYD: Could you identify yourself 5 for the court reporter? 6 MR. LYONS: Jim Lyons, Sierra Research. 7 I apologize. 8 BOARD MEMBER BURKE: You're probably not old 9 enough to remember all of the controversy caused in the 10 State of California when catalytic converters were 11 required on cars. 12 I remember, I was just a child myself. 13 I remember reading in the Metro section, it 14 was like it was going to this apocalypse, and there was 15 not going to be another car sold in California. 16 They went ahead. And as my colleagues here 17 remind me, General Motors got in line, and they had 60 18 percent of the market, so the refineries got in line, 19 and it just marched on down the road. 20 CHAIRMAN LLOYD: I think we're going to have 21 to move on, Jim, because we are running too long here. 22 Let's move on here. 23 Thank you very much. 24 25 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 178 1 CHAIRPERSON LLOYD: Let's move on here. Thank 2 you very much. I just want to say we're going to start 3 now with the presentation from the auto manufacturers 4 starting off with Steven Douglas from the Alliance, but 5 just let me walk through this. This is my understanding 6 from staff, with the agreements we've had with the 7 companies. Steve, you've got ten minutes, Dave Hermance, 8 from Toyota, fifteen, Reginal Modlin from Daimler Chrysler 9 15, Kelly Brown 15, Ben Knight 15, Sam Leonard 20. 10 Again, I hope that's consistent with your 11 understanding with what we've got. I'm going to turn the 12 microphone over to Professor Friedman while I get a bite 13 in the back. There are speakers back there so we can 14 hear. 15 BOARD MEMBER HUGH FRIEDMAN: Mr. Douglas, ten 16 minutes. 17 MR. DOUGLAS: Okay, thank you. Good morning, 18 Members of the Board. I'm Steven Douglas. I'm the 19 Director of Environmental Affairs for the Alliance of 20 Automobile Manufacturers. The Alliance is an association 21 of 13 car and light truck manufacturers representing over 22 90 percent of the new vehicle market in California. 23 Our member companies are BMW, Daimler Chrysler, 24 Fiat, Ford, General Motors, Isuzu, Mazda, Mitsubishi, 25 Nissan, Porsche, Toyota, Volkswagen, and Volvo. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 179 1 A decade ago California launched an innovative 2 air pollution control program when the Air Resources Board 3 adopted the Low Emission Vehicle program. As part of this 4 program, the Board ordered automobile manufacturers to 5 produce and sell electric vehicles. We've now come to 6 call this requirement the ZEV mandate. The ZEV mandate 7 truly was, as your staff indicated, not a typical stepwise 8 adjustment, but a transformative leap forward. 9 In adopting the original LEV program, ARB staff 10 recognized that the technology be forced in nature and 11 recommended reporting to the Board biannually on the 12 implementation of the regulations. The staff recognized 13 in 1990 that the goal wasn't simply to require electric 14 vehicles sales, but rather to clean the air. 15 They agreed to work closely with the automobile 16 industry to identify course changes that might be 17 necessary based upon new information. Since that hearing 18 ten years ago, ARB has made numerous changes to the LEV 19 program. On some occasions the Board relaxed the 20 requirements such as in 1996 with the ZEV mandate. On 21 other occasions the Board significantly increased the 22 stringent standards such as in 1998 with the adoption of 23 the LEV 2 program. 24 The goal is still clean air. The good news is 25 that we're much closer to the goal. The advanced control PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 180 1 systems being developed to meet the LEV 2 requirements 2 will result in internal combustion engines cleaner than 3 ever imagined back in 1990. 4 Unfortunately, the ZEV mandate is not on track. 5 When ARB established the LEV program in 1990, the price, 6 the price of electric vehicles was expected to be about 7 $1,350 more than gasoline vehicles. In fact, considering 8 the price of electricity and the price of gasoline, 9 electric vehicles were expected to be cheaper than 10 gasoline vehicles. 11 Today the staff projects the cost, and this is 12 the cost of electric vehicles, will be about $22,000 more 13 than gasoline vehicles. And that doesn't include the cost 14 to design, develop, test, certify the new electric 15 vehicles. 16 Looking at the benefits, during the 1996 review 17 the benefits were expected to be about 14 tons per day. 18 Today the benefits are closer to one ton per day, one to 19 two tons per day. And just to clarify for the purposes of 20 this presentation today, I rely almost exclusively on 21 reports of the staff and the findings of experts employed 22 by them. 23 Before making our recommendations though I want 24 to put the ZEV mandate into perspective in terms of the 25 historical vehicle emission standards, the projected PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 181 1 pollution from vehicles and other sources and then, 2 finally, turning the attention to the cost and the 3 benefits of ZEVs. 4 This chart, based on current regulations, shows 5 the extraordinary progress that's been made and will 6 continue to be made in the automobile technology between 7 1960 and 2010. Today's vehicles are already 97 percent 8 cleaner than the earlier vehicles. 9 However, as I've mentioned the LEV 2 regulations 10 bring even more and greater pollution reductions. So 11 about 2010 the vehicles will be a full 99.7 percent 12 cleaner than precontrolled vehicles. 13 So how do these advances in conventional vehicles 14 affect the ZEV mandate? As the conventional vehicles have 15 become cleaner and cleaner, the benefit of ZEVs or the 16 difference in pollution between a ZEV and conventional 17 vehicles becomes smaller and smaller. 18 When we look at the total pollution from cars and 19 light trucks in the south coast, the ZEV mandate has no 20 appreciable impact. This chart shows the total passenger 21 car and light truck emissions in the LA area with and 22 without ZEVs. Emissions drop from about 660 tons per day 23 in year 2000 to only about 120 tons per day in 2020. 24 The drop after 2010 occurs because new cleaner 25 vehicles meeting the most stringent standards in the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 182 1 previous chart replace older, higher polluting vehicles. 2 Note that the end result is the same regardless of the ZEV 3 mandate. 4 With pollution from vehicles dropping as 5 dramatically as it is, it's fair to ask a couple of 6 questions. First, exactly what are the reductions, what 7 are the benefits associated with the ZEV mandate? And 8 second, how do vehicles compare with other pollution 9 sources or more appropriately how much of a problem will 10 vehicles be in the future? 11 If a full ten percent of cars and light trucks 12 sold in California between 2003 and 2010 are electric, the 13 total direct benefit of the ZEV mandate would be about 1.5 14 tons per day in the south coast. Again, this is taken 15 from the staff report. 16 But let me qualify this value a little bit. 17 First, this assumes that manufacturers do not accept 18 multiple ZEV credits, which are part of the current 19 regulations. It assumes that no manufacturer takes 20 advantage of any partial ZEV allowances. It assumes that 21 100,000 electric vehicles are produced, sold and used year 22 in and year out in an identical fashion to gasoline 23 vehicles. And finally, it assumes that the ZEV mandate 24 doesn't adversely impact the sale of new clean gasoline 25 vehicles that replace older vehicles. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 183 1 Looking at the indirect benefits of the ZEV 2 mandate, if they're included, the total benefit is 2.07 3 tons per day. Again, according to the staff report and 4 again including all of the assumptions. By 2010 the 1.5 5 tons per day benefit grows to 3.5 tons. And this is 6 compared to a total inventory of about 1,585 tons. What 7 we're discussing is a small reduction in inventory, less 8 than three-tenths of one percent. 9 As you can see from these pie charts, cars and 10 trucks produce about 30 percent of the pollution in the 11 south coast today. However, as cleaner vehicles hit the 12 roads and older cars are retired, the vehicles will make 13 up only about ten percent -- only about eight percent 14 actually, of the total pollution in 2020. 15 In short, by 2020 cars and light trucks will be a 16 minor source of pollution. Again, these are not only our 17 conclusions but supported by ARB staff in their report. 18 The staff investigated the benefits of electric 19 vehicles on a per vehicle basis. This is really 20 worthwhile just to determine the cost effectiveness of 21 electric vehicles in reducing emissions. Based on the 22 staff report an electric vehicle reduces emissions by 23 about 24 pounds over its life. 24 While we're disappointed that the staff didn't 25 complete the calculations in determining cost PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 184 1 effectiveness, taking into account the expected cost 2 premium of electric vehicles of 22,000 and the benefit of 3 23.8 pounds, the cost benefit of the ZEV mandate is $1.8 4 million per ton. Most of the emission control measures 5 adopted by the Board are less than $10,000 per ton. 6 In fact, the ZEV mandate would be over a hundred 7 times more expensive than any other regulation that the 8 ARB has adopted. In fact, just to reference, here are 9 some recent measures adopted by the Board along with the 10 cost benefit value. 11 The ZEV mandate has become, in fact, the most 12 cost ineffective regulation ever considered by the Air 13 Resources Board. Even the PZEV alternative isn't cost 14 effective. The most attractive PZEV option would be about 15 $300,000 per ton. 16 As I've mentioned, the ZEV mandate was adopted in 17 1990 because the Board believed that the price of electric 18 vehicles would be $1,350 more than gasoline vehicles. 19 Today, the cost premium to the manufacturer, not including 20 any research, not including any development, is estimated 21 by the staff to be $21,817. This is for a full function 22 electric vehicle. 23 And just to clarify one point that the staff 24 report -- in the staff report that seems to have been 25 missed by some, the staff expects city electric vehicles PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 185 1 to cost about $7,500 more than similar city gasoline 2 vehicles. And city vehicles are not full function. 3 They're not freeway capable vehicles. So the $7,500 is 4 not the low end for the price premium of a freeway capable 5 vehicle. 6 Looking at the benefits, again. Before the Board 7 adopted LEV 2 the benefits of the ZEV mandate were 8 expected to be about 14 tons per day. Because of the 9 progress on the LEV 2, the benefit of the mandate is 10 expected to be about two tons per day. 11 And, finally, before concluding the presentation 12 and making some recommendations, I'd like to briefly 13 discuss Partial ZEVs. Partial ZEVs were recommended by 14 ARB staff and adopted by the Board as part of the LEV 2 15 program in 1998. Partial ZEVs or PZEVs as they're called, 16 can be used to obtain ZEV credits. Normally, it takes 17 five Partial ZEVs to equal one pure ZEV. Thus the 18 manufacturer choosing to make six percent of the mandate 19 using Partial ZEVs, which is the maximum amount that a 20 large volume manufacturer can leave, would have to certify 21 30 percent of their new vehicles to the PZEV requirement. 22 This translates into about 300,000 Partial ZEV vehicles in 23 2003. 24 PZEVs will be available in limited numbers in 25 2003. However, as the staff report acknowledges, Partial PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 186 1 ZEVs are extraordinarily challenging and their production 2 requires pulling ahead exhaust standards five years. The 3 zero standard, which is also part of the PZEV requirements 4 will likely be an even greater challenge than is exhaust 5 standards. 6 BOARD MEMBER HUGH FRIEDMAN: Your time has 7 expired. Are you near conclusion? 8 MR. DOUGLAS: Yes. One more slide. 9 Manufacturers will not be able to use the PZEV 10 option to help meet the early years of the ZEV mandate in 11 any kind of a meaningful way. As a result, the staff's 12 estimate that 22,000 electric vehicles will be required in 13 2003, is a gross underestimate, because it assumes that 14 all manufacturers will take full advantage of PZEV option, 15 an assumption even the staff report concludes isn't 16 viable. 17 Finally, the costs of the ZEV mandate have 18 reached astronomical proportions, when the benefits have 19 all but evaporated. Clearly the ZEV mandate is not on 20 course. Regardless of the intentions or the expectations 21 when it was originally adopted, the technology hasn't 22 progressed sufficiently and it isn't expected to within 23 the near future. This, again, according to the staff 24 report. 25 Consequently, it's time to make a course PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 187 1 correction. The Alliance, as well as our member 2 companies, have cited on numerous occasions our support of 3 and our commitment to California's clean air goals. Thus, 4 we recommend that the Board direct staff to determine more 5 cost effective alternatives to the ZEV mandate that 6 achieve identical emission reductions and then either 7 eliminate or substantially modify or delay the ZEV 8 mandate. 9 BOARD MEMBER HUGH FRIEDMAN: Thank you, Mr. 10 Douglas. Are there questions? 11 I have one question. You quantified the 12 benefits, the cost benefits. I assume that you're using 13 that number of ZEV sales that are mandated? 14 MR. DOUGLAS: Well, actually -- 15 BOARD MEMBER HUGH FRIEDMAN: Ten percent or in 16 some cases four percent ramping up? 17 MR. DOUGLAS: Actually, it's on a per vehicle 18 basis. What I've done is taken the amount of pollution 19 reduction per electric, so it's independent of the volume, 20 and then just divided that by the per vehicle price 21 premium from the staff report. 22 BOARD MEMBER HUGH FRIEDMAN: Well, where you 23 pointed out that, is what is reasonably obvious, that the 24 electric vehicle is not that much cleaner than the SULEV. 25 MR DOUGLAS: Right. And the cost is -- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 188 1 BOARD MEMBER HUGH FRIEDMAN: But if we were to 2 assume, just for a moment, that out five, ten years from 3 now the electric vehicle is popular and it's available and 4 people are buying a lot of it, that is more than the 5 quotas or the amounts mandated, that would increase 6 overall cleaner air, wouldn't it? 7 MR. DOUGLAS: Well, I mean certainly. I mean 8 it's a simple equation. It's just the cost over the 9 benefit. So if you make costs very small, then obviously 10 the number goes down. 11 BOARD MEMBER HUGH FRIEDMAN: And also were the 12 estimates back -- I wasn't around. Were the estimates of 13 costs and benefits for '90 and '96, that was based on then 14 the economy in 1990, and that was an estimate, for what, 15 in 1996, would be the differential? 16 MR. DOUGLAS: No, sir. That was taken directly 17 from the staff report. In 1990, the staff report 18 projected, as they normally do, what would be the cost of 19 this technology or that technology. And they expected 20 that an electric vehicle, the price of an electric 21 vehicle, would be about $1,350 more than the price of a 22 gasoline -- a similar sized gasoline vehicle. 23 BOARD MEMBER HUGH FRIEDMAN: And that would have 24 yielded certain tons per dollar? 25 MR. DOUGLAS: Right. And also the benefits were PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 189 1 much higher then, so -- can we go back a couple? 2 BOARD MEMBER HUGH FRIEDMAN: Yeah, I think you 3 had it, didn't you? 4 MR. DOUGLAS: There it is. So, yes, in this case 5 back in 1990, the benefits or the number of pounds would 6 have been much higher and the cost, right here, would have 7 been much lower, because, again, this was the staff report 8 in 1990 and then again in 1996. 9 BOARD MEMBER HUGH FRIEDMAN: Okay. 10 Matt. 11 BOARD MEMBER McKINNON: This is kind of a 12 follow-up to Member Friedman's question where you were 13 tracking the savings to the air between say an SUV and the 14 ZEV. And I think earlier today there was a presentation 15 by the staff that talked about -- and I think certainly 16 the speaker before wanted to talk about old cars and new 17 cars. I have old cars. That's kind of -- I've come up 18 with old cars. 19 And the one thing that happens with old cars is 20 things don't work after a while. And certainly in terms 21 of what happens with gasoline driven vehicles is they 22 pollute more over time. And I think there was a 23 comparison today that said that two weeks of a LEV 2 with 24 some real plausible failures that happened with a lot of 25 mileage would wipe out the equivalent of the ZEV benefit PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 190 1 for a whole lifetime of the ZEV. 2 So it seems to me, and I don't know if your 3 figures calculated the old cars and failures of gasoline 4 cars, but it seems to me that the electric car at 100,000 5 miles doesn't have the chance at the same kinds of 6 failures as a gasoline car. And how do we quantify that 7 and is that quantifiable in your data? 8 MR. DOUGLAS: Absolutely. Let me address that 9 and the staff will probably do the same as well. The way 10 that's addressed and the way the duration in cars and 11 gasoline vehicles are addressed is through the on-board 12 diagnostic system. The on-board diagnostic system is a 13 continuous monitor of the vehicle's emission control 14 system, and it monitors -- the threshold is about 1.5 15 times the standard. So if the vehicle exceeds -- if the 16 emissions from the vehicle exceed 1.5 times the standard, 17 that's when you get your check engine light and that's 18 certainly something that's been adopted by the Board and 19 something that manufacturers are doing today. 20 And in addition, in the 1998 LEV 2 program, they 21 extended the durability of all vehicles out to 120,000 22 miles. So, too, again to keep that deterioration right 23 down. 24 If you're saying if you deliberately tamper with 25 the vehicle or if you go out and dump ten gallons of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 191 1 gasoline on the road, there's certainly emissions from 2 that. But that's kind of the way I see it. 3 BOARD MEMBER McKINNON: Well, I drive on the same 4 roads you do and I see old cars smoking down the road, 5 okay, and leaking and dripping. And I think your last 6 speaker was sort of making that argument. And so I'm 7 really -- I mean, it really is a fact they deteriorate and 8 it grows beyond what we want to have happen. People don't 9 take care of them. The light goes on. They continue to 10 drive them. 11 And it seems to me that if we're honestly 12 assessing the value of one thing or the other, part of 13 that honest assessment -- I mean if you want to talk about 14 old cars, which the previous speaker did, then part of 15 that honest assessment is taking the old cars into 16 account. And I think that goes beyond the light going on 17 and somebody taking it right to the shop. We know that 18 doesn't happen in a lot of cases. 19 So I don't know if you have a number for it. 20 Maybe it's not fair to ask you for one for it. But you 21 can't have your cake and eat it too. You can't come and 22 say I want to talk about old cars but then not talk about 23 old cars. You've got to -- 24 MR. DOUGLAS: No. And let me address that. If 25 you could put up slide four. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 192 1 When we're talking about old cars, if you'll look 2 up here, you can see that the 19 -- I think someone had 3 said that they drove a 1963 car. These are the emission 4 values. This is not deterioration. This is emission 5 values of the cars. As cars have gone down, as the 6 emission standards have improved, this is what you've 7 seen. 8 It wasn't until 1996 that we fully phased in the 9 on-board diagnostic requirement with the check engine 10 light. Furthermore, of course, there are inspection 11 stations to address that when their vehicle is out of 12 warranty or issues such as that. 13 So I think we have gone a long way. And I think 14 with manufacturers as well as with the Air Resources Board 15 they reduce the amount of deterioration in vehicles. 16 BOARD MEMBER HUGH FRIEDMAN: Well, Mr. Douglas, 17 you're talking about individual models, not fleets or 18 what's out on the road. You're talking -- aren't you 19 comparing SULEVs to the active cars? 20 MR. DOUGLAS: When you're calculating the cars. 21 BOARD MEMBER HUGH FRIEDMAN: Yeah. What you're 22 doing here on your charge. You don't have your other 23 cars, your SUVs, your -- 24 MR. DOUGLAS: No, sir. As a matter of fact, in 25 the 1998 LEV 2 regulations as part of those regulations, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 193 1 the Board required these vehicles meet the same standards 2 as passenger cars. 3 BOARD MEMBER HUGH FRIEDMAN: So you're saying 4 that all cars on the road that will be new vehicles are 5 being taken into account? 6 MR. DOUGLAS: Yes. And, again, I'm taking these 7 numbers directly from the staff. These are not numbers 8 that I've calculated or made up on my own. 9 BOARD MEMBER D'ADAMO: It seems the me that you 10 didn't answer Mr. McKinnon's question, though, because I 11 thought that he was referencing a slide that staff had 12 shown earlier that indicated, I think, it was a SULEV or a 13 LEV 2 that fails. You're talking about -- this is at 14 introduction. 15 MR. DOUGLAS: Well, at introduction or at 120,000 16 miles whatever the standard is, or at 50,000 miles. So 17 that's what this -- that's what these values are. The 18 slide that I think you're referencing was for a gross 19 polluter and I'm not sure what that is, how that's defined 20 or how much it emits. 21 BOARD MEMBER D'ADAMO: Well, perhaps staff could 22 respond. I thought it just meant that it fails the 23 standard. 24 MR. CROSS: The model that produced the one and a 25 half ton per day benefit does include some assumptions PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 194 1 about gross emitters and how many of them are out there. 2 I'm going to jump up to the comparisons in the staff 3 report, and I'll come back. The comparisons in the staff 4 report were comparing an electric vehicle to one of the 5 vehicles in the model that is broken with respect to 6 emissions. It's a clean vehicle SULEV, that is broken 7 down with respect to emissions. 8 And it's showing that the emissions of the SULEV 9 are a whole lot higher than an electric vehicle, broken 10 SULEV are a whole lot higher than the electric vehicle. 11 The properly operating SULEV is obviously closer to the 12 electric vehicle. 13 I think the real question that Matt is asking is 14 how many vehicles, gasoline vehicles, break down in the 15 future. And the model, as it exists right now, speculates 16 relatively few. The experience that we've had over the 17 long term is that we're usually -- staff is usually pretty 18 optimistic about how its control strategies are going to 19 work. And we usually underestimate what can go wrong with 20 the cars. 21 So the numbers that we put up there are the best 22 ones that we have. I think that what you all are getting 23 at is, and what we've been getting at all along, is that 24 the ZEV program takes the uncertainty out of that. And we 25 don't have to worry about whether or not we estimated PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 195 1 right anymore, because the car doesn't have this problem. 2 BOARD MEMBER HUGH FRIEDMAN: Thank you. All 3 right. Our next speaker is Mr. Dave Hermance from Toyota. 4 Fifteen minutes. 5 MR. HERMANCE: I'll try to do that. 6 Good afternoon. Thanks for having me. I met 7 with a couple of you before and several members of the 8 staff several times. I'll try to be relatively brief. 9 I'm going to do something a little bit different than what 10 has been done by the other speakers. I'm going to try to 11 put this in the perspective of an R&D program. 12 Now, this is not an actual chart of all the R&D 13 programs Toyota has under way. This is an image chart 14 because most of the R&D programs we have running are what 15 are referred to as black programs. We don't tell the 16 outside world about all the R&D efforts that we begin at 17 any point in time. And we begin literally dozens of 18 projects each year. As part of the overall process of 19 that, there's a fairly intensive review goes on. 20 At critical points during the process of the 21 development of new technologies, management will get 22 together and review the progress and the prospects for the 23 new technology. The grim reality is of all the projects 24 we start very few reach commercialization, because 25 somewhere during the process it will be determined that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 196 1 they are no longer cost effective or that they failed to 2 meet their performance objectives or that there's market 3 changes and there's no market for the vehicle, and you 4 don't take noncommercial product to market, if you want to 5 stay in business. 6 Now, this review is a key part of any technology 7 development program. Ordinarily, it's done within the 8 organizations. In this particular case, though, the Air 9 Resources Board is driving the development effort of 10 battery electric vehicles to comply with ZEV mandate. 11 Therefore, I need to ask the Board to climb in 12 the role of management of an organization and partake in 13 this critical review at this key juncture of the process 14 to determine whether this process ought to go forward or 15 not. 16 Now, in doing that, I'm not going to create a 17 bunch of new data to give to you. I'm going to rely 18 mostly on the staff's report. I am, however, going to 19 make a couple of other observations. A couple of the 20 criteria -- this is not an exhaustive list of all the 21 things that management would look at, but it's certainly 22 some things that would be looked at. 23 You'd want to make sure that you have developed a 24 high quality and fully functional product for this before 25 you launched a commercial situation. You'd also want to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 197 1 make sure there was sufficient market for the plant 2 allocation you had made for how many vehicles you were 3 going to build. Building them and being able to sell them 4 can be a bad thing. We do it occasionally but we try not 5 to do it very often. 6 And then you also want to look at the financials. 7 You want to see if you can build the product at a cost 8 and/or return on investment that will keep you in the 9 businesses on a long-term basis when you sell the required 10 volume of vehicles. 11 So going to the staff report we have many, many, 12 many points of agreement with the staff report in the 13 detail of the document. And this is just a few of them. 14 There has been significant progress in the passenger car 15 plus truck one segment. 16 One point I would clarify, the staff report a 17 couple times refers to the mobile source sector and a 18 couple times refers to the passenger car plus truck one. 19 For the purposes of discussion of the ZEV mandate, it is 20 relevant to talk about the passenger car plus truck one 21 population, because that is the population of the vehicles 22 affected by the mandate. 23 So despite the fact that the mobile source sector 24 may have other problems, the problems being addressed by 25 the ZEV mandate are those in the passenger car plus truck PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 198 1 one sector. They will be less -- those vehicles, 2 passenger cars plus truck one, will be less than ten 3 percent -- actually eight percent of the inventory in 2020 4 based on staff's modeling. 5 Industry made their commitments during the MOA. 6 EVs without batteries will be more expensive than similar 7 sized vehicles in 2003. Fuel cells won't be ready in 8 2003. PZEVs will not be available in sufficient volume to 9 use all the flexibility that that piece of the regulation 10 allows. And we, too, share a concern about what is the 11 function of low speed or neighborhood vehicles, since they 12 don't -- they're a new commodity. We don't really know 13 what they do. 14 One other point from the staff report that we 15 agree with is customers in the purchase decision don't 16 really value life cycle costs. I agree with the staff's 17 assessment that that's irrational. It is, however, a 18 recognized buyer behavior, so the initial cost is very 19 important in the purchase decision. Also, there are many 20 additional costs required to market an EV that are not 21 captured in the premium costs that are relayed in the 22 staff report. They're called out individually as 23 advertising expenses and familiarization and public 24 education and things like that. 25 And then there's one that's relatively near and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 199 1 dear to the auto industry, it's called recovery of 2 engineering and development time. But those are not 3 included, but we can go forward even without that. 4 Even in the absence of those premium costs that 5 the manufacturers will incur, in 2003 a highway capable 6 battery electric vehicle will be more than $20,000 more 7 than the same size gasoline vehicle. This is the staff's 8 estimation, even in the high volume, the life cycle cost 9 of the most probable of the vehicles in the staff report. 10 The staff report has some optimistic vehicles in it. I 11 went to the MOA base case vehicle, which has, what is 12 alluded to as a modest efficiency improvement of only 20 13 percent. 14 That's not modest in engineering terms. But in 15 any event, even that vehicle is still going to be, on a 16 life cycle cost basis, more than 60 percent more expensive 17 than a gas vehicle. The fleet benefit of the ZEV mandate 18 is modest. I didn't make up the word. It's staff's word. 19 I might have chosen a different one, but the fleet benefit 20 of the ZEV mandate is small. 21 On a per vehicle basis, the benefit is 22 significant. If you compare very nearly zero to maybe 24 23 pounds, that's zero compared to anything, can be a 24 significant number. But the impact that has on air 25 quality is quite small and that's just the way life is. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 200 1 Now, there are, however, some things in the staff 2 report -- I would somewhat disagree with Mr. Shulock's 3 characterization of the staff report as conservative with 4 regard to the 2003 model year. 5 The staff report is, in my estimation, an 6 optimistic estimate of what the reality could be in 2003. 7 And I'll share with you some of the reasons I believe that 8 to be the case. And these are all enumerated in the staff 9 report. The staff wasn't hiding anything, but when you 10 compound multiple optimistic assumptions, you may get to a 11 case that may not be quite as really, and certainly I 12 wouldn't characterize as conservative. 13 The staff's assumption is that we will -- that 14 the industry will build the lowest number of EVs possible 15 by use of the same vehicles that are available in the MOA. 16 Now, staff has the detailed data that would have allowed 17 them to calculate how many vehicles we actually intended 18 to produce, but they didn't use that data, so they 19 calculated a lower number of EVs, which tends to be 20 favorable from a cost standpoint. They assumed that PZEVs 21 were fully available, and then later in their report said 22 that that wasn't likely to be the case. 23 Potential applications don't necessarily 24 translate the market, so from a marketing standpoint, 25 there may be a little optimism there. They did the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 201 1 evaluation on the basis of a ten year life cycle. Now, 2 they did it for good reason, because it avoids a future 3 battery replacement and it doesn't make the cost so 4 horrific for an EV, but nonetheless ten years is not how 5 long vehicles stay on the road in California. Even in the 6 newest rule making, we're up to 15 years -- or under -- 15 7 years requirement under the PZEV categories, so ten years 8 maybe is optimistic. 9 There's no value allowance for the reduced 10 performance of a battery electric vehicle. And, in fact, 11 these vehicles mostly have reduced performance relative to 12 the gasoline vehicle that you're asking a customer to 13 replace with them. They use the lowest battery cost from 14 the battery technology report, which I would also note, as 15 did Dr. Kalhammer this morning, is an optimistic estimate 16 of battery availability, and they only used a 15 percent 17 markup for OEM costs. And the unfortunate reality is that 18 there's more than that. The dealers want to make money 19 along the way and so does everybody else that touches the 20 product. 21 They also included an estimation or an assumption 22 of salvage value, which the battery panel rejected as 23 speculative. They reused the battery replacement costs 24 much like the EO costs, which wasn't fully burdened for 25 all the extra steps in the process, all the extra handling PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 202 1 that are required for service parts. As you're aware 2 service parts are significantly more expensive than 3 original production. 4 The 2003 vehicle incremental cost was the lowest 5 estimate from the suppliers they had. They used the low 6 edge band of the estimate from the Delukey Report. They 7 used electric price, assuming 90 percent off-peak 8 charging. You've heard testimony -- staff has heard 9 testimony during the workshop process that customers 10 regularly use convenience charging, which is not off-peak 11 charging. And they assume some pretty significant 12 efficiency improvements. 13 Now, we also have some points of disagreement 14 with the staff. I don't think we've ever read a staff 15 report that we agreed with perfectly, but we've addressed 16 those in written comments, which you received a copy of, 17 hopefully, yesterday and there's no sense going through 18 those here. 19 Let's see, commercialization criteria. Remember 20 I said you had to have a high quality functional product. 21 That's the one point where I think almost everybody 22 agrees. We have had extraordinary initial product quality 23 in our vehicles. We've had a battery failure rate much 24 less than one percent, which no one would have predicted 25 given the new technology that's embodied. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 203 1 We marketed a four-door, five-passenger utility 2 vehicle that wasn't the sedan, because there's a comment 3 in the report that there were no sedan's out there. And 4 it's a sport utility, but it has five passenger 5 functionality. It has a 70 to 90 mile real-world range, 6 recharges in something less than five hours because it 7 uses a slightly higher energy charging system. And we've 8 received very positive customer feedback. 9 And you will, no doubt, hear over the next two 10 days lots of very positive feedback from those who have 11 experienced electric vehicles, not only ours but others. 12 There's really no argument that the quality of the 13 vehicles placed under the MOA was quite good. 14 Realistically, though, the utility is less than the 15 equivalent size gasoline vehicle, because of range and 16 recharge and acceleration performance issues in most 17 cases. 18 So we got the first of three criteria taken care 19 of. We'll move to the next one. You have to have 20 sufficient market for the intended volume. And as staff 21 alludes to in the report this is the grayest piece of the 22 entire puzzle. I'll tell you straight out, Toyota didn't 23 test the market potential of our product. We satisfied 24 the requirements of the MOA. We're stair placing some 25 vehicles for early credit, but we did not do a retail PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 204 1 launch and we did it purely for economics. We knew the 2 vehicles were going to be frightfully expensive and 3 there's a limit to how much loss any manufacturer is 4 willing to take. 5 That having been said, General Motors and Honda 6 have had fairly significant retail experience and they 7 have stories to tell that I'm sure they will tell about 8 the limited success they had in the early years, the first 9 two years of placement of those vehicles. 10 Their real world experience is consistent with 11 our market research, which suggests that there's going to 12 be a small market at the same price as the equivalent 13 vehicle, ignoring the fact that it's going to cost us a 14 lot more to build them, that the four percent mandate 15 volumes will require pricing below that of an equivalent 16 sized ICE vehicle and that all the marketing expenses are 17 going to be higher. 18 Even having said that, that's the status of the 19 market, but let me move on to the key critical issue that 20 you need to address. And that's you have to have a viable 21 cost and/or cost benefit relationship to go forward with 22 the technology development program. 23 There will be a huge premium cost associated with 24 2003 highway capable vehicles. Based on the relatively 25 optimistic staff assessment for cost and for minimal PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 205 1 volume you're talking about half a billion dollars in plus 2 costs. Now we can argue about where the costs are going 3 to go, but somebody is going to have to absorb that half a 4 billion dollars. The reality in a commercial market 5 segment is those costs are going to get passed on. 6 So somebody is going to have to be able to absorb 7 half a billion dollars a year through the 2005 time frame 8 and more than that in six and later as the premium credits 9 go away. Now, some of that will come down with learning 10 of the vehicles, but not all of it. 11 Well, let's talk about, you know, cost 12 effectiveness maybe. On a per vehicle basis the EV is 13 clean. You do the math in the staff report, it's 23.7. 14 I've got a tenth of a pound of smog difference between my 15 numbers and Steve's. We'll have to go back and find that 16 somewhere, but you're still talking about fairly small 17 amounts of smog precursors saved in the staff's model ten 18 years 117,000 mile life of the vehicle. 19 On a per vehicle basis, the PZEV alternative 20 generates even less benefit, only about three and a half 21 pounds. Fortunately it costs less also, but you get about 22 three and a half pounds of benefit on the PZEV, about 24 23 pounds on the full function EV. At 2003 staff projections 24 of freeway capable vehicles, you're talking about $1.8 25 million. That's the same number that Steve had. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 206 1 A different number that addresses one of the 2 questions asked by the Board, is if you could somehow jump 3 to volume production, 100,000 vehicles a year instead of 4 the 22,000 forecast by staff, and you use what I regard as 5 the best or what staff used as the base case assumptions 6 for vehicle efficiency and the other things in the report, 7 that's a vehicle with a premium price of just less than 8 $10,000, premium cost, just less than $10,000 more than a 9 conventional vehicle. That's $840,000 per ton and that's 10 at relatively mature high volume production. 11 Then if you do the same calculation on the PZEV 12 side, it's $285,000 a ton. These are the highest cost 13 benefits ever seen by this Board. The most expense 14 regulation you have previously put in place is a cost 15 benefit of $11,040 per ton. So we're going from $11,000 a 16 ton to hundreds of thousands, in some cases millions of 17 dollars per ton. 18 Okay. I'm going to help you with some of these 19 conclusions, because you're new to this job of doing this 20 technology review. Passenger car plus truck one emissions 21 are steadily declining, even with the increased population 22 and vehicle miles traveled. There is the same curve you 23 saw a few minutes ago. The curve shows dramatic 24 improvement, even in the presence of all of that increased 25 travel in vehicle population. The passenger car plus PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 207 1 truck one segment is a continuously declining portion of 2 the problem going forward. 3 The share of the inventory is also declining. 4 This is a chart you saw before, 29 percent of the problem 5 today going to 15 percent in 2010 and eight percent in 6 2020. And that footnote suggests, I ignored the marketing 7 affects that were the subject of some controversy in a 8 previous presentation. 9 Cost benefit of the EV component is 166 times 10 higher than any other rule. The cost benefit of the PZEV 11 component is 25 times higher. There's a graphic that you 12 almost can't read, because it's dominated by the scaling 13 that's driven by accommodating $1.8 million. You can't 14 even see the rest of it. 15 California can't afford the ZEV mandate. And 16 it's not your fault. It's not staff's fault. And it's 17 not our fault. It's a technology development program that 18 didn't deliver as expected when adopted. When adopted, it 19 was expected to cost only a thousand dollars, it cost more 20 than 20. When adopted it was going to save 14 tons per 21 day in air quality, it saves less than two. It's a 22 technology that didn't come home. This is a technology 23 that should not be commercialized, because it's not cost 24 effective. 25 But you get good news here. Because of the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 208 1 declining contribution of passenger car plus truck one, 2 you can easily declare victory in this sector, move on to 3 more cost effective measures in some other sector and 4 let's get on down the road. We'd be glad to work with 5 staff to develop measures to offset the modest air quality 6 loss through the suspension of the mandate. 7 And then this last is kind of a suggestion. 8 Creative technology, not forcing, but enabling 9 partnerships are perhaps a better solution, because 10 technology doesn't always come through like you'd like it 11 to. 12 CHAIRPERSON LLOYD: Dave, is Toyota a member of 13 the California Fuel South Partnership? 14 MR. HERMANCE: No, sir. 15 CHAIRPERSON LLOYD: Any other questions from the 16 Board? 17 BOARD MEMBER RIORDAN: Mr. Chairman, just a 18 comment. One of your products, RAV4, obviously had some 19 acceptance, because my information is there were people 20 who would have liked them but couldn't get them. 21 MR. HERMANCE: You're correct. 22 BOARD MEMBER RIORDAN: So how does that square 23 with, you know, those ideas of sitting in the board room 24 and making some decisions, when obviously there was a 25 demand that was there that -- and I personally don't PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 209 1 recall the numbers that you would have made of that 2 particular model, but that people really were interested 3 in them. And some of them, because I've had the luxury of 4 reading some of the information that's before us, were 5 some substantial good buyers. I'm looking at Warner 6 Brothers as one. 7 MR. HERMANCE: Certainly. We could have placed 8 more vehicles. There is no question about that. We were 9 leasing that vehicle, if you back calculate from the lease 10 price, to the equivalent MSRP, at the equivalent of about 11 $22,000 The vehicle cost us over a hundred thousand 12 dollars. I think that might explain why we didn't hurry 13 to find additional market niches for the vehicle. 14 Cost is the overriding issue. Now, the cost will 15 come down as the volume goes up, but the cost will, in 16 everything that staff has put together and everything the 17 manufacturers have put together, the cost will always be 18 substantially higher than equivalent sized gasoline 19 vehicles. 20 CHAIRPERSON LLOYD: Supervisor DeSaulnier. 21 BOARD MEMBER DeSAULNIER: Thank you. On the 22 Prius, that's successful right now, correct? 23 MR. HERMANCE: Well, it's early to say that, but 24 yes, we think so. 25 BOARD MEMBER DeSAULNIER: So you're going to put PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 210 1 more investment into the Prius, most likely. And when you 2 put more investment in terms of improving the technology 3 around the electric engine, the battery? 4 MR. HERMANCE: Yes, sir, that's correct. There 5 is already internally a third generation vehicle. The 6 vehicle that went on sale a month ago is what we refer to 7 internally as the second generation vehicle. Third 8 generation vehicle will be on market sometime in the 2003 9 calendar year if history is a guide. 10 That vehicle will get better fuel economy and 11 cost us less to manufacturer. It will probably be sold at 12 the same MSRP, because right now we're just breaking even 13 on the car. 14 BOARD MEMBER DeSAULNIER: What are your marketing 15 people telling you what's the primary reason for the 16 initial success, is it the fuel economy, the stylish 17 looks? 18 MR. HERMANCE: This market doesn't really value 19 fuel economy very much. It's the techno innovativeness of 20 it and the fact that they can be technology leaders 21 without compromise in what their utility requirement is. 22 BOARD MEMBER DeSAULNIER: Is this from surveys or 23 focus groups? 24 MR. HERMANCE: Yes. And we've done some 25 clinicing early. We need to get a few more vehicles in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 211 1 hands to talk to those who bought them to actually 2 determine why they bought them. I've been monitoring a 3 web site that -- an independent web site that came up in 4 late June about the vehicle. And clearly the folks that 5 are on that web site are technology innovators and are 6 very keen on the fact that they've got a car that has very 7 low exhaust emissions and very good fuel economy and they 8 believe to be something that they can do going forward to 9 preserve like for their kids is the way a couple of them 10 have put it on the Internet. 11 BOARD MEMBER DeSAULNIER: If you offer just a 12 little bit more, they could be really cool and have a 13 really high tech car. 14 MR. HERMANCE: That's true. It depends on how 15 you define just a little bit. 16 BOARD MEMBER DeSAULNIER: I was just being cute. 17 Since Matt left, I felt the need. 18 (Laughter.) 19 MR. HERMANCE: Oh, okay. I appreciate that. 20 CHAIRPERSON LLOYD: Ms. D'Adamo. 21 BOARD MEMBER D'ADAMO: Dave, first of all, I 22 appreciate the clarification or the points that you made 23 in clarification on the staff report, particularly on the 24 mobile source emissions inventory. And I was wondering if 25 you could comment -- well, first of all, what is the real PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 212 1 world driving range for the RAV4? 2 MR. HERMANCE: It's on the order of 70 to 90 3 miles depending upon how hot it is outside and how cold 4 you want to be inside and what terrain and traffic you are 5 driving in. 6 BOARD MEMBER D'ADAMO: In light of that, since 7 it's so close to the hundred miles, which, as I understand 8 it, you'd be eligible for multiple or some type of a 9 multiple credit once you get beyond a certain amount, 10 could you comment on the type of battery technology that 11 you're using. I understand that it's currently a 60-watt 12 hour battery and that perhaps some other technology may 13 exist currently, which would get that range far beyond 14 that which you have right now. And that technology I'm 15 referring to is an 80-watt hour battery. 16 MR. HERMANCE: I heard at least two questions. 17 I'll try to answer those, and then if I missed some, 18 please help me out. 19 The range of the vehicle is 70 to 90 real world. 20 On the chassis dynamometer test, which is the basis for 21 the multiple credits, it's 146 miles, so the vehicle 22 already qualifies for multiple credits. Actually, it 23 qualifies for more multiple credits than anything except 24 the EV one, the nickel-metal hydride battery. It's a very 25 efficient vehicle. The reality is though that when you PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 213 1 move off the chassis dyno out into the real world, you 2 lose a lot of the range. 3 So to increase the real world range or for that 4 matter the test range, if you could find a battery with 5 higher specific energy and still carry the same mass, the 6 same weight of batteries, you're right you would have 7 longer range. The battery technology report, which there 8 are folks a lot better qualified to review the available 9 battery technology than I am, have suggested that there 10 are only modest increases in specific energy possible with 11 the nickel-metal hydride chemistries. 12 They evaluated one higher energy nickel-metal 13 chemistry and it dismissed it as speculative because it 14 was forecast five years ago and still is forecast today 15 and hasn't really made any progress further. 16 To get at the higher energy densities than are 17 today available in the nickel-metal hydride products, 18 you've got to go to a different battery chemistry, either 19 the lithium technologies or something that we haven't even 20 seen yet. And they clearly will not be ready by 2003. 21 Did I miss other elements? 22 BOARD MEMBER D'ADAMO: No, no. That's fine. 23 Just a comment. It's my understanding and maybe staff 24 could comment or any of the battery manufacturers that are 25 here preparing to testify today. It's my understanding PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 214 1 that the technology does exist to get that range increased 2 by about an additional 30 percent. And I might be wrong 3 in the information that I have, but I just wanted to use 4 this as an opportunity to really compliment your company 5 on a great product. I really like that vehicle. I've 6 driven it personally along with others and am real happy 7 with its performance and it sure would be nice if that 8 range could be increased. 9 MR. HERMANCE: I agree. The range is a limiting 10 factor for the market. 11 BOARD MEMBER D'ADAMO: Thank you. 12 CHAIRPERSON LLOYD: Yes, Mr. Calhoun. 13 BOARD MEMBER CALHOUN: Dave, let me be certain 14 that I understand. I think what I thought I heard you say 15 when in response to the question as to why there was a 16 lack of penetration in Toyota vehicles, I thought I heard 17 you say that the principal reason was the amount of money 18 that Toyota was losing on each vehicle. 19 MR. HERMANCE: That's what I said. 20 BOARD MEMBER CALHOUN: The more you sold -- 21 MR. HERMANCE: The more you lose. 22 BOARD MEMBER CALHOUN: -- the more you lose. 23 MR. HERMANCE: Yes, sir, that's it. It's not one 24 of those deals where you can make it a back on volume. 25 BOARD MEMBER BURKE: So what's the number you're PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 215 1 losing. 2 MR. HERMANACE: Pardon? The vehicle production 3 costs today are slightly in excess of $100,000 per 4 vehicle. We're selling them for -- or leasing them at the 5 equivalent of $22,000 MSRP. 6 BOARD MEMBER BURKE: So you're losing $78,000. 7 MR. HERMANCE: It's actually worse than that, 8 because the lease assumes a residual value and the 9 vehicles probably don't have the residual value. 10 Now, as staff pointed out in the staff report -- 11 BOARD MEMBER BURKE: Wait, wait, wait. No 12 residual value. So what you're going to do is junk that 13 battery where everybody says that there's a hot market for 14 it, and that has no sales value, right? We're not talking 15 about the CO and the rest of it. You know, when you're 16 talking about no residual value, that's not true. So you 17 know, you can say limited residual value. You can say not 18 the same as a used car residual value, but when you say no 19 residual value, we both know that's not true. 20 MR. HERMANCE: It doesn't have the residual value 21 that you would use in the lease rate calculation at which 22 we leased the vehicle, which is an assumption of 50 23 percent residual at three years. 24 BOARD MEMBER BURKE: It may be higher. If you're 25 paying $100,000 for a battery and you can sell it for 50 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 216 1 after the life of the battery, it may be higher than the 2 blue book. 3 MR. HERMANCE: Well, anything is possible, sir. 4 BOARD MEMBER BURKE: Just a second ago, you were 5 trying to add no residual value. It's just not true. 6 MR. HERMANCE: In the context -- 7 BOARD MEMBER BURKE: It's just not true. 8 MR. HERMANCE: In the context of the lease rate 9 that we lease them at, it doesn't have sufficient residual 10 value to make that a practical lease as a business 11 proposition. 12 BOARD MEMBER BURKE: I understand that, but what 13 I was really trying to get at before you took me off on to 14 the no residual value, was if there is, in fact, residual 15 value, if you took the smallest possible number, say if 16 you used it as scrap, you used the battery as scrap, you 17 used the entire vehicle as scrap, whatever that number is 18 added to the lease value, then the number between that and 19 the loss is smaller. And so, you know, it might give us 20 an opportunity to evaluate different ways to mitigate that 21 loss. 22 Now, I know you don't want us to mitigate it, 23 because you don't want to build them, but -- 24 MR. HERMANCE: In fact, if I could sell them at a 25 profit, we'd be the first in line to build them. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 217 1 BOARD MEMBER BURKE: Well, in order to sell them 2 at a profit you've got to kind of help the ball along 3 here. 4 MR. HERMANCE: And I would and we are with Prius. 5 We underwrote the price of Prius in the first model 6 release. We're selling them at breakeven today. We will 7 be profitable in three. But on a long-term basis, beyond 8 the one full model cycle, no manufacturer will price the 9 vehicles below their cost unless they're getting some 10 benefit for it someplace else. It's just not an effective 11 strategy to stay in business. 12 BOARD MEMBER BURKE: Because here's the numbers 13 I'm looking at. You know, somebody was throwing around a 14 number recently of, you know, giving -- just pick a 15 number, $50 million to supplement the price. Now, if the 16 residual value after you got the vehicle back, after you 17 took whatever you capped it at and the number was, say, 18 you lost 50,000 a car. Fifty thousand into 50 million, my 19 math is not that good, is that 10,000 or -- it can't be, 20 1,000 would be five million. 21 You're right. 22 MR. HERMANCE: That's not enough volume for the 23 mandate. 24 BOARD MEMBER BURKE: But that's just a number, 25 because, you know, if the number gets bigger, you know, or PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 218 1 the loss gets smaller, at least that's an alternative. 2 MR. HERMANCE: Oh, I agree. The number, based 3 upon staff's estimate of the volume and staff's estimate 4 of cost, is $500 million. If you can find $500 million, 5 and -- although I think it would be probably fairly 6 politically unpopular to feed that to the auto industry to 7 have us make these vehicles, we could build the vehicles. 8 BOARD MEMBER BURKE: Well, I don't see -- 9 MR. HERMANCE: It's only a matter of money. 10 BOARD MEMBER BURKE: I don't think it's worth 11 that. You guys would just raise the price of the cost of 12 building new vehicles, and eat it all up and we'd still be 13 paying the money, but at least it was a passing thought. 14 CHAIRPERSON LLOYD: Ms. D'Adamo and then 15 Professor Friedman. 16 BOARD MEMBER D'ADAMO: Yes, I could use some 17 clarification from staff on the costs that are being 18 presented. There is a gap, an $80,000 gap. And I thought 19 that I had read somewhere in the staff report that the 20 incremental cost is not that large. 21 MR. CROSS: Well, when you say -- I'm not sure. 22 MR. HERMANCE: I think I understood. You can 23 accept the answer from me and then Chuck can verify if I 24 got it right. What I said was the cost of the MOA 25 vehicles was $100,000, not the cost of the vehicles that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 219 1 would be produced in 2003. In 2003 we used staff's number 2 of a $22,000 premium for the vehicle in 2003. 3 BOARD MEMBER D'ADAMO: All right. 4 BOARD MEMBER BURKE: Now, in 2003 it's going to 5 cost 20,000 more? 6 BOARD MEMBER D'ADAMO: Which is quite a bit less 7 than the $80,000 figure. 8 MR. HERMNACE: Absolutely. Costs are going down. 9 They're just not going down far enough fast enough. 10 CHAIRPERSON LLOYD: Professor Friedman. 11 BOARD MEMBER HUGH FRIEDMAN: As I understand it, 12 staff's 20,000, give or take, differential or premium cost 13 was based on the mandate; is that correct, does that 14 mandate volume? 15 MR. SHULOCK: That is correct. 16 BOARD MEMBER HUGH FRIEDMAN: So if more than 17 mandated volume were actually salable, produced and sold, 18 not only in California, which I think this was limited to, 19 but in other states, you didn't take into account sales in 20 other states, did you? 21 MR. SHULOCK: We did not, but what we did, we 22 really balanced two factors. That 20,000, an individual 23 manufacturer won't be building 20,000. They'd be building 24 some smaller numbers. So unless there were some sort of 25 combination order, the economy of scale would be a little PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 220 1 less than 20,000. 2 On the other hand, there are these things going 3 on in other states. And our judgment was if you look at 4 both of those things together, that 20,000 was a pretty 5 good rule of thumb. 6 BOARD MEMBER HUGH FRIEDMAN: Well, obviously some 7 models will sell better than others, some makes market or 8 may not market better. There are different applications 9 that are being thought about. But I think it may be just 10 as reasonable, at this point, for us to make an 11 assumption, not necessarily the only assumption -- we can 12 go the other way -- it seems to me we could also assume 13 that there may be enough demand and interest to buy more, 14 especially if the price is less for some models and not 15 only in California but in other states who intend to 16 follow California. I understand why nobody has addressed 17 that because that's somewhat speculating. 18 MR. HERMANCE: Well, I would only point out that 19 even if we built 100,000 of them, again, using staff's 20 numbers, it's still a $10,000 per vehicle premium. It 21 doesn't ever go to zero. 22 MR. SHULOCK: To provide staff's perspective on 23 that point, it depends on what vehicle you look at. I 24 think he's looking at the MOA type vehicle, well -- 25 BOARD MEMBER HUGH FRIEDMAN: I'm a Board of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 221 1 Director's Member now of Toyota and I'm being given a 2 report, and we've already gone through the MOA. And I'm 3 trying to figure out whether he makes a business case on 4 any basis that's realistic on any set of assumptions that 5 are within the realm of reality to make these vehicles. 6 And I don't hear the information coming to me to make that 7 decision. 8 I hear all the downside. I hear all the 9 problems. And I know that the staff is trying to be 10 balanced and is giving us a balanced scenario, but I'm 11 going to ask the question, can't we sell these things in 12 New England, in Massachusetts in other states that are 13 equally concerned? Can't we make this so that we can 14 bring it down to zero and why not? 15 MR. HERMANACE: Because the battery will never 16 get that cheap. The battery technology report -- 17 actually, there's some data that the battery folks have 18 that shows that at 360,000 vehicle packs per year, the 19 battery cost is still $225 a kilowatt hour and that price 20 is all plus cost on the vehicle. 21 If there was a scenario which gets the vehicle to 22 a profitable point some time in my lifetime, then we could 23 pursue it. The problem is it doesn't get there, not only 24 in the near term, it doesn't get there in the longer term. 25 CHAIRPERSON LLOYD: But, Dave, you're also, I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 222 1 think, focusing your comments on, maybe I'm wrong, but 2 just on battery electric vehicles. And clearly as we 3 talked earlier we've got other technologies which are 4 going to feed in as time goes on. 5 MR. HERMANCE: The only other zero technology is 6 a hydrogen fed fuel cell, but, again, it's a ways away. 7 That's correct. You're right, I was talking exclusively 8 about battery electric vehicles. And I was talking 9 exclusively about my perspective, because I can't speak 10 for the rest of the industry. But as a member of the 11 Board of Directors at Toyota Motor Corporation, if I could 12 find a market for 100,000 units, it would still not be a 13 cost effective decision for the corporation. 14 BOARD MEMBER HUGH FRIEDMAN: Well, it may be a 15 socially responsible decision considering we and others 16 like us have been putting out vehicles that have been, 17 whether unintended consequences or not, polluting the air 18 for many, many years. And as long as we can do that 19 without sacrificing too much ultimately to our 20 shareholders, stakeholders, I'd like to take a real close 21 look at this. I don't have enough information on that. 22 MR. HERMANCE: Let's see 100,000 vehicles at 23 $10,000 plus cost per vehicle is a Trillion dollars. Did 24 I do the math right? That can't be right. It's a 25 billion. A hundred thousand vehicles at $10,000 each, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 223 1 it's a billion dollars. That's a lot of social 2 responsibility. 3 BOARD MEMBER BURKE: In following with his 4 concept of being a board member, I deal with much smaller 5 numbers in my company, but I've got to tell you, if I had 6 a product that was $10,000 -- losing $10,000 of profit, 7 I'd raise the price to $12,000 and I know it would be a 8 profitable item. Now, it might not sell as many, but 9 every item I sold, I know I'd be making $2,000. 10 What I can't figure out is why the industry has 11 just designated whatever price they have on these 12 vehicles, that this price they lose 10,000, 20,000, 13 80,000. If the car manufacturer is going to be 32,000 and 14 it shows -- all the marketing studies I've seen on this 15 vehicle shows that the initial purchasers of this vehicle 16 are the innovators in society, and $10,000 to those people 17 is not an insurmountable about of money. 18 Then you're not losing money. You know, I don't 19 understand this. You know, we've got to lose money on it, 20 it's going to be a trillion dollars and all that kind of 21 stuff. I just don't understand it. 22 CHAIRPERSON LLOYD: Supervisor DeSaulnier. 23 BOARD MEMBER DeSAULNIER: Yeah. David, I want to 24 ask you a question that was somewhat off the line of 25 questioning, you've had. And you may be relieved to hear PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 224 1 that and maybe not. 2 And I want to ask this because you live here in 3 California and you work for a company that's very 4 successful in another culture. And I'm thinking about 5 this from a perspective of somebody who deals with land 6 use and transportation dollars in the Bay Area. Now, in 7 the Bay Area we're projected to add a million and a half 8 people in the next 20 years, and a million more jobs. 9 But we're spending most of our new expenditures 10 on transportation improvements on transit, which is 11 different in California, and the Governor has done that 12 recently. 13 So wouldn't it -- you're sort of suggesting that 14 we stay the status quo. And it seems to me that there is 15 a market that will develop just like -- even though, I 16 admit the culture in California is very different from 17 Japan, that there will be a market that will continue to 18 grow as we become more urbanized for different types of 19 vehicles other than SUVs, given that congestion Dr. Burke 20 was talking about earlier in the south coast, is going to 21 continue to happen in urbanized areas of California. 22 And that leads me to the following conclusion is 23 wouldn't that open up a market for vehicles like the 24 neighborhood vehicles? 25 MR. HERMANCE: The neighborhood vehicle, that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 225 1 market vehicle is so unique that I have difficulty even 2 anticipating. That vehicle, pardon me here, is a golf 3 cart. 4 CHAIRPERSON LLOYD: Hold on, Dave, I think maybe 5 Mark is including city cars. 6 BOARD MEMBER DeSAULNIER: City cars. 7 MR. HERMANCE: Oh, I'm sorry, city cars. You're 8 right, over time there may develop an opportunity for 9 marketing of city cars. Right now we don't even market 10 the electric city car in Japan. We do sell -- well, 11 actually Toyota doesn't sell many cars. One of our 12 subsidiary companies does, Daihatsu. 13 But you're right, the mini car market in Japan is 14 big. Will it ever get to be that big here? I'd be 15 surprised. We would have to have a lot more gridlock than 16 we have today. 17 BOARD MEMBER DeSAULNIER: Well, we're going to. 18 MR. HERMANCE: And I agree with that. I may need 19 to think about where I'm living. In any event, as market 20 niches develop, wherein you can place a vehicle that you 21 build and return -- get a return on your investment, 22 absolutely we'll follow those markets. In fact, that's 23 why we brought Prius to the US. The US doesn't value fuel 24 economy and that's principally a fuel economy vehicle. 25 But we added to it the attributes of being low PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 226 1 tailpipe emissions and fuel economy and some unique 2 styling and features and we think we can sell the car. It 3 carries a less premium per vehicle than does the electric 4 vehicles. And so it represents a lot less risk. 5 BOARD MEMBER DeSAULNIER: Thanks. 6 CHAIRPERSON LLOYD: Yeah. Recognize fellow board 7 members here, we've got about a hundred more witnesses to 8 go and we're now at 2:00 o'clock and two. I'm going to 9 stay here. I'm paid to stay here all the time. 10 BOARD MEMBER D'ADAMO: I apologize. I just have 11 to jump in one more time on this issue of cost. And I 12 took a look at some notes that I took from a briefing from 13 staff. And as I understand it, that $20,000 is for a four 14 passenger vehicle, and that that cost drops down quite a 15 bit if we're looking at a city car type of a model. 16 MR. HERMANCE: Yes. 17 BOARD MEMBER D'ADAMO: And Professor Friedman 18 referred to the social benefits. I think there are also 19 perhaps some economic benefits that are not accounted for 20 in that price differential, the economic benefits being 21 reduction in maintenance and not having purchased 22 gasoline, correct? 23 MR. HERMANCE: Those are operating costs 24 benefits. But on a life cycle cost basis, when you add 25 those benefits to the disadvantage of having to replace PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 227 1 the battery, life cycle cost is much higher than gasoline 2 vehicles. 3 MR. SHULOCK: From our standpoint, the question 4 of in volume production can the vehicle ever be 5 competitive to a conventional vehicle, what Mr. Hermance 6 is saying, I think, is for the vehicle that looks much the 7 same as the vehicles we have today. 8 What we have said is if there's some efficiency 9 improvement and you have a lower range vehicle, a 60-mile 10 vehicle, that's highly efficient and you take into account 11 the operating cost savings, that's where you get to the 12 point where they're really in the same ball park. So it 13 sort of depends on what vehicle you're looking at, but in 14 volume production, our assessment is, that that operating 15 cost savings is enough for some of the vehicles, not all 16 of the vehicles. 17 You know, I don't disagree with what he's saying 18 about the vehicle that he's talking about. But for some 19 of the vehicles, those operating costs savings do get you 20 to a comparative. 21 BOARD MEMBER D'ADAMO: Okay. And then as far -- 22 getting back to the societal benefits, there are a variety 23 of subsidy programs that are currently in place that cost 24 differential does not account for those subsidy programs. 25 MR. SHULOCK: That is correct. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 228 1 BOARD MEMBER D'ADAMO: Thank you. 2 CHAIRPERSON LLOYD: Thank you very much, Dave. 3 Next is Reginal Modlin, Daimler Chrysler. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 229 1 CHAIRMAN LLOYD: Next is Reginal Modlin, 2 Daimler Chrysler, and then we have Kelly Brown, from 3 Ford, Ben Knight, Honda, and Sam Leonard, to complete 4 the auto companies. 5 MR. MODLIN: Mr. Chairman, Members of the 6 Board, I'm Reg Modlin. 7 I'm director of Environmental and Energy 8 Affairs, at Daimler Chrysler. 9 I'm pleased to be here today to address this 10 very important issue. My comments are based on our 11 experience under the MOA and also a decade of 12 attempting to build, manufacture and sell advanced 13 technology vehicles. 14 As you might know, Daimler Chrysler was the 15 first manufacturer to certify a ZEV for sale in 16 California, so our experience does go back a few years. 17 We find, as has been mentioned several times 18 today, that people who drive the products that are 19 being offered by the manufacturers, such as Daimler 20 Chrysler, others who have talked here today, that 21 people who drive those vehicles like them. 22 The people in the market place who have had a 23 chance to experience these vehicles one on one enjoy 24 them. 25 We are not here to talk about whether or not PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 230 1 people enjoy driving vehicles. We here to talk about 2 today whether the mandate can be a success. 3 For the mandate to be a success, I think 4 everyone agrees that the battery car electric vehicles 5 must be viable for a mandate, in its current form, to 6 be a success. 7 The Battery Panel concluded that battery costs 8 are high and will not meet cost-competitive targets for 9 some time. 10 The staff concluded that the incremental cost 11 of electric vehicles is $20,000. We agree with the 12 magnitude of those suggestions, and I won't go beyond 13 that, but the battery-powered vehicle in the time that 14 we are looking at does not appear to be viable with the 15 report from the Battery Panel and the staff. 16 PZEV was given as an option that must be 17 feasible to be taken advantage of in a 2003 model year 18 time frame. 19 The staff concluded that the industry would 20 not be able to fully use the PZEV option. I agree with 21 that conclusion. 22 So, the PZEV option is not feasible in the 23 2003 time frame. The air quality benefits must be 24 significant for this program to be a success. 25 The staff concluded that the emission PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 231 1 reductions would be in the neighborhood of one and a 2 half tons per day. That's about one-tenth of a percent 3 of the inventory in 2010. One-tenth of a percent of 4 the inventory. 5 That can hardly be called significant. 6 Let's look at the commercial viability of the 7 electric vehicle, just to delve into these three points 8 just a little bit. 9 The estimated cost of the batteries is 10 $13,000. I will just throw in my two cents, that at 11 $13,000, that is a pretty darned good price or cost 12 that we see, and we also do not see that cost coming 13 down significantly. 14 That is driven by materials. It is not driven 15 by volume. Also, the way that the volumes have been 16 thrown around today, if we only increase volume to 17 100,000, the price will surely come down. 18 Remember how many manufacturers will have to 19 engage in this process. Each one of us probably has a 20 fairly unique battery, and there will only be a chance 21 for economy of scale on some of us to move into partner 22 agreements on battery configuration. 23 So volume, the economy of scale will not be 24 reached at any time in the near future. 25 Again, the estimate on cost of EV at $21,000 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 232 1 is in the right ball park. 2 Further, the staff made a very accurate 3 statement that in their view, and we agree, that a 4 reasonable interpretation of consumer demand implies 5 that demand exists when vehicles are priced at or near 6 cost. 7 Several times today the Board has engaged in 8 this discussion. We agree that we have to come 9 somewhere in the neighborhood of covering costs as we 10 price product, whether it is individually or throughout 11 our fleet. 12 In our experience through the MOA, we spent 13 more than two years placing 168 individual vehicles. 14 Daimler Chrysler did this under the auspices of our 15 fleet sales department, but I know that many of you had 16 the opportunity to talk with our folks in that 17 department and have come to understand that each one of 18 those was a very personal experience. 19 We priced those vehicles at $15,000, comparing 20 that to a comparable vehicle, comparable conventional 21 vehicle of about $21,000 to $22,000. 22 So, 168 vehicles priced at $15,000, and we 23 were just able to place those vehicles. 24 Our conclusion is that there is no sustainable 25 customer demand at this time. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 233 1 Usefulness of the PZEV option, the PZEV option 2 really offers the industry no mandate relief, or I will 3 speak specifically to Daimler Chrysler. 4 PZEVs will only be available in limited 5 numbers in 2003. The PZEV requires pulling ahead of 6 exhaust control technologies that were projected by the 7 staff to be available beginning, starting about 2008. 8 So, it requires pulling that technology ahead 9 by five years and to add on an equally experimental 10 evaporative emissions technology. 11 For us, that means to put 32,000 vehicles into 12 California to make use of that technology or to make 13 use of that option. 14 That is about 30 percent of our sales and 15 would require virtually all four cylinders and many of 16 the six cylinder vehicles to be changed over. That is 17 several engine families. 18 Staff agreed that industry would not be able 19 to take full advantage of the PZEV option. Let me show 20 you why. 21 The timing on its own just didn't allow us to 22 take advantage of this. What we have here is an 23 illustration that shows that the first time that we 24 engaged in a LEV I compliance, a vehicle compliant with 25 the LEV I program, was basically in 1996. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 234 1 By six years later, we are tasked with 2 reducing emissions by 55 percent to the first time we 3 started introducing ULEV II technology. That's the 4 task of the LEV II program. 5 Then in that same program, we are tasked to 6 continue on, continue on in another four years between 7 an 89 percent reduction, using Super ULEV technology. 8 That's by 2007 or 2008 time frame. 9 Those are very aggressive goals, and we did 10 work with staff closely in the development of that 11 program. 12 Then it is suggested that we back-up that 13 technology by five years and make it available starting 14 in 2002 as an offset. This is technology that we all 15 agreed that would not be substantially available until 16 2007 calendar, and on top of that add zero evap and 17 guarantee the function of the vehicle for 150,000 18 miles. 19 The problem started when the LEV II was 20 adopted and incorporated the PZEV option in December of 21 1998. It appeared to allow almost three years of lead 22 time. 23 The issue that we have is that to make or 24 start producing vehicles in 2002 calendar year, our 25 production designs have to be complete now. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 235 1 That really only gave us one and a half years 2 to complete those designs, design, develop and release 3 them for production. 4 There are two points to this slide that I 5 think are pretty critical. 6 One is that the time was limited to develop 7 this hardware. We are going to be there just as good 8 as anybody else, but to do it across the total model 9 lines becomes extremely difficult. 10 It also shows that we have run out of time to 11 add or change product direction for the 2003 model 12 year. We have run out of time. 13 You have seen this in a couple of variations, 14 so I will just mention my take on it that in 1990, when 15 the Board decided to pursue the electric vehicle 16 mandate, in the Board's opinion, the cost would be 17 acceptable and the benefits would be appreciable. 18 That information has just simply changed. The 19 staff, we agree with the magnitude of what they are 20 looking at, $20,000, and with the benefit as was 21 explained earlier, the cost benefit of $1,800,000 per 22 ton, I just have to leave the question, that if that 23 was the information that the Board had before them in 24 1990, would you have made the same decision? 25 In our opinion, we have here for discussion PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 236 1 that the Board is left with three choices regarding the 2 mandate in its current form. 3 One is to eliminate it. Another one is to 4 postpone it. Another one is to leave it stand as it 5 is. 6 To offer just some comment on these three 7 elements, if we were to pursue elimination, we respect 8 that this is a difficult issue, but the staff report 9 does call to attention reasonable interpretation that 10 consumer demand says that the demand will exist when 11 manufacturers recover cost, we agree with that, that 12 the MOA experience confirmed that there is no 13 sustainable market for battery-powered electric 14 vehicles at or near the manufacturers' cost is the 15 point to be made. 16 So, elimination would allow the concentration 17 on more cost-effective means of achieving emission 18 reductions and advancing technologies that you are all 19 very much aware of. 20 Competition in our mind will force the 21 continuation of the invention process. 22 Comments on to postpone, the technology is 23 just simply not ready, but some, some in the audience 24 today, do feel that pressure should not be entirely 25 removed. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 237 1 Maybe those same some feel that time will 2 allow hardware to develop, and maybe the same some 3 would feel that the market will eventually develop for 4 battery-powered electric vehicles. 5 I do claim that manufacturers are competing in 6 pursuit of technology to lower emissions, and 7 postponement would provide time to further develop the 8 hardware, and I underline, explore market potential in 9 a retail market, and pursue more cost-effective means 10 of achieving emission reductions. 11 Another difficult choice then out of the three 12 then is to leave it stand. We do believe strongly that 13 it is too late to alter the mandate for 2003 in a way 14 that would require manufacturers to change hardware or 15 product. 16 We would not have enough time to make those 17 changes. The lead time has run out. We have no 18 further lead time. 19 Some outside of industry would believe in 20 letting the mandate stand would force the market to 21 test the available technologies. 22 We have to have a plan to meet the 23 requirements of the California requirement, and I will 24 stand by our statements to the Board and to members of 25 the staff that we plan, I have that plan. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 238 1 Our only concern, our only concern is that the 2 market place will not respond in kind. With that 3 observed, leaving it stand threatens manufacturers with 4 noncompliance and undesirable choices. 5 One choice that we do have that is very clear 6 is we could just limit sales and force extended use of 7 older cars. 8 Another choice is to buy, and I put that in 9 quotes, because I do not know really know where we 10 would buy credits, I don't know of anybody here that is 11 anticipating that we would be able to create excess 12 credits to sell. 13 This is really moving all by itself, folks. 14 In any sense, the noncompliance and 15 undesirable choices are what we are left with. 16 In the spirit of discussion, those are our 17 views, and we do feel, going to the last slide, that 18 the ARB is left with three choices, only three choices. 19 That is, one, to discuss whether to eliminate 20 the mandate in its current form, to postpone it or to 21 leave it stand in its current form. 22 Thank you for your attention. I sincerely ask 23 that the Board take into consideration that there is an 24 awful lot of information that is being delivered today. 25 Some of it, I am sure you are aware of, and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 239 1 some of it, I believe much of it, from what I have 2 heard today, maybe you haven't. I know I haven't. 3 I just ask that the Board take the time, take 4 any time that is necessary to fully understand the 5 meaning of the information and how it mixes and come up 6 with the best decision for the State of California. 7 You should take that time. 8 Thank you for your attention, again. 9 CHAIRMAN LLOYD: And I think you will find 10 that we will take that time, Reg. 11 I appreciate your comment there. 12 Any questions? 13 Dr. Burke. 14 BOARD MEMBER BURKE: Just one question. 15 CHAIRMAN LLOYD: You did sign the memo? 16 BOARD MEMBER BURKE: I'm sorry. 17 I'm a man of my word. 18 CHAIRMAN LLOYD: Thank you very much. 19 We have Kelly Brown. 20 MR. BROWN: I didn't do that. I haven't done 21 anything yet. 22 CHAIRMAN LLOYD: My colleagues wanted to 23 welcome you, Kelly, and wondered whether you preferred 24 to be here or in DC? 25 MR. BROWN: I got the long straw. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 240 1 BOARD MEMBER RIORDAN: Smart man. 2 CHAIRMAN LLOYD: That was good, from the 3 Supervisor on the end. 4 MR. BROWN: Now I know how to get information 5 to the Board. 6 CHAIRMAN LLOYD: Are you able to talk without 7 visual aids? 8 MR. BROWN: Are you able to listen without 9 them? 10 CHAIRMAN LLOYD: Yes. 11 MR. BROWN: Could I ask the field judge to 12 give me my 13 seconds back on the clock here. 13 Thank you. 14 I'm Kelly Brown. I'm with Ford Motor Company, 15 and I'm Director of Vehicle Environmental Engineering. 16 What I want to do, if we find my slides, is 17 tell you a little bit about what we're doing, what we 18 think we can do and what we think may go a little too 19 far, or maybe even be counterproductive. 20 CHAIRMAN LLOYD: Is there any pun intended? 21 MR. BROWN: Any pun intended at? 22 CHAIRMAN LLOYD: What you think you can do? 23 MR. BROWN: You're getting ahead there. 24 This is starting to be cued up a little bit as 25 either you're with 'em or agin' 'em, you're either for PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 241 1 EVs or not. 2 I don't that's the issue that's on the table. 3 We are not at all opposed to EVs. 4 We are going backwards. I'm not with Nick. 5 We are not at all opposed to EVs. 6 We think there is a niche market for EVs. We 7 have developed a brand that we announced this year, the 8 Think brand, for electric vehicles. 9 It's a brand of Ford Motor Company, just like 10 Ford Division is a brand of Ford Motor Company, or 11 Lincoln Mercury, or Jaguar, Austin Martin, Volvo, or 12 any of the others. 13 We also have a host of other alternative fuel 14 vehicles, and we put those out without any mandate, and 15 that has given us a lot of marketing experience. 16 I really kind of need those slides now. Can 17 we take a time out here for a minute? 18 It is really at a disadvantage without the 19 slides. I'm going to be describing product without -- 20 CHAIRMAN LLOYD: Lisa, how long is it going to 21 be? 22 BOARD MEMBER DeSAULNIER: Dr. Burke would like 23 to fill the time. 24 BOARD MEMBER BURKE: Zip is the word. 25 BOARD MEMBER RIORDAN: He's really sensitive PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 242 1 about that. 2 MR. BROWN: It goes to show you can have 3 implementation problems even with technology. 4 CHAIRMAN LLOYD: Speak for yourself. 5 MR. BROWN: This is our all new Escape compact 6 SUV that comes out next year, and it will be available 7 as a hybrid electric vehicle in 2003. 8 The hybrid is targeted at PZEV emissions and 9 40 miles per gallon fuel economy. 10 This is the Think Battery EV, the core of our 11 new brand. Think is a small two passenger hatch-back 12 that is available now in Europe. 13 It debuts globally in 2002 and will be sold 14 across the United States. 15 The Think Neighbor is a low speed vehicle. 16 It's capable of up to 25 miles per hour and a 30 mile 17 driving range. 18 The Neighbor begins production this model 19 year, the 2001 model year, and will be available on a 20 Website. That's street legal in most states. 21 If that's not enough, we even have bikes. You 22 can order these on line, and it will be delivered right 23 to your home. 24 This is our fuel cell program. Ford is 25 involved in fuel cell development, both internally and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 243 1 also through the Partnership for a New Generation of 2 Vehicle, and in alliance with several other partners. 3 We're also involved as a founding partner of 4 the California Fuel Cell Partnership. 5 The lower right-hand corner shows our latest 6 Focus fuel cell demonstration vehicle that will be 7 available for the inauguration of the headquarters just 8 a few miles from here in a few months. 9 This is our Ranger EV. The Ranger itself is 10 the best selling compact pickup in the United States. 11 It's consistently one of the top ten selling vehicles, 12 car or truck. 13 It's US sales are 350,000, that's for 14 gasoline. If it was EVs, I wouldn't be here. 15 Since 1998, we have sold over 1,000 of these 16 in 23 states, and we now have a derivative for the 17 Postal Service to use for delivery. 18 Our marketing efforts, we pursued most of our 19 1,000 buyers by face-to-face sales. Our focus has been 20 fleets, because we learned through the rest of our AFP 21 involvement, that they are more ready to take some risk 22 on new technology. 23 But that aside, about 10 percent of our 24 customers were still retail customers. In all, we 25 spent about six and a half times that spent on gasoline PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 244 1 Ranger marketing for each battery electric vehicle 2 Ranger, and in the end, the revenue didn't quite cover 3 our marketing costs. 4 We also marketed to many other states. I 5 guess a couple of success stories that are Michigan, 6 with 97, without a mandate, New York, even though they 7 didn't want to, they don't have a mandate, but they 8 still worked with us, and we sold 75. 9 If you look down in the Southeast, Georgia, 10 worked with us very well, a very cooperative program, 11 without a mandate, and we sold 142 there. 12 How did we do it? 13 The top line, the $34,000 price was a lead 14 acid battery vehicle. We leased those for $339 a month 15 across the US, and we managed to sell, including 16 California, we sold 335. 17 The next line, the $48,000 is nickel-metal 18 hydride, and we started off at $614 a month, and it 19 wasn't going very well, so we dropped it to $450. 20 Then our competitors started dropping prices, 21 too. So, the combined of those two, we sold about 42. 22 Then we dropped the price to $199, and we 23 actually sold a little more than 160 at that price. 24 Since I know you are not in our business every 25 day, but to put that into perspective, this is a Jaguar PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 245 1 S-type, with about the same MSRP, we lease those for 2 $860 a month, and we sold so far in the State of 3 California alone about 6,000 of them. 4 In the last ten years, we have come about the 5 pretty remarkable agreement with the staff on what the 6 facts are. 7 So, if we can get past are you for ZEVs or 8 against ZEVs, and look at the facts, I don't think that 9 the path is that difficult. 10 We agree that manufacturers are not able to 11 produce a competitively-priced electric vehicle without 12 incurring significant losses. 13 We agree that the costs are too high, and we 14 don't argue with the staff's characterization of the 15 price loss. 16 We're trying to change that model a little bit 17 with the Think, and how -- what you do with the 18 mandate, I think has a lot to do with whether or not 19 the Think brand will be successful. 20 The mandate, if it forces other manufacturers 21 to compete in that same fragile market, could actually 22 damage our brand. 23 We also agree that the UC Davis study that was 24 contracted, they picked one of our vehicles, and again 25 puts into perspective what you've heard all day, it's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 246 1 cost and range, and the more range you put in, the more 2 cost there is. 3 We also agree with the staff finding that both 4 the initial and life-cycle cost will significantly 5 exceed those of comparable conventional vehicles in the 6 2003 time frame. 7 We agree with the finding of the Battery Panel 8 that concluded that the battery costs are high and will 9 not meet cost-competitive targets for some time, a 10 breakthrough is needed for truly affordable 11 nickel-metal hydride packs. We agree with that. 12 Finally, we agree with the staff that major 13 technology advances or breakthroughs required to reduce 14 advanced battery costs substantially below current 15 productions are unlikely for the next six to eight 16 years -- actually, that was the Battery Panel. 17 So, it's not that we can't do it. We can 18 build vehicles, and the people who drive our electric 19 vehicles, we don't really get that many complaints 20 about the. 21 We have had some minor problems. They love 22 them. It's just that there are not enough people that 23 love them, and we cannot make a business out of it yet. 24 As you heard from not only from my industry 25 colleagues but others, it is cost and range are the two PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 247 1 issues, and it is the battery. 2 Switching to PZEVs, we agree with the staff 3 that PZEVs are extremely challenging for the 2003 time 4 frame, and we not only agree with them, we think that 5 is an understatement. 6 That said, just to put it into 7 characterization, a PZEV requirement in addition to 8 increasing the durability requirement to 150,000 miles 9 plus the zero evaporative requirement, it requires 10 significant improvement over today's extremely low and 11 extremely clean vehicles. 12 That said, we do, unlike in the battery 13 electric vehicle case, we do see a long-term path to 14 success, and what we need here really is time. 15 It is also not an argument over benefits. As 16 an industry, those of us who are subject to the 17 mandate, we agreed that any modification to the 18 mandate, including total elimination, we would make up 19 whatever the calculated benefits were, assuming the 10 20 percent mandate had gone through. 21 We also agree that the 2003 mandate represents 22 a 10-fold increase of the actual number of EVs on the 23 road. 24 In fact, we think it might be a little higher 25 than that. There was a report done by Sierra Research PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 248 1 that got individual manufacturers confidential plans 2 and put them together, and they came up with about 3 52,000 EVs required in 2003, and I think the big 4 difference can be characterized that the staff seems to 5 think that more manufacturers will go above the hundred 6 mile range and get premium credits for it, but in a 7 case, especially like in our case, that conflicts with 8 our product strategy. 9 We are trying to make it cost-effective, and 10 range is cost. Every time you say increased range, you 11 just think increased cost. 12 If we jack-up the cost of our vehicles, I wish 13 it were that simple to just say, whatever we charge for 14 them, people are going to flock to buy them. That is 15 not the case. 16 It is very price sensitive, and I think that 17 is what Dr. Kalhammer said in response to questions, it 18 is really range and cost. 19 In summary, battery electric vehicle cost and 20 functionality are not yet fully competitive. Battery 21 technology is not where it needs to be and it's not 22 projected to get there any time soon. 23 2003 is too early for mass introduction of 24 PZEVs. I did mention that we would have PZEVs 25 available in 2003 but not enough to meet the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 249 1 requirements. 2 The air quality benefits are small or minimal, 3 whatever term you want to use. 4 There are far too few customers. If there are 5 any deposit checks in those mail bags, I will gladly 6 take them. We would like to sell the vehicles to them. 7 The mandate is not achievable at the level and 8 in the time frame required by CARB. 9 Again, it's not that we can't do it or that we 10 don't want to do or we won't do it, we just don't think 11 that -- it's not that you like ZEVs or you don't like 12 ZEVs, but it is that you can meet the requirement or 13 you can't, and right now we have to say we can't. 14 In conclusion, the mandate must be postponed 15 or modified or eliminated or whatever terms you want to 16 use consistent with the realistic expectations for 17 electric vehicles and PZEV development and 18 commercialization. 19 Mr. Chairman, I yield back the rest of my 20 time. 21 CHAIRMAN LLOYD: Well -- 22 MR. BROWN: I learned that in Washington. 23 CHAIRMAN LLOYD: Thank you very much, Kelly. 24 I appreciate your efforts, and I also appreciate the 25 Think vehicle and the staff coming out to California. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 250 1 I think that's great. 2 Questions from the Board? 3 No. 4 Well, I will say thank you very much. 5 We are going to make a slight change here, 6 because we are running into some time constraints. We 7 are going to hold on to Ben Knight, of Honda, and Sam 8 Leonard, and we are going to have to skip there and 9 come back, because some of the people there, and I'm 10 going to ask Lynn Edgerton and John White and Michael 11 Field, in that order, and Ellen Garvey, Henry Perea and 12 Steve Larson. 13 It gives me great pleasure to welcome an 14 ex-colleague, former Board Member, when much of this 15 was put together, Lynn Edgerton. 16 Lynn, welcome. It's great to see you. 17 MS. EDGERTON: Thank you. It's a pleasure to 18 be here. 19 Chairman Lloyd, Honorable Members of the 20 California Air Resources Board, honorable members of 21 the staff and distinguished members of the audience, I 22 respectfully request the opportunity to make four brief 23 observations. 24 Each is grounded in my lengthy experience in 25 air and atmospheric quality policy. My testimony today PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 251 1 reflects my own personal and professional opinion. I 2 have not received any compensation or reimbursement 3 from any party connected with this issue since I left 4 the Board in August 1999, nor have I or will I receive 5 any payments or personal benefit from my appearance 6 today before this respect Board. 7 First, in my view, the 1996 and 1998 Air 8 Resources Board's trust in the auto manufacturers 9 representation that relaxation of the ZEV rules would 10 accelerate the introduction of ZEVs was misplaced. 11 Our trust was misplaced. 12 To the contrary, one by one, the auto 13 manufacturers completed production of a limited number 14 of ZEVs required by the Memorandum of Agreement and 15 then stopped producing ZEVs altogether. 16 Some manufacturers, such as Honda, publicly 17 admitted that they were stopping production as soon as 18 they met their MOA quotas. 19 Others, such as GM, continued to publicly 20 advertise their ZEV, the EV-1, while simultaneously 21 stopping new deliveries of the vehicles. 22 Yet the MOA signatories had argued publicly 23 and privately, directly to me in private meetings I 24 might add, that this MOA would just help them ramp up 25 to meet the 10 percent level in 2003. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 252 1 The lesson which the ARB should learn from 2 this experience with voluntary production of ZEVs in my 3 view, respectfully, is that it will not work. 4 The statutory requirement including penalties 5 reflecting at least the incremental asserted increased 6 cost is needed to spur ZEV production and introduction 7 at a mass marketing level. 8 My second point is that the California ZEV 9 program is more valuable today, more likely to succeed 10 today, and more needed now in 2000, than it was in 1990 11 when it was adopted. 12 The California Zero Emission Vehicle program 13 is the environmental gold standard by which all 14 transportation systems are judged. 15 It also promises, in my view, to be the most 16 economically efficient program once the cost of 17 transitioning from our existing system to a ZEV system 18 is absorbed. 19 The ARB's Low Emission Vehicle programs, I and 20 II, including your technology forcing zero emission 21 vehicle component, not only represents the world's most 22 effective smog busting program on earth, but is also 23 the single most important program on earth to slow the 24 rising tide of global warming. 25 Dr. James Hanson's recent analysis of the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 253 1 causes of climate warming seen in recent decades 2 indicates that global warming seen in recent decades 3 has been caused mainly by methane, chlorofluorocarbons 4 and black particles of diesel and coal soot and, I 5 quote, compounds that create ozone and soot. 6 As you well know, it is, and I quote, 7 compounds that create ozone and soot, that the ZEV rule 8 seeks to reduce and eliminate. 9 Ladies and Gentlemen of the Board, members of 10 the staff, distinguished audience, Dr. Hanson's 11 National Academy of Sciences report strongly suggests 12 that the most effective way to keep our climate to 13 heating up to temperatures intolerable to the human 14 species is to, quote, control black particles of diesel 15 and coal soot and compounds that create ozone and soot. 16 Of course, the international phase-out of 17 stratospheric ozone depleters must continue as well. 18 Therefore, I state for the record that the 19 ARB's LEV II program adopted in November 1998 -- I mean 20 November 1999, not only leads to restraining air 21 pollution but also leads to restraining global climate 22 change. 23 Here, here. 24 Third, I comment on the staff report. It is 25 excellent in every respect. However, my perspective PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 254 1 differs in one significant respect. 2 The staff report indicates that cost is the 3 biggest problem, single problem facing successful 4 introduction of ZEVs to the mass market. 5 However, I respectfully disagree. I believe 6 regulatory uncertainty is the single biggest block to 7 auto manufacturer commitment. 8 It is regulatory uncertainty that in fact 9 makes auto manufacturers and fuel producers hesitant to 10 make necessary capital investments to bring down the 11 costs. 12 This is the issue where we must, your fellow 13 Californians, including me, must look to you for your 14 leadership, for your continued leadership, in which I 15 have great confidence. 16 In closing, I will tell you how I would vote 17 if I were in your seats today. 18 I've always been somewhat of a Kamikaze pilot. 19 First, I would keep the ZEV program as it, no 20 change in the 10 percent ZEV program with four percent 21 pure ZEVs by 2003. 22 Second, I would ask staff to prepare a public 23 report for the Board indicating how much the fines 24 would be for each manufacturer when and if they do not 25 comply with the ZEV mandate. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 255 1 I would suggest that you look at the fines to 2 see if they are adequate to motivate a reasonable 3 automobile company to deliver the required ZEVs. 4 If they are not, I would suggest the Board 5 consider raising the penalties, after all, it is a 6 matter of money. 7 Thirdly, I would eliminate the two-tiered 8 scheduling for large and medium-sized auto 9 manufacturers. Let's face it, they are all large, and 10 they all have access to the technology. 11 Furthermore, with globalization of the auto 12 industry, it is silly to have, for example, one rule 13 for Ford and another for Volvo, when Ford owns Volvo. 14 Thank you very much for your kind attention. 15 Please know that empathize with the tremendous 16 difficulty you have in your decision and know that I 17 will support you whatever you do. 18 CHAIRMAN LLOYD: Thank you very much, Lynn. 19 Also, I think you were too modest. The date 20 you referred to was in fact 1998, and you were a Member 21 of that Board, and a very, very important one, so, in 22 passing those regulations. 23 Any questions from the Board or comments? 24 Thank you very much. 25 Now we have John White. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 256 1 Mr. Stempel, I am well aware that you are 2 here, and I understand that you don't have an immediate 3 time constraint, but we value your time as well. 4 So, let me know. You will come up here in the 5 next 10 witnesses, but if you have a time -- my 6 understanding is that you -- thank you very much. 7 MR. WHITE: Good morning, or good afternoon 8 rather. 9 Mr. Chairman, Board Members, my name is John 10 White. I'm the Executive Director of the Center for 11 Energy Efficiency and Renewable Technologies. 12 I'm going to talk today about a couple of 13 things that I think are important to put context in the 14 debate. 15 There is going to be further discussion later 16 on by a number of my environmental colleagues who we 17 have been working with on this issue, but I'm going to 18 try to touch on a couple of issues that I think deserve 19 some singling out. 20 At the last workshop in May, I observed there 21 were some things that were missing from the discussion. 22 So, one of the things that we set out to do was to 23 create some new information that could be made 24 available to the Board. 25 The first piece of that new information is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 257 1 some testimony that I'm going to present today on 2 behalf of Dr. Jane Hall, at the California State 3 University of Fullerton. 4 Dr. Hall is a former employee of this Board 5 and a distinguished economist, well regarded and peer 6 reviewed. 7 She has done a study which has been submitted 8 for the record summarizing the economic costs and 9 benefits of the ZEV mandate, and more importantly, not 10 doing a mandate. 11 I would like to just highlight some of her 12 testimony. 13 More than 95 percent of California's citizens 14 breathe air that is so poor that it causes illness, 15 contributes to shortening of lives. 16 Unless passenger vehicles become inherently 17 clean, zero direct emissions from the vehicles, what we 18 mean by inherently clean, this will continue to be the 19 case for Californians well into the Twenty-first 20 century. 21 Transportation and agriculture in the state 22 are almost wholly dependent on gasoline and diesel 23 fuel. 24 As it appears from price volatility, these 25 sectors struggle economically, and this Board is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 258 1 certainly aware of what happens when price spikes, 2 volatility enters the fuel market place, because the 3 pressure comes back on you. 4 With international demand growing for 5 petroleum based fuels and supplies not keeping pace, 6 price volatility is likely to become a fixture of 7 economic reality. 8 There will be a transition period between the 9 2003 model year and the ZEV requirement and production 10 on a scale that will reduce cost substantially. 11 So, the economic issue at hand is the 12 following: What impacts could the State's Zero 13 Emission Vehicle program have on the economy, jobs and 14 income in the short-term between now and 2010? 15 Essentially, how much will jobs and income be 16 effected by higher prices for light-duty cars and 17 trucks? 18 This question arises because typically the 19 cost to make a new product is higher when production 20 begins, and we've heard that today, and efficiency 21 gains of large scale operations do not reduce costs 22 until the market can sufficiently support production at 23 more efficient levels. 24 The ZEV technology faces exactly this 25 short-term quandary. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 259 1 Income in California is more than $988-billion 2 annually, exceeding that of China and Canada and is 3 expected to climb to almost a trillion and a half by 4 2010. 5 In the analysis of how the ZEV program could 6 impact the economy needs to be considered in this 7 context. 8 At the International Institute for Economic 9 and Environmental Studies at Cal State Fullerton, we 10 have just completed a study that addresses the basic 11 question, and I'm quoting Dr. Hall, what is the worst 12 that could plausibly happen if the ZEV program is 13 implemented as now structured? 14 The secondary question is, what does 15 California do if the ZEV program is abandoned? 16 What other sector would be further controlled? 17 How much growth must be regulated to achieve 18 the same results? 19 What price would be exacted from poorer 20 health? 21 This issue is beyond the scope of the 22 research, but it is generally believed that most, if 23 not all, identified and cost-effective controls are 24 already credited in the State Implementation Plan and 25 are therefore not replacements for the ZEVs. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 260 1 Clearly failure to implement the ZEV program 2 or equivalent emission reductions pose continuing risk 3 to public health, which is an unacceptable alternative. 4 The conclusion of the study is that any 5 possible economic consequence in implementing the 6 California ZEV program as it is now structured are 7 small. 8 When viewed in the context of expected 9 economic growth here, they are trivial. 10 Even in absolute terms for a cost differential 11 of $7,000 per ZEV, after incentives, and continuing to 12 2010, and if California bears the entire burden of this 13 cost, the difference in economic output for each 14 California citizen would reach approximately $5 a year, 15 around the price of a bargain movie ticket, and far 16 less than the $115 that the oil price increase of the 17 past year has cost each of us. 18 The testimony goes on, and I just wanted to 19 read some of the highlights and not burden you with the 20 full amount, but this chart really illustrates the 21 effect that Dr. Hall and her colleagues have forecast 22 and essentially should give you some confidence that 23 the overall health of the economy is not going to be 24 impaired. 25 The second issue that we felt needed some PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 261 1 illumination from your last workshop was the petroleum 2 fuel cycle and its environmental consequences. 3 You had received testimony from Accurex that 4 attempted to lay out comparisons between the different 5 fuels and different technologies and their overall life 6 cycle, cost and impacts. 7 We have done a report that's been submitted, 8 called, Crude Recogning, that summarizes the 9 environmental impacts in California of the petroleum 10 fuel cycle, and to put it in context, you will hear 11 from Jack Doyle, who has written a very fascinating 12 book, called, Taken for a Ride, and in that book he 13 discusses global context in which your decisions are 14 occurring. 15 We now have 600 million motor vehicles on the 16 road today worldwide. In 20 years, that will double to 17 more than a billion. 18 More than a hundred new IC-powered vehicles 19 are produced every minute. That's 6900 every hour, 1.2 20 million every week, 60 million a year, and we still 21 have the markets of China, India and Latin America 22 opening up. 23 The consumption that these vehicles provide is 24 not just limited to -- the environmental impacts are 25 not just limited to air emissions, tailpipe, toxics, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 262 1 which you know something about, but also we have 2 impacts from the production of the fuel, all the way 3 through to its disposal. 4 Those impacts are part of the cost of the 5 existing transportation system that we have. 6 We also have in California some particular 7 demands on petroleum that, from a supply standpoint, I 8 think are important. 9 Can I have that first slide, please? 10 This gives you a flavor of the trend lines for 11 gasoline, jet fuel and diesel in terms of our 12 consumption between now and the next 20 years, and you 13 can see that we're going to be up above 20 billion 14 gallons a year from the present approximately 13. 15 If you look at the second slide after this, 16 the oil supply sources, the amount of supply is 17 increasing over that same period from foreign sources. 18 If you look at the next slide, you see that 19 global crude production is continuing to expand, and at 20 some point in this period we're going to reach a point 21 where demand crosses supply, and at that point is when 22 the crunch will come. 23 In California, that next slide shows where we 24 are in terms of the next 20 years, from 2000 to 2020. 25 The Energy Commission recently projected more PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 263 1 than a 40 percent increase in transportation fuel 2 demand. 3 My point of bringing these issues up is 4 because we believe that the decision that you have 5 before you today and tomorrow and the guidance that you 6 give your staff and the staff comes back with, has to 7 be seen in a context of both the broader economic needs 8 and demands to the State and its income, as well as the 9 dependence that we have with respect to petroleum. 10 If you add to those two factors the economic 11 and environmental consequences, both from air pollution 12 directly emitted from the vehicles and from the entire 13 petroleum fuel cycle, the need to turn the page is 14 evident. 15 I don't think that we are really having an 16 argument with the auto companies. I was pleased to 17 hear Kelly Brown say how much he agrees with staff. 18 That's always reassuring. 19 But I think what we do disagree upon is the 20 level of urgency and the amount of investment that is 21 required. 22 While we talked about these costs and the per 23 vehicle cost and the customer response, all of this has 24 to do with how long a view you take of the program that 25 you are designing. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 264 1 If you really think about this program is 2 effectively the launching pad for getting to the next 3 stage of transportation propulsion technology and 4 alternative fuels that rely less heavily than we 5 presently rely on the petroleum fuel cycle, you see the 6 value is as important as the cost. 7 It was my honor and privilege to appear before 8 this Board in 1990 when the original decision was made. 9 I know how burdensome the weight of the 10 evidence and the length of the presentations are, and I 11 do not want to take more of your time, but I do want to 12 commend to you that you appreciate, you are on the 13 global stage at this moment, and the consequences of 14 your decisions are going to resonate throughout the 15 planet hopefully in a way that will begin to accelerate 16 the process of reconciling our consumption with the 17 impacts that we cause and begin moving us towards a 18 much more sustainable transportation technology in our 19 lifetime. 20 Thank you very much. 21 CHAIRMAN LLOYD: Thank you very much, John. 22 I gave you some extra time, because I know you 23 delayed some well-earned vacation after dealing with 24 the Legislature here and to join your family. 25 Professor Friedman, who had signed the MOU, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 265 1 but he's going to ask a quick question. 2 BOARD MEMBER C.H. FRIEDMAN: I'm going to 3 break the pledge here. 4 I've got to ask you, because this is really, I 5 think, a very important question for me at least. 6 Do you see a sustainable market presently or 7 in the near-term future in the EV, and if so, at all, 8 do you see any role or responsibility that 9 organizations such as yours might have and could play? 10 MR. WHITE: The answer to both questions is 11 yes. 12 I drive an EV every day now. I am very proud 13 and privileged to do so. You have to think a little 14 more about where you go and how far you go and where 15 the charging stations are, but it is a habit that you 16 can easily get into, particularly if you are 17 reinforced. 18 I think one of the greatest phenomenons that 19 I've observed as I've worked on this issue is the 20 extent to which when you get a lot of the cars 21 together, things start to happen with the public. 22 If you just have one or two and nobody sees 23 them, but when they are all lined up like they were the 24 other day at Miller Park, you really get to get a 25 feeling that's created, and I think to some extent, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 266 1 your point about the marketing is related to that 2 phenomenon. 3 Part of what we have to do is look at the 4 consequences of our petroleum transportation system, 5 each of us in every day of our lives, we have to look 6 at changing those within reason, we have to work 7 together on the marketing. 8 One of the things I'm most proud of working 9 on, side by side with Ford's lobbyist at the last night 10 of the Legislature, was a bill to provide State funds 11 for incentives for customers that purchase ZEVs. 12 As we have before with other products, South 13 Coast has been very active over the years, probably 14 more than any other agency, at working with people 15 selling and producing the technology and getting them 16 out to the public. 17 I think that the non-governmental sector, the 18 public interest groups, need to play a part in that, 19 and not just with EVs but also with hybrids, the Sierra 20 Club, our organization that I am affiliated with, have 21 taken the step of giving awards to both Toyota and 22 Honda for the hybrids. 23 We like them all. We are not only for ZEVs. 24 We are for changing the entire transportation system 25 gradually, steadily, but I think part of the nature of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 267 1 the market has to be reflected in advertising and 2 consciousness that occurs through advertising. 3 We can help with that. But we don't have the 4 dollars to be on the National football League every 5 Sunday and the MBA during the week. 6 If we have these cars, and I am very glad to 7 see Ford taking a step to advertise the Think vehicles. 8 You have to look quick through the ad to find them, but 9 they're there. 10 The fact that instead of just the big trucks 11 and the sport utility vehicles, if the advertising 12 begins to gets the same attention for the ZEVs and the 13 hybrids that they get for the other vehicles, I think 14 you will see a customer response. 15 We all have to help. I'm committing to you in 16 response that we will be there to help with the selling 17 of the cars and with the marketing of the program. 18 CHAIRMAN LLOYD: Thank you very much. 19 Thank you, John. We appreciate it. 20 Next we have Michael Field, with Xpress 21 Shuttle, then Ellen Garvey, then Henry Perea and Steve 22 Larson. 23 MR. FIELD: Good afternoon, and thank you for 24 the opportunity to speak to you. 25 My name is Michael Field. I'm with Xpress PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 268 1 Shuttle, headquartered in Los Angeles. 2 We are a 24-hour, door-to-door, passenger 3 ground transportation company, operating in all five 4 airports in Los Angeles area, in San Diego and in Salt 5 Lake City. 6 But the anchor of our business is a five-year 7 contract to provide on-demand shared ride shuttle 8 service at LAX. The contract obligates us to be 100 9 percent alternative fuel, that is 250 vehicles, in two 10 years. 11 So, we have to meet this obligation, and we 12 have to do it profitably. After almost two years of 13 planning and development, in January of 2000, we 14 started phase one of a program running zero emission 15 vehicles as airport shuttles. 16 We have 11 now, and we'll have a total of 20 17 in the next two months. We take people to and from LAX 18 in zero emission Daimler Chrysler EPIC minivans. 19 This is what we have found. The economic and 20 operational model we created that would even allow us 21 to consider electric vehicles is proving to be valid. 22 We can make money with this vehicle. Charging 23 and range are not obstacles. 70 to 80 percent of our 24 business lies within the range of this vehicle. 25 New technology, rapid charging in 20 minutes PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 269 1 or less, allows us to keep the vehicles in continuous 2 use and continuously producing revenue, and the vehicle 3 is a good one. 4 Daimler Chrysler has been extremely supportive 5 and helpful in making this program work. 6 It is not easy to do something like this, but 7 it's also not that hard. 8 We want to expand the use of these vehicles 9 and increase our fleet. We want more of these vehicles 10 available to us and to other fleet operators, so that 11 the technology and infrastructure will develop and 12 evolve. 13 We want to be able to meet the stringent 14 vehicle emission requirements currently included in 15 both public and private contracts. 16 We need to be able to bid on RFPs like the 17 recent one for shuttle service at Sacramento Airport or 18 transportation for Kaiser Permanente Medical Center in 19 Los Angeles. 20 These vehicles have excellent applications in 21 large campus scenario operations, whether that's an 22 airport, hospital, medical center, university, or movie 23 studio or for on-demand delivery, as we do with 24 passengers. 25 Taxis which are area-based would be an PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 270 1 excellent use of this vehicle, and they are also under 2 the gun now to cleanup their vehicles. 3 In our experience, there is also a tremendous 4 approval value from our customers. This was no small 5 factor in our decision to implement and in our desire 6 to increase the scope of our program. 7 It is a market discriminator for our company. 8 People like it, and they want it. 9 We also recognize that for us the health and 10 economic viability of our airport is the health of our 11 business and our community. 12 We need to meet and exceed the demands that 13 our community has for cleaner airports and cleaner 14 transportation. 15 But the rub is currently that we can't get 16 enough vehicles. With the onesy-twosy approach, the 17 applications and the infrastructure just never develop. 18 If they were available in sufficient amounts, 19 fleet operators would use them. With the new 20 technology, if I can make money with it, I want it. 21 We want to sell our product. We want 22 passengers. We have to give something to get them. 23 I think that equation works all the way 24 around. 25 Thank you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 271 1 CHAIRMAN LLOYD: Thank you very much. Thank 2 you for keeping to your time limit. 3 Next is Ellen Garvey, Bay Area AQMD. 4 MS. GARVEY: Good afternoon, Chairman Lloyd 5 and Members of the California Air Resources Board. 6 My name is Ellen Garvey, and I'm the Executive 7 Officer at the Bay Area Air Quality Management 8 District. 9 I'm here today to speak in support of the 10 mandate and in support of a cleaner future. 11 I'd like to begin my remarks this afternoon by 12 commending Mike Kenny and his staff at the Air 13 Resources Board for giving a very fair and a very 14 equitable review to this very important issue. 15 I have read through the staff report. It's 16 very balanced, and it's very sound. 17 In the San Francisco Bay Area, it is no 18 different than any other major metropolitan area in 19 California. We collectively drive a lot of cars, 20 almost six million cars, and the cars are the number 21 one source of air pollution in the Bay Area. 22 I know this personally that we are driving 23 about six million cars, because I think I was in the 24 middle of about a million of them stuck this morning in 25 gridlock on the San Francisco Bay Bridge as I was PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 272 1 making my way here. 2 Cars are the number one source of pollution, 3 and the ZEV mandate is a huge step forward towards the 4 solution. 5 We have had a lot of experience in the Bay 6 Area with electric vehicles. Through the allocation of 7 almost $5-million through our motor vehicle 8 registration program, we have helped to purchase almost 9 300 electric vehicles that are being used in a variety 10 of public agencies throughout the nine Bay Area 11 counties. 12 In cooperation with the Department of Energy, 13 we have allocated over $350,000 to help with the 14 infrastructure for charging. We have helped to fund 15 almost 26 charging stations, more than 26 charging 16 stations, located in a variety of locations throughout 17 the nine Bay Area counties. 18 I would also like to credit our partners at 19 the Air Resources Board as well as the California 20 Energy Commission for helping us in this effort. 21 Here is what we've learned so far in the Bay 22 Area. I'd like to give you sort of a Bay Area 23 perspective on what we have learned with respect to 24 electric vehicles, the good news as well as the bad. 25 Let's start with the good news. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 273 1 People love the product. They love driving 2 electric vehicles. 3 Those few that have been fortunate enough to 4 get the cars, whether they purchased it or leased it, 5 love the car. 6 I have an electric car. I love driving it. 7 The neighbors on my street love it when I'm able to 8 drive it home, and they get to see it, learn more about 9 it, talk about it. 10 It has been an educational experience for me 11 as well as them as well as something that's good and a 12 positive step forward for air quality. 13 One of the issues that we have heard so much 14 about is limited range. We undertook several surveys 15 at the Bay Area Air District to see just how important 16 this issue of range was to folks who were driving these 17 electric vehicles, and what our surveys found is that 18 the range issue is largely a perception issue. 19 Once the folks get the cars, they learn to 20 drive them, they understand them and they embrace them, 21 and the range issue, according to our surveys, goes 22 away. 23 It's not a real issue. It seems to be more of 24 one of perception. 25 Two Bay Areas counties believe very, very PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 274 1 strongly in the mandate. Both San Francisco as well as 2 Contra Costa Counties have looked forward to the future 3 to see what they can do to help contribute to cleaner 4 air and advancing the electric vehicle technologies. 5 Resolutions have been passed mandating that at 6 least 10 percent of the fleets purchased by public 7 agencies in both of these counties be at least 10 8 percent by the year 2003. 9 We salute Marc DeSaulnier for his visionary 10 leadership in this area, and my hope is that if the ZEV 11 mandate holds, and I hope it does, that other local 12 jurisdictions will follow in their lead. 13 I would like to say a few words about the 14 Legislature, tagging on to some comments that were made 15 earlier today about where is our Legislature when it 16 comes to electric vehicles. 17 In the flurry of activity that was the last 18 week of the Legislature, AB 2061 passed, with a 19 two-thirds vote, which it needed a two-thirds vote, and 20 it received it, bipartisan support, largely from all 21 over the State in support of this bill. 22 CHAIRMAN LLOYD: Can you just mention what 23 that bill does, for those who are not familiar? 24 MS. GARVEY: Yes. 25 I will mention that what the bill does, it PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 275 1 provides for incentives for electric vehicles that are 2 acquired in the next two years. 3 So, this gives folks an incentive to take that 4 extra step, those people who were wondering, well, do I 5 want to do it, can I afford it, well, this bill 6 provides them the financial incentive to make that 7 extra step. 8 Now for the bad news. 9 There is no product. There is a lack of 10 product in the Bay Area. 11 I receive calls in my office almost daily from 12 folks who have heard about electric vehicles, they've 13 read about electric vehicles, they want an electric 14 vehicle, and they can't find one. 15 Folks in the Bay Area can be very persistent, 16 and they have very persistently been looking for this 17 car, and they tell me, and they don't hold back any 18 punches, that they are extremely frustrated at not 19 being able to find this product. 20 There has also been a lack of promoting or 21 marketing of the product. There has been very little 22 done by the manufacturers to promote or market the 23 product. 24 What I'm finding in the San Francisco Bay 25 Area, is that largely the promotion and the marketing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 276 1 of electric vehicles is happening and occurring from 2 the folks who have actually secured a vehicle. 3 There are incredible testimonials that are 4 stemming from the mouths of those that have the 5 vehicles. 6 It is this word of mouth that is getting the 7 ball rolling and keeping it rolling in the Bay Area. 8 Lastly, the cars, in a very general way, have 9 been priced to fail. Prices as we know are tied to 10 volume, but the manufacturers have refused to price the 11 cars as if the EVs are product lines that will be with 12 them for a long period of time. 13 In conclusion, I can pledge to you that the 14 Bay Area Air Quality Management District whose Board of 15 Directors just yesterday unanimously adopted a 16 Resolution in support of the ZEV mandate and in support 17 of keeping it at a minimum of four percent, I will 18 pledge to you today that we will continue to work 19 cooperatively with the Air Resources Board, the Energy 20 Commission, the Engine Manufacturers, the public and 21 other regulatory agencies to make sure that we do 22 everything that we can to advance this very important 23 technology to continue to roll it out into, not only 24 the San Francisco Bay Area, but throughout California. 25 The opposition is clamoring very loudly that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 277 1 the ZEV mandate be either watered down or be killed, 2 but to date they have failed to offer an alternative 3 path, let alone one that offers the benefits, the 4 incredible benefits that the ZEV mandate does. 5 The finish line is in sight. I encourage you 6 today to give the whole program an opportunity to go 7 the distance. 8 Thank you very much. 9 CHAIRMAN LLOYD: Thank you very much, Ellen, 10 and thank your Board for its support. I appreciate it 11 very much. 12 You reminded me when you talked about gridlock 13 and whatnot, I think Dr. Burke had a question this 14 morning about the number of vehicles per person -- has 15 staff had a chance to look at that? 16 MS. GARVEY: I can tell you what it is for the 17 Bay Area. 18 It is almost one to one. 19 I don't know what it is statewide. 20 CHAIRMAN LLOYD: Thank you. 21 Henry Perea, from the City of Fresno. 22 MR. PEREA: Yes, good afternoon, Mr. Chairman, 23 Members of the Board. 24 Thank you for the opportunity to speak before 25 you today. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 278 1 My name is Henry Perea, and I am a member of 2 the Fresno City Council. I am here today to urge your 3 Board to uphold this mandate for four percent pure zero 4 emission vehicles by the year 2003. 5 Fresno, California, is in the center of the 6 San Joaquin Valley, and regretfully, according to the 7 American Lung Association the center of five of the 25 8 worst air polluted metropolitan areas in the United 9 States. 10 We are concerned about the air we breathe and 11 the rising damage it has already caused on human lungs 12 and lives. 13 As a community, we understand the effects of 14 air pollution and its effect on our public health, our 15 economic health, the impact that it has on our ag 16 community, and of course, we are always concerned and 17 looking for ways to reduce our dependency on foreign 18 fuels. 19 This past January, I lead the effort to have 20 the Fresno City Council unanimously pass a Zero 21 Emission Vehicle ordinance, the second in the State of 22 California, the effort lead by the City and County of 23 San Francisco. 24 We now have a Clean Air Committee to advise 25 the City on all future vehicle purchases do ensure we PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 279 1 get the very latest in zero emission technology. 2 At present, electric vehicles that fit our 3 fleets' needs are not available to us. If they were, 4 we would be waiting in line for them. 5 If you delay the current mandate for 6 compliance, we will be delayed even further in 7 achieving our goal of having zero emission vehicles for 8 the City fleets and reducing the air pollution in our 9 City and our Valley. 10 You should also know that as a result of our 11 ZEV ordinance, the Fresno City Council is currently 12 moving towards the purchase of 20 natural gas buses, a 13 good alternative, but I can tell you, if we had 14 electric buses available to us, that's probably what we 15 would be buying. 16 I need to say that it was not an easy task to 17 pass this ordinance in the City of Fresno. You can 18 imagine the opposition we had. 19 But I'll tell you, a lot of the witnesses that 20 came before us, a lot of the research that was cited, 21 was research that was conducted by your staff, and we 22 thank you for that, and we thank you for the leadership 23 that you all have shown in clearing the path for this 24 type of technology to happen in our State. 25 Our San Joaquin Valley Air Basin is in grave PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 280 1 danger of failing to meet both Federal and State Air 2 Quality Standards and has in the past been penalized 3 for failure to meet criteria set forth by the Federal 4 Clean Air Act. 5 We believe this program is critical to our 6 region's ability to meet these Federal standards, and 7 it is hard for us at the local level to do our job 8 without your continued support. 9 Please, keep the current mandate. 10 Automobile manufacturers are making record 11 profits from their high polluting trucks and sports 12 utility vehicles. 13 A requirement to produce a limited of ZEVs to 14 help offset the pollution from these vehicles is little 15 to ask if we all are serious about cleaning up our air. 16 The California Air Resources Board has been 17 the leader in technology-forcing regulations. This is 18 the next step in the automobile evolution. 19 As a City, we have no regulatory authority 20 over the automobile manufacturers. You do. 21 I am here to ask that you stay the course and 22 keep the current mandate as stated. Certainly, we 23 understand that there have been probably some good 24 reasons to allow them some flexibility, and there have 25 been two in the past. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 281 1 What we are saying now, it's time to hold 2 their feet to the fire, live with the mandate that we 3 have, and help us clean our communities. 4 Thank you very much. 5 CHAIRMAN LLOYD: Thank you for taking the 6 time, and thank your City Council for its leadership. 7 I would also thank the City for hosting some 8 of the studies we are doing on health effects, looking 9 at the impact of air pollution on health. 10 So, thank you very much, indeed. 11 MR. PEREA: Happy to do it. 12 Thank you. 13 CHAIRMAN LLOYD: Supervisor Patrick. 14 BOARD MEMBER PATRICK: I just wanted to thank 15 Councilman Perea very much for his leadership. 16 I know that there has been quite a 17 contentious -- this has been quite a contentious issue 18 in Fresno, and his leadership has been definitely on 19 the cutting edge in getting Fresno to move to this 20 area. 21 So, we are going to have to take you and have 22 you visit all the cities in the San Joaquin Valley and 23 put you out on the road, because you have been very 24 successful, and I compliment you on that. 25 MR. PEREA: No problem. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 282 1 CHAIRMAN LLOYD: Thank you very much. 2 Thank you, Barbara, for your insight. 3 Next we have Steve Larson, California Energy 4 Commission. 5 We welcome you here. 6 MR. LARSON: Thank you, Mr. Chairman, Members 7 of the Board. 8 It is a pleasure to be here and to talk a 9 little bit about the Energy Commission's role in ZEV. 10 First, I would like to congratulate the Board 11 for its role and progress that has been made in 12 improving air quality in a number of nonattainment 13 regions throughout the State. 14 Through your leadership, the State of 15 California is making great strides toward meeting 16 California's goal of State and Federal air quality 17 attainment. 18 We face a similar challenge concerning 19 California's transportation energy system. 20 The Energy Commission is charged in part with 21 ensuring that the use of energy resources is consistent 22 with society's needs for public health and quality of 23 life. 24 Thus, as an energy agency, we are especially 25 interested in the potential contributions that the Zero PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 283 1 Emission Vehicle mandate offers in addressing energy 2 efficiency, fuel flexibility and global climate change 3 issues. 4 In terms of energy consumption, as has been 5 noted, I'm sure, that California is the third largest 6 in the world, behind only the United States, and as a 7 whole, in Japan, and the State uses half of the energy 8 it consumes for transportation services. 9 More than 50 percent of transportation energy 10 is used in light-duty vehicles. To put this energy use 11 in perspective, light-duty vehicles alone consume 12 approximately double the amount of energy the 13 residential sector in California uses, and even more 14 than the residential and commercial sectors combined. 15 Nearly 100 percent of our transportation 16 energy is provided by petroleum. 17 It is unlikely that California can continue to 18 rely nearly exclusively on petroleum-based fuels if it 19 desires a stable transportation system. 20 Forecasters disagree about how long our 21 petroleum supplies will last, but as noted in some of 22 the earlier tables and charts, we can certainly expect 23 our children to feel the effects of declining reserves 24 within our lifetimes. 25 As California's population and economic PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 284 1 activity continue to grow, its demand for 2 transportation services also will continue to grow. 3 If current trends continue, gasoline and 4 diesel use is projected to increase by approximately 40 5 percent over the next 20 years. 6 Our already strained in-state refining 7 industry will not be able to keep pace with the 8 forecasted growth without major changes in industry 9 operations and infrastructure. 10 Sudden price increase for both gasoline and 11 diesel fuels will likely be more frequent, and higher 12 prices are likely to be sustained for longer periods. 13 California must begin to meet its growing 14 demand for transportation energy by augmenting 15 petroleum supplies with energy conserving measures and 16 with other energy sources. 17 Efficient vehicle technology now entering the 18 market place as a result of the ZEV mandate can 19 certainly help to extend the life of petroleum and add 20 to the menu of transportation options. 21 The Energy Commission has supported 22 alternative fuel vehicles to gain both fuel flexibility 23 and air quality benefits. 24 We have taken advantage of the leverage that 25 tough air quality regulations provide to gain PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 285 1 experience in fuel flexibility. 2 Given current conditions, we need to 3 reemphasize the need to balance our energy flexibility 4 and clean transportation energy goals. 5 From the standpoint of fuel flexibility, we 6 believe that the Zero Emission Vehicle mandate has 7 fostered a number of very efficient and environmentally 8 preferred technologies, including electric vehicles, 9 hybrid electric vehicles, fuel cells and super ultra 10 low emission vehicles that would not have been 11 developed without your program. 12 Electric vehicles can be considered the 13 ultimate flexible fuel vehicle, we think. 14 In California, electricity is generated, of 15 course, by natural gas, but also by hydroelectric power 16 plants, geothermal energy, nuclear, wind and solar. 17 In addition, the generating capacity needed to 18 charge millions of EVs during off-peak hours is already 19 available. 20 Although the Commission recognizes that the 21 State is facing an electricity supply challenge in 22 meeting daytime peak loads, especially during the hot 23 months of the summer, studies of existing EV use show 24 that the majority are recharged during these off-peak 25 periods. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 286 1 Charging EVs off-peak increases the 2 utilization and improves the overall efficiency of 3 California's existing electric generating system. 4 In the meantime, partial zero emission vehicle 5 technology, such as gasoline hybrid electric vehicles, 6 are being introduced into the market place, giving 7 California an environmentally superior way to achieve 8 both air quality and efficiency goals. 9 The ZEV mandate has also provided for us, we 10 think, an additional unforeseen benefit by creating an 11 opportunity to other states and Federal agencies, air 12 districts and local government to coordinate efforts 13 and to enter into partnerships and sponsor programs 14 that promote dual energy and air quality goals for 15 California. 16 The Energy Commission along with local air 17 districts and California's public and private sector, 18 have made significant investments in the development of 19 ZEV technology and infrastructure development, 20 including providing vehicle and infrastructure 21 incentives, code modifications, public charging 22 stations and, of course, jobs. 23 Along with developing a number of other 24 electric vehicle projects over the last four years, the 25 Energy Commission has worked with local air districts PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 287 1 to provide incentives for electric vehicles leased or 2 purchased in California. 3 To create statewide consistency, this program 4 replicated the incentive program offered by the Mobile 5 Source Air Pollution Reduction Committee. 6 We are also currently developing an expanded 7 program, with funds we requested from the current 8 budget, and will provide incentives for new emerging 9 technology, vehicle technologies, including City and 10 Neighborhood EVs, hybrid electric vehicles and fuel 11 cells. 12 These partnerships and coordination efforts 13 have provided opportunities to enhance the broader 14 mission of the State by combining air and energy 15 aspects of EV technology development into one 16 coordinated effort. 17 Through this initiative, individual State 18 agencies, local cities and counties and air districts 19 have had the ability to attain greater benefits than 20 they could have attained individually. 21 Based on its commercial availability zero 22 emission vehicle technologies offer more opportunities 23 to help achieve the goals of both the ARB and the CEC 24 for energy flexibility, efficiency and air quality in 25 California. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 288 1 In closing, I want to state that the 2 Commission believes that near-term energy benefits from 3 electric vehicles, indeed, itself may be minor, 4 however, due to the technological advancements that 5 this program has promoted and fostered, we believe that 6 the overall long-term benefits from the ZEV mandate 7 will no doubt be very major. 8 On behalf of the Energy Commission, I 9 appreciate the opportunity to be here today and speak 10 to you about this important subject. 11 CHAIRMAN LLOYD: Thank you very much, Steve, 12 and we appreciate the support of you and your staff for 13 all the areas that we work on together. 14 Thank you very much. 15 We will now go back to the conclusion of the 16 auto manufacturers testimony with Ben Knight and Sam 17 Leonard, and then after that we have Mr. Robert 18 Stempel. 19 MR. KNIGHT: Good afternoon, Board Members and 20 Chairman. 21 I'm the Chair of Honda's Goal of Air Quality 22 Attainment and Advanced Transportation. 23 Honda doesn't find argument with the vision of 24 ZEV or near-ZEV. In fact, we are pursuing these goals 25 on many fronts. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 289 1 We do, however, have big concerns for the 2 practicality and the practical reality of battery 3 electric vehicles. The issue is not a question of 4 commitment. 5 The issue is not a question of will or 6 willingness or willing. The issue is a question of the 7 technology and the market acceptance. 8 Air quality improvements will depend on 9 widespread use of effective solutions. While the 10 initial promise of battery electric technology has not 11 been realized, a new mix of technologies is already on 12 the market, and innovative technology shows promise. 13 The good news is the road map to our clean air 14 goals looks broader than currently framed. 15 Technology is moving too fast for government 16 to pick technological winners and losers. 17 We need to focus our attention on the 18 technologies and fuels that show high potential, those 19 with greater practical prospects than for the battery 20 electric. 21 Honda's EV-Plus program has very broad goals. 22 The scope of the program and the marketing efforts went 23 well beyond the MOA requirements. 24 We know that a consumer market will be 25 critical to the commercial success of battery PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 290 1 electrics. 2 EV-Plus is not at all a first generation EV 3 design. Honda had prior EV experience to build on with 4 a series of EV battery prototypes beginning in 1988, we 5 began US field trials in 1994. 6 EV-Plus sedan uses an all new, very compact, 7 very efficient platform. This vehicle is six inches 8 shorter than the shortest Civic hatch-back we make. It 9 is an extremely short, compact vehicle. 10 The motor and controller are world class in 11 efficiency, 96 percent. Still, more than a thousand 12 pounds of battery, nickel-metal hydride battery, is 13 required to propel it 60 to 80 practical miles. 14 All EVs in our experience see about 60 percent 15 of the practical range versus the test, dynamometer 16 tested range to empty, and this 40 percent discount 17 factor needs to be taken into account when assessing 18 technology performance and marketability. 19 We now know a great deal more about the market 20 and the technology than we did in 1995 and 1996, 21 because we got out there in the market. 22 Unfortunately, it has become quite clear to 23 Honda, and it's clarified in the Battery Panel report, 24 that only minimal improvements in cost and energy 25 density are now foreseen, because we understand the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 291 1 fundamental limitations, fundamental issues related to 2 battery chemistry and material composition. 3 Breakthroughs would be necessary. 4 In an extremely positive and challenging 5 manner, Honda approached this new potential market 6 through diverse media activities and events, as well as 7 through the efforts of our dealers and sales people. 8 The wide range of promotional activities for 9 the EV-Plus is frankly much broader than we use for our 10 conventional vehicles. 11 It included extensive product advertising, 12 press relations, also cooperative campaigns and some 13 special direct marketing efforts, getting the vehicle 14 out there for trial, for test drives into the 15 communities, leaving them with people for time, over 16 time. 17 The ads and promotions were made month after 18 month for about two years. A great effort was made. 19 Auto shows were covered with the cars, with 20 staff, with the dealers, brochures were handed out, 21 ride and drive opportunities were made, demonstration 22 cars were supported. 23 The dealers were extremely excited about the 24 car and the lease program that Honda supported at the 25 beginning. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 292 1 To further ensure a very high level of dealer 2 enthusiasm for the EV program, American Honda took 3 extraordinary steps to provide support. American Honda 4 guaranteed a profit to the dealers for a sales 5 commission on every EV-Plus. 6 It was significantly higher than the income 7 earned on the average new car sale. Extensive sales 8 training materials, demonstration vehicles were 9 provided, sometimes two per dealer to have cars to get 10 out there with people. 11 Cars flooring costs were covered. Regional 12 events were sponsored and supported. Brochures and 13 exhibit costs, direct mail campaigns were done, all 14 funded by American Honda and free to the dealer. 15 Almost no proposal was turned down. We had 16 lots of creative and exciting ideas. 17 In fact, our plan was originally to build 20 18 EVs a month and promote their use by California 19 consumers, and we would review the early results toward 20 the next constructive step. 21 However, despite broad promotion, great 22 publicity on the vehicle, full support for the vehicle 23 and customer, great word of mouth from our customers, a 24 doubling of the sales regions covered and extending the 25 months of sales availability, we could only lease about PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 293 1 120 cars to consumers over a two-year period of time. 2 Intensive study clarified that battery 3 performance and cost prospects are far from the levels 4 required for a sustainable market. I would like to 5 highlight some of that research. 6 Honda has been conducting primary research 7 among EV customers, EV intenders who rejected the car 8 and our dealers who were there face-to-face with 9 potential buyers in order to understand the best 10 marketability factors for EV success in a future 11 market. 12 Some of the results follow. 13 Honda EV dealers and sales people gave us this 14 list of consumer requirements. When asked what needs 15 to be improved to see wider market acceptance, and by 16 the way, these are dealers and sales people who said, 17 each of them said, I can sell 300 vehicles at my 18 dealership alone the first year, and now they inform us 19 very clearly that increased EV sales potential would 20 require at least double the range performance, quick 21 charge capability, public infrastructure, additional 22 features and amenities and a $15,000 price plan. 23 Our EV-Plus owners have much contact with 24 neighbors and public who use their car on a daily basis 25 and were very excited to talk about it. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 294 1 When asked to consider what product 2 improvements would be needed for electric vehicles to 3 appeal to a wider audience, they often suggest a usable 4 practical real world range of 150 to 210 miles might be 5 necessary as a starting point, that's double, faster 6 recharge time, greater public infrastructure and a 7 lease fee or price of about half of the current EV-Plus 8 rate. 9 That also is about a $15,000 car equivalent. 10 Right now the lease fee that is vehicle applicable is 11 about a $25,000 car equivalent. 12 A number of potential customers for the 13 EV-Plus carefully considered leasing a car, but they 14 did not, and we investigated the reasons why. 15 They saw a combination of issues which 16 deterred them, notably, limited range, long recharge 17 time, value perceived and infrastructure issues. 18 These results are very interestingly so 19 consistent with our other research findings. 20 In conclusion, our EV-Plus program and 21 technical research activities were implemented in a 22 constructive effort to advance toward a sustainable EV 23 market, however, despite our best efforts, we have to 24 conclude that EV performance limitations and 25 characteristics with advanced nickel-metal hydride PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 295 1 batteries do not warrant expansion of production at 2 this time. 3 A basis for commercial viability is clearly 4 not established nor foreseeable. 5 Honda recommends that the Board direct staff 6 to find positive alternatives to the current mandate. 7 Significant changes are necessary. 8 Implementing the 2003 mandate in its current 9 form would divert resources from more promising 10 technologies, would not result in commercially viable 11 EVs and, importantly, is not the most cost-effective -- 12 is not the most effective strategy for improving air 13 quality. 14 Thank you. 15 CHAIRMAN LLOYD: Thank you, Ben. 16 I was surprised. You finished before time. 17 Any questions? 18 BOARD MEMBER CALHOUN: Yes. 19 A few moments ago, I think Ellen Garvey, from 20 the Bay Area Air Quality Management District, said that 21 the range is a perceived problem and not real, at least 22 that is kind of what I got out of her comment, but I 23 have also heard other people say that the EVs that are 24 available today will satisfy the range of most people, 25 and that may very well be true, but I wonder if it's a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 296 1 major factor that one takes into consideration when 2 they get ready to buy an EV? 3 MR. KNIGHT: We also, before the program, 4 wanted to challenge that issue, that very issue, 5 because rationally it seems that should be the case, 6 and so, certainly, too, we expected this EV to be a 7 second or third car where there might be ability to go 8 also on the longer trips. 9 UC Davis also many years ago had that idea. 10 We were able to check that idea out, and the result was 11 different than we expected, that it was not a function 12 of people going through that calculation or living with 13 it over a period of time, and deciding rationally, I 14 think I can fit this into my driving patterns. 15 In fact, the more they learned, the more they 16 understood fairly what the capabilities or limitations 17 of the EV were, it was not for them, so the barriers 18 got greater when they got more information, closer to 19 the car, rather than lower. 20 I think that is one of the reasons that 21 EV-Plus customers are very exceptional, were very 22 willing to make significant changes, willing to 23 accommodate these factors and their special priorities. 24 We don't see additional EVs in their 25 neighborhoods. They are very exceptional individuals. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 297 1 BOARD MEMBER CALHOUN: She also mentioned the 2 fact that none of the manufacturers have come forth 3 with a proposed alternative to the current ZEV 4 requirement. 5 I want to ask you if Honda has a proposal? 6 But that is something that I guess you and all 7 the other manufacturers need to think about. 8 I guess I have one more question. 9 Toyota, Dave Hermance from Toyota, talked 10 about the price differential and that impacted the 11 volume of vehicles that they sold. 12 And all the manufacturers, I assume, are faced 13 with the same problem. 14 What do you see in the short-term as, or the 15 near-term as a solution to that particular problem? 16 I heard you say that there will be a need for 17 a breakthrough in the batteries in order to get the 18 price down, but who knows when that's going to occur. 19 So, given that, what do you see that can be 20 done during this interim period? 21 MR. KNIGHT: I missed one key word of what you 22 said. 23 Was this a cost issue? 24 BOARD MEMBER CALHOUN: Yes, the cost 25 differential between what the manufacturers are having PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 298 1 to spend versus what they are leasing or selling the 2 vehicle for? 3 MR. KNIGHT: First, I would like to say we 4 have never been making cost the issue, because we are 5 looking fundamentally at could this be a viable product 6 and market, is this usable by the public. 7 The answer to that, unfortunately, is clearly 8 no. There is a big gap compared to the technology 9 performance that would be required. 10 Of course, cost certainly is an issue. 11 Unfortunately, that gets you into a technology story, 12 where five years ago, we did expect, our battery 13 experts as well as the battery suppliers, did expect to 14 make significantly additional progress both in 15 nickel-metal hydride, in terms of energy density, cost 16 side, reducing material or the amount of the precious 17 material, and all of these were very actively looked, 18 as well as lithium toward the longer term. 19 However, after ten years of seeing a 20 saturation and deeply understanding some of the 21 chemical phenomenon, it is quite clear that it would 22 take a breakthrough. 23 That instead, we have saturated, and every 24 time we try to reduce the cost, we get much shorter 25 life. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 299 1 We have just fundamental trade-offs. So, 2 again, we know with much more confidence there is not a 3 prospect of improving on those very fundamental issues. 4 CHAIRMAN LLOYD: Thank you very much, Ben. 5 Dr. Burke. 6 BOARD MEMBER BURKE: Before you leave, Matt, 7 please, give me a break. 8 I visited just about all of the auto 9 manufacturers, and there's some that are good and some 10 that are bad. 11 There are some that are trying and some that 12 are not trying. I've got to tell you, that I was very 13 impressed by what you guys were doing. 14 I think that at least you are working within 15 the spirit of the mandate. 16 I know this is made by man, so it is not 17 perfect. So, the cars are made by man, so they are not 18 perfect. 19 I, as one Board Member, appreciate the effort 20 with which Honda has been pursuing with this mandate. 21 MR. KNIGHT: Thank you. 22 I appreciate the time that you spent with us. 23 CHAIRMAN LLOYD: Thank you very much. 24 Last for the auto companies here is Sam 25 Leonard. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 300 1 Sam has got 20 minutes. 2 As I mentioned to Sam earlier, by the way, I 3 had a dream about Sam the other night. He said it 4 wasn't a dream, it was a nightmare. 5 MR. LEONARD: If I'm in his dream, it's got to 6 be a nightmare. 7 Oh, good afternoon. For the record, my name 8 is Sam Leonard. I'm here as Director of General Motors 9 Public Policy Center Responsible for Mobile Emissions 10 and Fuel Economy. 11 I thought long and hard about my testimony 12 today, because as many of you may know, this may well 13 be the last time that I will be addressing the Board as 14 a General Motors employee. I will be retiring at the 15 end of this year. 16 I have been involved with the automotive 17 emissions throughout my career with General Motors. I 18 began in 1970 just as the 1970 Clean Air Act was 19 adopted. 20 As a product engineer, I was there when GM 21 went across its product line -- all that would be up 22 there right now is my title slide, so I will keep 23 talking. 24 As a product engineer, I was there when GM 25 went across its product with catalytic converters and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 301 1 high energy ignition in the 1975 model year, the only 2 manufacturer to do so. 3 I was there in 1977 when we had new 1978 model 4 year vehicles stored in every available parking lot 5 waiting for the Clean Air Act to be amended so that we 6 could ship them. 7 On the public policy side, I was there when we 8 went across the product line with the on-board 9 diagnostics in the 1981 model year, years ahead of any 10 regulatory requirement. 11 Now we can go to next slide. 12 I've been just as involved in California. I 13 was at the January 1990 LA Auto Show when GM introduced 14 the EMPAC electric vehicle, the precursor to the EV-1, 15 and the technological stimulus to the issue before us 16 today, when we announced that GM intended to make a 17 business of electric vehicles, and would introduce a 18 purpose built electric version of the EMPAC for sale in 19 California in mid 1990s. 20 I then testified at the September 1990 Board 21 meeting at which the LEV I program and the ZEV mandate 22 was adopted, which I might add ruined our business 23 case, and I was deeply involved in negotiation the MOAs 24 in 1996 which allowed this Board to delay in the ZEV 25 mandate in the face of the first Battery Panel report PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 302 1 which concluded that the advanced batteries would not 2 be ready by 1998. 3 I was there in 1998 when the LEV II program 4 and the PZEV alternatives were adopted. 5 Throughout all this, the Board and the 6 industry have made amazing progress in reducing vehicle 7 emissions and made good decisions when the data and the 8 analyses had time to be fully comprehended, and as you 9 saw with the Alliance presentation, this progress will 10 continue through 2020 with or without the ZEV mandate. 11 While we have at some times had differing 12 views regarding the means and the timing, we have 13 always agreed on a goal, clean air for California. 14 The ZEV mandate presents another instance 15 where we do not agree with the means of reducing 16 vehicle emissions, that is the ZEV mandate itself, but 17 we continue to agree with the goal of clean air. 18 The first part of my presentation will explain 19 why we don't agree with the means, and I will finish 20 with a recommendation on how I believe we should 21 proceed from here. 22 No other company has demonstrated the 23 dedication to electric vehicle and electric vehicle 24 drive componentry and to creating a sustainable market 25 for electric vehicles that General Motors has applied. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 303 1 Our investment to date approaches $1-billion. 2 The EMPAC announcement and the concurrent commitment 3 that GM would bring the EV to market in the mid 1990s 4 were the first elements of an integrated strategy to 5 create a sustainable electrical vehicle category for 6 transportation. 7 That integrated product strategy consisted of 8 five primary components. 9 The first was the development and production 10 of the purpose-built EV-1, the world's first electric 11 sports car for the retail market. 12 Step number two was the development and 13 production of the S-10 electric pickup conversion for 14 the fleet market. 15 Third was development and production of a new, 16 safe inductive charging system, a system that has since 17 been adopted by some other manufacturers as well. 18 Fourth was our investment in advanced battery 19 development, first through the U.S. Advanced Battery 20 Consortium and then through the formation of a joint 21 venture, GM Ovonic, to actually bring these prototype 22 nickel-metal hydride batteries to production. 23 Finally, continual product iterations on the 24 prime electric vehicle components, the power 25 controller, the battery, the electric drive system to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 304 1 work down the cost curve. 2 The 1997 EV-1 had generation one systems. The 3 1999 EV-1 had generation two systems. The recent 4 Precept Prototype PNGV vehicle had generation three 5 components. 6 Our marketing strategy was just as 7 multi-faceted. Our media spending was directed at the 8 full range of traditional outlets, as well as innovated 9 web-based activity, because that is where we found the 10 technology innovators. 11 We also had dedicated EV-1 sales specialists 12 to assist interested customers to explain the vehicle, 13 because we wanted good word of mouth from our 14 customers. 15 As you will hear from our customers later 16 today, we satisfied our customers. They love the 17 product. 18 But despite all of the work and, in fact, with 19 all of the marketing expense that we went to, we did 20 not even recover our marketing cost in the lease 21 payments that we charge for our vehicles. 22 Forget the development, forget the research, 23 forget the material, forget the assembly, forget the 24 batteries, the lease payments that we ended up charging 25 for these vehicles did not recover the per vehicle PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 305 1 marketing cost. 2 Despite that, based on our marketing 3 experience, the type of marketing cost we put into this 4 vehicle, we expected to sell 10 to 20 times as many 5 vehicles. 6 We were tooled to do that. We had two 7 assembly plants, each capable of producing several 8 thousand vehicles a year. 9 So, despite the anecdotal comments, the 10 electric vehicle market failed to materialize, not for 11 lack of effort but for lack of customers willing to 12 sacrifice the utility of today's gasoline-powered 13 vehicles. 14 That brings us to the question of the ZEV 15 mandate which is scheduled to take effect in the 2003 16 model year. 17 As we look at the ZEV mandate, we have to look 18 at past results and current projections for the future. 19 Despite the large investments in electric 20 vehicles and battery technology made by General Motors 21 and others, the past results have not been favorable in 22 terms of sales, and both current and projected costs of 23 electric vehicles remain far greater than those of 24 conventional gasoline vehicles. 25 You have seen this table before. I would PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 306 1 point out that even in the latest Battery Panel report 2 concluded that the hoped for cost and performance 3 breakthroughs for advanced batteries have not come to 4 fruition and are not expected to do so in the 5 foreseeable future. 6 I would also point out that today, because of 7 the aggressive LEV II standards adopted by this Board 8 in 1998, and the resulting additional emission 9 reductions required of conventional gasoline vehicles, 10 the incremental ZEV benefit has dropped to about two 11 tons per day. 12 This is a testimony to the significant 13 advancement in emission controls on conventional 14 gasoline vehicles. 15 While the ZEV mandate is predicted to slightly 16 reduce vehicle emissions, that is absent any change in 17 fleet turnover, and that is why we felt it was 18 necessary to commission National Economic Research 19 Associates and Sierra Research to model the impact on 20 fleet turnover and subsequentive emission productions, 21 and that presentation was made to you this morning. 22 The study assumed that the State would not be 23 able to provide sufficient subsidies on electric 24 vehicles to offset the added $20,000 to $25,000 cost 25 per vehicle stated in the staff report. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 307 1 It is clear to achieve the ZEV mandate, the 2 high ZEV costs must be subsidized, because people are 3 not willing to pay a premium for them, as shown by 4 several testifiers before, and that when a manufacturer 5 cross-subsidizes, the most rational economic way to do 6 so would be to across the base which creates demand, 7 across the passenger car, LDT market. 8 If you subsidize $20,000 across those 9 vehicles, that means you increase the price of those 10 vehicles by about $2,000 a piece, one-tenth of $20,000. 11 Such price increases would decrease new 12 vehicle sales. Many, many cases showing the impact of 13 price increase versus sale elasticity, causing older 14 vehicles to stay on the road longer, and the net impact 15 of the ZEV mandate on vehicle emissions would not be a 16 two ton per day increase or decrease but instead could 17 be up to a 22 ton per day increase in ROG plus NOx in 18 the South Coast in 2010. 19 As reported, the NERA-Sierra study looked at 20 other scenarios as well as that base scenario, but in 21 all scenarios there was an increase in emissions 22 through 2020. 23 Both the $1.8-million per ton cost 24 effectiveness calculation that has been performed for 25 you before and the implications of the NERA-Sierra PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 308 1 report have implications. 2 As you know, all of you on the Board, 3 California enabling legislation requires the Board to 4 choose the most cost-effective combination of control 5 measures in achieving air quality goals. 6 Aside from the legal implications of these 7 levels of cost-effectiveness for the ZEV mandate, what 8 perhaps should be even more troubling for this Board 9 are the policy implications for future rule makings. 10 If this Board maintains the ZEV mandate, it 11 will have established a new and a very expensive 12 standard for cost-effectiveness, for what is acceptable 13 cost-effectiveness for the Board. 14 Thereafter, any control measure that comes 15 before the Board that has a cost-effectiveness of less 16 than $1.8-million per ton, will have to be adopted, 17 because that is the level that you will have 18 established as acceptable. 19 The Board needs to consider whether this is in 20 the best interest of California citizens and of the 21 economy of California. 22 For example, at the $1.8-million per ton 23 cost-effectiveness, to project a two tons per day 24 benefit in South Coast, would cost over $1.3-billion 25 per year. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 309 1 Surely there has got to more cost-effective 2 ways for the South Coast citizens to cleanup the air, 3 and the recently announced AQMD-GM Community Clean Air 4 Partnership is just one example of the types of things 5 that we can do. 6 If the South Coast had to spend even a million 7 dollars a ton to eliminate the entire 2,000 tons per 8 day of ROG plus NOx in the Basin, the cost to its 9 citizens would approach $750-billion a year. 10 This is very, very expensive way to control 11 emissions. 12 I told you at the beginning of my presentation 13 that I would finish with a recommendation of where I 14 believe we should go from here. 15 With the knowledge from the staff report and 16 from EMFAC 2000, we have a unique opportunity to work 17 together to develop a new approach to the ZEV issue. 18 We need to develop a new way to address the 19 issue, and we want to develop that in the context of 20 the ZEV mandate. 21 We need the Board to encourage the staff to 22 work with the stakeholders to develop a more 23 cost-effective approach to deployment of an advanced 24 technology vehicle, including ZEVs, as provided by the 25 ZEV mandate. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 310 1 We must work together to create sustainable 2 markets. The societal benefit of clean air can only be 3 achieved if we put advanced technology into daily use. 4 This requires creating a valuable proposition for 5 customers. 6 I encourage the Board to pursue this approach. 7 For our part, the industry intends to proceed and GM 8 commits to continue pursuit of advanced vehicles and 9 improved fuels as demonstrated by urban buses, hybrid 10 full-size trucks and the recent announcement on 11 gasoline reform breakthrough. 12 In summary, it does not take a ZEV mandate to 13 continue the progress. It takes cooperation and all of 14 us working together for us to make that progress. 15 Thank you. 16 CHAIRMAN LLOYD: Thank you very much, Sam. 17 This may be the last time for any of us to 18 make a comment to you or ask a question. 19 BOARD MEMBER CALHOUN: Sam, since this is 20 going to be your last appearance before the Board, I 21 cannot resist the opportunity to ask you a question. 22 Your next to last statement, industry commits 23 to the same or better ZEV, does that consider the 24 long-term expected benefits from the ZEV? 25 MR. LEONARD: Certainly 2020, according to the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 311 1 staff report, long-term is three and a half tons. 2 If you had 50 percent ZEVs, it would be nine 3 tons. We'd work hard to make that up and work with the 4 Board and staff to do that cost-effectively, and that 5 could be achieved. 6 CHAIRMAN LLOYD: Thank you. 7 BOARD MEMBER DeSAULNIER: When some of us were 8 back with you before the LEV II, we went in and looked 9 at the marketing direction, and I believe you were in 10 the room, and you gave an outline historically of how 11 long it would take, and we talked about computers, cell 12 phones, and he was telling us, this is going to take a 13 long time, at best, it takes ten years. 14 From history and the commitment from the top 15 executives, there was acknowledgment that it was a 16 long-term commitment. 17 What is happening? Is it that you feel like 18 you can't get past the price issue? 19 MR. LEONARD: A couple of things. 20 One happened before that, as you know, when we 21 originally announced that we were going to do EV-1, and 22 we had assumptions on where the price of the battery 23 and material and vehicles were going, that have not 24 come true, despite the millions of dollars that have 25 been invested, a billion on our part to drive it down PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 312 1 to be competitive. 2 The staff said they estimate that a $20,000 3 premium, for conventional today, I think that estimate 4 is low. I think it is low. 5 You can only subsidize internally in fairness 6 to the shareholders because you owe them return on 7 investment. 8 So long before you have to stop, especially 9 when you do not see yourself getting over the curve, 10 where you start making money on the product, the 11 introduction of the other technologies, microwaves and 12 so forth, when they first came out, they cost -- they 13 were priced at what they cost. They were $1200, $1500 14 a piece for a microwave oven. 15 You are asking us to price well below cost and 16 make a 10 percent level. That is too much for the 17 manufacturer to lose and too much burden for the 18 shareholder and market value, and California's Pension 19 is one of the shareholders, and they do not want us to 20 give away the -- 21 BOARD MEMBER DeSAULNIER: Apparently, the 22 return is good. 23 CHAIRMAN LLOYD: On that point, they would 24 like to gain market share rather than lose. 25 BOARD MEMBER DeSAULNIER: I would like to get PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 313 1 at -- is there a market, and can you develop it, and 2 how long? 3 Like microwaves, how much did it cost and will 4 it come down? Can you make a business plan? 5 MR. LEONARD: They are the same issue. 6 I develop a market for ZEVs, if I price them 7 for $5,000 a piece, I sell them and make a 10 percent 8 share at $5,000 a piece, but if they cost me $25,000 a 9 piece, I cannot ask the shareholders to eat that. 10 BOARD MEMBER DeSAULNIER: The market is 11 dependent on the cost and range, and you do not see any 12 future? 13 MR. LEONARD: I do not see the breakthrough. 14 You are not into a profit situation. We are 15 in a loss situation. 16 CHAIRMAN LLOYD: It would be helpful when Mr. 17 Stempel comes on, as he has a unique perspective. 18 BOARD MEMBER RIORDAN: Congratulations on your 19 requirement. 20 Also, please take back the message to GM, I 21 think it is commendable that you are partnering to do 22 the research as necessary on the batteries and those 23 types of things. 24 I really thank you for any other efforts that 25 you are doing, because I think that is critically PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 314 1 important. 2 I might not have said that to others, but you 3 are retiring, so I get to say it to you. It is 4 important that you work and look at all aspects, 5 regardless of what the hurdles are. 6 R and D is very important to succeed. 7 MR. LEONARD: We have extensive R and D 8 programs on fuel cells on which there will be 9 announcements of breakthroughs. 10 CHAIRMAN LLOYD: Thank you for your efforts 11 over the years. 12 Again, we have had spirited discussions, and I 13 appreciate you coming forward. 14 One area on the last thing, you offered to 15 work closely with us without a mandate, and yet 16 performance, in all honesty, EV-1 and 2, there is a big 17 credibility gap. 18 I hear you, but the response is disappointing. 19 I have one speaker who has to go on before Mr. 20 Stempel. 21 MR. LEONARD: One of the inherent properties 22 of nickel-metal hydride batteries is that if it sits 23 around and is not charged for approximately 30 days, 24 that battery goes dead, and it is irreversible, it is 25 dead. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 315 1 Those batteries today are worth $50,000 a 2 piece in items of being in the vehicle. We had two 3 incidents of failure that potentially could have caused 4 fires. We had no choice, we were not going to be a 5 fire starter, so we got the vehicles out of the hands 6 of the customers. 7 CHAIRMAN LLOYD: I hear you, and again, I 8 commend you for your offer to work together with the 9 staff to develop more trust. 10 MR. LEONARD: I ask the Board to direct staff 11 to work with us, and by us, I mean all the 12 stakeholders. 13 BOARD MEMBER BURKE: Mr. Chairman, I agree 14 with you. 15 A couple of months ago, because our experience 16 had been similar, but I have to say this, General 17 Motors has been in the South Coast for eight months on 18 various projects which have shown a complete turnaround 19 as far as my perception. 20 I am the guy who got up and walked out of a 21 meeting on the top floor of the Renaissance Center 22 because I was insulted and left the Chief Financial 23 Officer there, and everyone was in a huff. 24 I'm telling you some of the out-of-box 25 thinking that they have brought to us over the last six PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 316 1 or seven months, I'm not saying kill the mandate, but 2 I'm saying I hate to see Sam go, because I think he was 3 an integral part in remolding of the thinking there at 4 the headshed, but there were other people around that 5 will carry your march forward, and I think that the 6 people of California will be better by the ZEV mandate 7 and the out-of-the-box thinking by you. 8 CHAIRMAN LLOYD: I do not know what 9 out-of-the-box means, but we have a responsibility to 10 the total environment here, that is what we are looking 11 at. 12 I wish you good luck. 13 MR. LEONARD: Depending what you have on the 14 December Board meeting -- 15 CHAIRMAN LLOYD: Is that as Santa Claus? 16 BOARD MEMBER McKINNON: I was going to keep it 17 short, so have a great retirement, if we do not get to 18 see you or get a chance to say so later. 19 CHAIRMAN LLOYD: Thank you very much. 20 By the way, the next witness, I apologize to 21 Mr. Chris Noram for Diane Feinstein, I did not realize 22 that you were here. 23 MR. NORAM: Briefly, I know you have got of 24 lot of reading material, but I would direct your 25 attention to the letter signed by the House PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 317 1 Representatives and Congressmen, making several key 2 points. 3 One is that the Clean Air Act and the Federal 4 funding, the Senate is in strong support for and an 5 integral part of that. 6 I really wanted to make that quick point and 7 thank you for your time and everyone's diligence. 8 CHAIRMAN LLOYD: Thank you. Thank the Senator 9 and her colleagues. 10 Mr. Stempel. 11 MR. STEMPEL: I appreciate the opportunity to 12 appear today. 13 Electric vehicles are fun to drive, safe and 14 practical and can be an effective part of 15 transportation and an alternative to the 16 gasoline-powered vehicle. 17 That said, I'm the Chairman of the Energy 18 Coalition. The Board is aware of my prior experience, 19 and I am not supportive of mandates for technology 20 forcing means or change, but once in place, I am 21 definitely not in favor of changing one decision back 22 and forth, because it increases the uncertainty among 23 the manufacturers and suppliers. 24 It's been ten years since the original 25 mandate, 1990. What don't we know? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 318 1 We have studied them. The market has been 2 studied. It's been analyzed. 3 Today they are available. EVs only have to 4 have some effort to get them started. 5 They can be battery now and eventually fuel 6 cell. 7 Let's just focus on the reported disadvantages 8 of EVs, cost of the battery and driving range. These 9 are what I've heard every day and I have heard them all 10 again. 11 Electric vehicles cost, without the battery, 12 is reported to be equal to an internal combustion 13 powered car. 14 The analysis without batteries for EVs should 15 cost less. Why less? 16 Start with the gasoline-powered car. We keep 17 the wheels, tires, brakes, steering, suspension. That 18 is similar between the two. 19 EV case, there is costs, electric power 20 steering, electric window, window glazing to reduce the 21 solar heat and lightweight, and they are going into the 22 gasoline powered vehicle. 23 So far, the vehicles are even. See what is 24 not in an EV. No internal combustion engine, no 25 transmission, no evaporative control, no catalytic PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 319 1 converter, no fuel, no electronic ignition and 2 management system. 3 Now we have to add a few. Electric motor, and 4 usually they are lower cost compared to the basic, and 5 the reduction and fewer gears than manual electronic 6 motor, probably less than an entire control system, so 7 the car itself should be less costly than similarly 8 comparable conventional when produced in volume. 9 The vehicle cost is without the battery. What 10 about the battery cost? 11 In spite of the lack of industry enthusiasm 12 for EV mandate changes, the battery companies continued 13 the develop with the nickel-metal hydride family of 14 batteries and develop support for the PNG program and 15 General Motors EV-1 batteries with specific energy of 16 70 kilowatt hours per kilogram. 17 We demonstrated 80 watts per kilogram and have 18 them now for OEM testing. They are showing and will 19 soon have demonstrations for auto makers. 20 We have to get going. We have a new business 21 partner for nickel-metal hydride batteries at the 22 current capacity, which is increased to 2,000 a year 23 for HEV, and with orders, guys, to 6,000 a year by year 24 2003. 25 We will soon be announcing an available full PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 320 1 line to all of the automotive potential customers for 2 use in EVs for 2003. 3 Tooling and automation will reduce cost. 4 Understand, in the automotive industry, 20,000 is not 5 many vehicles. 6 We need volume to keep our buyers interested. 7 Our suppliers cannot make the investment to bring the 8 costs down. 9 When you buy the car, why not pay as you go, 10 spreading the payment over years. 11 Finally, the recycling responsibility and 12 recycling life of the battery, we are going to 13 investigate these and other methods too. 14 It is getting harder to keep the suppliers 15 interested. It is coming. They say it is Christmas, 16 and I would rather do business today and not build an 17 EV, but we know normal things that we are doing, 18 continuous improvement, cost reduction, we cannot start 19 those programs without continuing volume flow. 20 If we heard one thing over the years and in 21 the papers and repeated, of course, the problem with 22 EVs is that they do not go forward enough on a single 23 charge. 24 If you do not drive or do not like them, you 25 may not like the facts. Most EV drivers report a range PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 321 1 of 150 to 160 miles daily drive, which is more than 2 adequate for the battery, according to most of them. 3 If you think about it, you drive a lot of 4 miles a day, given the hours spent in the car, in spite 5 of more people, but the average vehicle in the U.S. 6 travels less than 50 miles a day. 7 There's a lot of room for EVs. EVs are 8 superior to gasoline. If you think about the city 9 deliveries and United Parcel, as Ford mentioned the 10 Post Office, home to work, work to home commuter, 11 second car and shopping, stop and go driving, the EV 12 has reduced maintenance and lower costs in addition to 13 societal advantages of no emissions. 14 The average gasoline-powered car can carry 15 enough to go 350, and not every tank gives you that 16 range. 17 In 1998, in Manhattan, a GEO metro, on a 18 nickel-metal hydride battery, stop and go, New York 19 driver, went the equivalent of 246 miles, and the 20 gasoline 120. 21 Range is not always range. Under the 22 conditions, EV shows up, stop lights, the motor is not 23 running, not emitting, no heat restriction, no noise, 24 and you gain with regenerative braking. 25 If you have not figured it out, I am partial PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 322 1 to the electric vehicles and their potential role that 2 they play in the nation. We recognize that the 3 competition is good for affordable cars, and we are 4 competing with them, not bringing it in to compete with 5 a horse, but we hope today to make the EV competitive. 6 We need to get generations 3 and 4 on the 7 road. It is time for the new vehicles to get out. 8 We are learning more today. Charging 9 infrastructure, cost, service network, we are nearly in 10 the stages of development where we see hundreds of 11 customers, and that was in 1994. 12 We have learned a lot in six years since this 13 hearing, and we have accomplished most of the tasks, 14 and importantly, we have the vehicles in daily customer 15 use that are meeting the customers needs. 16 Is there still more to do? 17 Yes. 18 Let's get started. Just as ICE vehicles 19 improve, so will EVs in production. 20 I urge the Board to maintain 2003 mandate. 21 Chairman Lloyd, I thank you for the 22 opportunity to appear before the Board. I will be 23 happy to answer questions. 24 CHAIRMAN LLOYD: Thank you very much. 25 Thank you for the time and coming out. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 323 1 We are going to take a moment while the court 2 reporters change. 3 (Thereupon a brief recess was taken.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 324 1 CHAIRPERSON LLOYD: I we get started please. I'd 2 like to announce that the Board is scheduled for food 3 here. We're going to take a break at 5:30 for 4 approximately half an hour so that people can get an idea. 5 So technically we'll take a break at that time, eat and 6 then come back around 6:00 o'clock. 7 So we'd like to continue and welcome Dave Freeman 8 very well recognized here and a great leader down at Los 9 Angeles Department of Water and Power. Of course, a big 10 supporter of what we're trying to do. 11 MR. FREEMAN: Well, thank you, Mr. Chairman. I 12 just wish my name were David Friedman, I might pick up a 13 couple more votes here. 14 (Laughter.) 15 MR. FREEMAN: But my name is Freeman and I'll 16 stick with it for the time being. 17 I have been a participant in the march of 18 progress of electric cars for a long, long time. When I 19 was the chairman of the Tennessee Valley Authority, we had 20 a test track near Chickamauga Dam near Chattanooga, where 21 we tested electric vehicles. There were fairly crude 22 models. And I remember personally burning out the clutch 23 in one of the cars that I test drove. 24 So that I see the models of today from the 25 perspective of someone who's watched this technology grow PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 325 1 and flourish. And you know what it is today, I don't need 2 to repeat it. 3 But let me ask this question, does anyone 4 including the General Motors Company seriously believe 5 that we would have had the development that we've had 6 without the very brave action of this board in 1990 to 7 create the mandate? I don't think anybody does. 8 (Applause.) 9 MR. FREEMAN: I think that's beyond dispute. And 10 I've had the privilege of testifying before the CARB board 11 in 1990. I was the newly arrived General Manager of the 12 Sacramento Municipal Utility District. And let me just 13 say to you, with all due respect to the awesome 14 responsibility you have, those folks showed courage. The 15 members of that board in Jan Sharpless and Jim Boyd and 16 the people that put on that presentation, they had a faith 17 that was larger than this room, because the technology 18 wasn't there. 19 The problem was there and they knew that they 20 needed to develop the technology to help solve the 21 problem. The task you have before you is, with all due 22 respect, relatively modest compared to the awesome tasks 23 of imposing the mandate. You have seen the progress that 24 has occurred under this mandate. And, frankly, the folks 25 appointed by Governor Deukmejian and Governor Wilson have PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 326 1 brought this ball game down to about the five yard line. 2 And I realize these last five yards are very difficult. 3 But you have a heritage of courage and devotion 4 to air quality as you sit on this board. And I know each 5 and every one of you are going to live up to the awesome 6 responsibility you have, because it ought to be joyous. 7 We have moved very far, and I'm speaking not as 8 somebody that's a member of the Sierra Club or somebody 9 that's just talking, we are a big customer of electric 10 vehicles. And let me tell you, we can't buy enough of 11 them. I mean we hear people from the automobile industry, 12 but they're appearing before you and talking about the 13 problem of marketing. Well, they're not making enough of 14 them. I am ready, willing and able with the money to buy 15 more electric cars, and I can't get them. Our electric 16 vehicles are all over Los Angeles on demonstrations. They 17 stir up tremendous interest. People want to buy them, and 18 they're not available. 19 Now, I'm talking like a guy -- when I was 20 Chairman of TVA, the General Motors Company, the CEO of 21 that company sent me a personal letter guaranteeing that 22 there'd be an electric car in every GM showroom in 1980. 23 (Laughter.) 24 MR. FREEMAN: The GM policy on electric cars was 25 vividly demonstrated in the testimony just now. It comes PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 327 1 and goes with the guy in charge. When Mr. Stempel was in 2 charge, you had one policy. You've had different policies 3 since, and you don't know what the policy will be 4 tomorrow. 5 You have to keep this mandate intact and go the 6 course, because otherwise it's not going to happen. Do 7 you think that the companies will be putting the money in 8 the fuel cell, which they all proclaim is going to do it. 9 It wouldn't have happened without this mandate. 10 You have got something to be very, very proud of, of the 11 work of this board, which has been the leader in the world 12 on advancing air quality. And this is, I think, your 13 finest hour. 14 Now, we have been your partners. We have put in 15 over 350 public charging stations in Los Angeles, 16 California. We have built the infrastructure to 17 accommodate the large scale use of electric vehicles. You 18 know, sorry about the fact -- 19 (Thereupon the lights went out.) 20 CHAIRPERSON LLOYD: See what's happened to SMUD 21 since you left. 22 (Laughter.) 23 MR. FREEMAN: Yeah. They're just jealous because 24 we're making money down there. 25 (Laughter.) PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 328 1 BOARD MEMBER RIORDAN: They just turned off the 2 electricity. 3 MR. FREEMAN: But we're not shooting in the dark. 4 (Laughter.) 5 MR. FREEMAN: We put in an off peak electric rate 6 many, many years ago. I think we were the first in the 7 country. We'd charge one-third of the regular rate for 8 battery charging at night, and I think that what's missing 9 in this dialogue about the market and the availability is, 10 one, I don't think that the automobile companies are 11 telling you that there is a waiting list for electric cars 12 in Los Angeles, California. And they're not pointing out 13 that they know how to sell a car. 14 Cars are not sold just on price. They're sold 15 with something called advertising. And the minute that 16 you see a sustained, not just a few ads, but a sustained 17 television ad program in prime time for electric cars like 18 you've seen for the SUVs, then you'll know that this 19 industry is serious about electric vehicles, and then 20 you'll know that they are trying to live up to the 21 mandate. 22 Until that happens, this is all the same kind of 23 talk that we've heard out of the industry over the years. 24 It took a law to put seat belts in the cars. It took a 25 law to put airbags in. I took a law to get mileage up in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 329 1 the seventies through the CAFE standards and it took a law 2 to get catalytic converters on them. And it took this 3 brave Commission to get the ZEV mandate in place to begin 4 to get a whole new generation of vehicles which are 5 coming. And I think that they will come if you just stay 6 the course. 7 Let me say to you that I think if I were sitting 8 in your shoes, I look at it this way. Look at the 9 options. Suppose you have some doubt about their ability 10 to do it. If you stay the course on this mandate, what is 11 the worst thing that could happen? What is the very worst 12 thing that could happen? 13 That they may not make enough cars or not sell 14 enough cars. If they come in to you with a bunch of 15 electric vehicles in their showrooms that they can't sell, 16 I'm sure that this commission will do something about the 17 fines and penalties. It won't be a very traumatic thing 18 to do. 19 But if you do not stay the course with this 20 mandate, and you look your grandchildren in the eye, how 21 will you ever say to yourself that you did your duty. How 22 will you ever say to yourself that you saw it all the way 23 and that you know for sure that what they're saying is 24 right, that the American people don't want to buy electric 25 cars, that they just can't be sold. You'll never know PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 330 1 unless you stay the course. 2 I urge you to do so. 3 CHAIRPERSON LLOYD: Thank you very much. 4 (Applause.) 5 CHAIRPERSON LLOYD: Questions or comments from 6 the Board? 7 Thank you very much, David. 8 Next is Judy Bishop with the US Postal Service, 9 then Cecile Martin with Cal ETC and David Modisette with 10 Cal ETC. 11 MS. BISHOP: Hi, I'm Judy Bishop, environmental 12 consultant for the United States Postal Service. And I 13 just want to say that to the automakers, you know in your 14 heart of hearts it's what is the right thing to do, so 15 just do I. 16 Thank you. 17 CHAIRPERSON LLOYD: Thank you. 18 Thank you very much. 19 (Applause.) 20 CHAIRPERSON LLOYD: I appreciate the time saved 21 as well. 22 Thank you very much. 23 BOARD MEMBER DeSAULNIER: I've got a question. 24 (Laughter.) 25 CHAIRPERSON LLOYD: Overruled. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 331 1 (Laughter.) 2 CHAIRPERSON LLOYD: Took you by surprise Cecile. 3 MS. MARTIN: Yes, it did. Well, good evening. 4 Cecile Martin, Cal ETC appreciates the opportunity to 5 address the Board today on this important subject. This 6 is Cal ETC's 10th year of working to achieve the goal that 7 we set for ourselves in 1991 in response to the 1990 8 mandate. Our goal is to realize the environmental energy 9 and economic benefits that EV's can bring to California's 10 marketplace and to its driving public. And we are 11 drivers. 12 More and more of us each day take to the roads 13 with the expectation that we can go where we want, when we 14 want. In this room we all know the impacts of this 15 freedom in the form of air and water pollution. They 16 literally take our breath and sometimes our lives away. 17 As our population soars, so do our expectations. 18 Yet we are taxing an already strained petroleum supply 19 system and suffering the high prices that result. There 20 are multiple solutions to these problems. And CARB's ZEV 21 program is one very important solution. 22 The public is relying on this board to continue 23 the work of the ZEV program. I want you to know that 24 throughout these ten years and before, Cal ETC's founding 25 members and board of directors, the Los Angeles Department PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 332 1 of Water and Power, Pacific Gas and Electric Company, 2 Sacramento Municipal Utility District, Sempra Energy and 3 Southern California Energy have made significant 4 investments, more than 115 million, in EV development and 5 demonstration, in battery development as I founding member 6 of the USABC through EPRI, in infrastructure development 7 and installation, in educating customers about the 8 benefits of EV's by leasing EVs for their fleets, in some 9 cases by supporting auto maker warrantees, in some cases 10 by offering company incentives and, of course, as fuel 11 providers. 12 In a regulated utility environment and within the 13 throes of early deregulation, these companies have made a 14 business case again and again for ZEVs. To support the 15 continuation of their ZEV program, in a sense, each year 16 at budget Cal ETC companies have to ask the same questions 17 of the program as the Board will be asking today. 18 Each time, as budgets were decided in favor of 19 continuing the program, this was done with eyes wide open. 20 Although I must say that the declining number of EV's that 21 were planned by the regulation made it more and more 22 difficult. 23 I want to focus on three things that we feel are 24 important that we've learned throughout these years of 25 effort. The first is that EV technology continues to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 333 1 improve and these improvements have enabled EV's to have 2 performance attributes that are more desirable to a larger 3 number of customers and to increase the potential of wider 4 market acceptance. EVs have more potential today than 5 they did ten years ago and with public education and broad 6 marketing, consumers will learn that EVs have 7 characteristics even more desirable than conventional 8 internal combustion engine vehicles and that they offer 9 significantly lower operating and fueling costs and longer 10 life. To quote GM Vice Chairman Harry Pearce, "...EVs 11 literally last forever." 12 Second, consumer satisfaction remains high. Now, 13 for the past six years we've been able to gather EV Market 14 data from individuals who have had some experience with 15 EV's. As I'm sure you all know, it's been difficult to 16 gather market data over these years because many of us 17 tried to do it before customers had any experience at all 18 with the vehicles. 19 Now, we know of at least seven surveys that have 20 been conducted since 1996, and the results have been 21 remarkably similar and consistent and consistently 22 positive. We've just completed the update of this most 23 recent survey of EV drivers that was conducted in 24 cooperation with the Energy Commission and all of the air 25 districts that have been offering incentives for the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 334 1 vehicles. And this is updated information, which now 2 includes San Diego, so I feel like it gives a fairly full 3 statewide picture. 4 And I'm not going to read these in the interest 5 of time, but I think that the numbers are striking. And 6 people's satisfaction with the vehicles has remained very, 7 very high. They drive them every day. It's become their 8 primary vehicle. Even if they have two cars, it 9 substitutes for some of the gasoline vehicles' trips. And 10 I'm not certain that we would see this from any other 11 products in the marketplace right now. 12 Third, the number of EV's required in 2003 and 13 beyond we believe are achievable with today's technology. 14 Now, I want to look at the results of three market 15 surveys. And the first survey was conducted by Dohring 16 Company for Automotive News in 1994. They concluded that 17 16.7 percent of those surveyed would seriously consider 18 purchasing an EV. And remember this was 1994 when EVs 19 were not yet available to the public and performance 20 expectations were not as high as they are today. 21 Then in 1995 come Tom Turrentine and Ken Kurani, 22 who you heard from earlier, from the ITS that David 23 conducted a more in-depth survey. They did actual 24 household surveys with driver diaries and ongoing 25 interviews. And they came up with a potential market of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 335 1 about 15 percent, in a study called The Household Market 2 For Electric Vehicles. EVs at this time had not yet 3 broken through to the 100-mile range. 4 But this year this Dohring Company conducted a 5 market survey for Green Car Institute, and you'll hear 6 more in detail about this later, but this is a little bit 7 of a preview. They determined that the retail market 8 potential for EVs is about 12 to 18 percent. 9 And that's not all. Additional efforts on the 10 part of the Green Car Institute determined that EVs have 11 the potential to capture from five to ten percent of the 12 fleet market. 13 Now, what do these numbers look like in relation 14 to the CARB ZEV requirement, and I think you can see them 15 up there, is that if we're going to assume that the new 16 vehicle sales per year are 1.5 million light duty 17 vehicles, fleet vehicles we're estimating to be about 16 18 percent of this total. The survey results show that the 19 EV retail market potential could be 150,000 to 226,000 20 vehicles. That's quite remarkable. And the fleet market, 21 if we capture only five to ten percent of that market is 22 12,000 to 24,000 vehicles. And look at that, the addition 23 of those numbers contrasted with the 22,000 vehicles that 24 we're talking about for 2003. 25 Now, some people will criticize these numbers. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 336 1 And in no way do we say that all of these people are 2 actual buyers, but these are annual sales numbers. And I 3 think that's important to remember. And let's look if 1 4 in 7 people from the lower estimate of 163,000 vehicles 5 were to choose electric in a given year, we would easily 6 make that 22,000 number. 7 And also I want to remind you that our member 8 utilities are part of this market. Because of their EPAct 9 fuel provider requirements, as well as their interest in 10 electric vehicles, electric utilities must acquire 11 increasing percentages of EVs for their fleets. For the 12 record, California utilities would have a demand of 13 approximately 1,000 vehicles annually. 14 So here's what we know. EVs perform well and 15 continue to improve. Drivers and would-be drivers like 16 EVs and they want to see and purchase more of them. And 17 market surveys have consistently shown that about 15 18 percent of the public is interested in having their next 19 vehicle be electric. 20 We have also seen that even a small percentage of 21 the fleet market alone could absorb a great number of the 22 required vehicles that we're talking about today. That 23 being said, we have given considerable thought to what 24 regulatory conditions we think would support a future 25 market. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 337 1 CHAIRPERSON LLOYD: Cecile, you're well over your 2 five minutes here. 3 MS. MARTIN: I am? 4 CHAIRPERSON LLOYD: The red light says five is 5 up, but can you wrap up? 6 MS. MARTIN: It says three minutes and 7 thirty-nine seconds remaining on my little thing. 8 CHAIRPERSON LLOYD: That's the overtime. 9 MS. MARTIN: Oh, really. I apologize. 10 (Laughter.) 11 I apologize. We've made some points here about 12 things that we would like to have the Board consider, and 13 you have my written testimony. And I hope that you have 14 the updated version with the nice shaded boxes and the 15 correct numbers. I encourage you to look at them. 16 And then I just don't want to stop before 17 thanking staff for doing what we feel is an excellent job. 18 We appreciate the balance and the effort evident in the 19 report and that the workshop process has been a very 20 positive experience. 21 And in conclusion we just want to say that we 22 believe that the future will hold additional progress, a 23 growing market for EVs and other advanced technologies, 24 and hopefully a team effort to set this technology firmly 25 on the California roads. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 338 1 Thank you. 2 CHAIRPERSON LLOYD: Thank you. You recognize 3 that you've left Dave with one minute. 4 (Laughter.) 5 CHAIRPERSON LLOYD: But Dave before you get on, I 6 would like to just hold on a minute, because Susan Frank 7 with the Steven and Michele Kirsch Foundation has to leave 8 here, so I'd like to put her on just before you, if you 9 don't mind, please. 10 MS. FRANK: Thank you. I actually turned in a 11 card for Steve and myself. And Steve's going to be on the 12 video and I promise between the two of us, we will not 13 take up more than our allotted time. 14 CHAIRPERSON LLOYD: Which is? 15 MS. FRANK: Ten minutes, but I promise I'll be 16 efficient. We're going to do the video first. Now for 17 something completely different. 18 CHAIRPERSON LLOYD: For those of you who haven't 19 seen the recent edition of Red Herring, Steve had a very 20 nice write-up in Red Herring Magazine there. 21 (Thereupon a video presentation was made 22 by Mr. Steven Kirsch as follows:) 23 MR. KIRSCH: Dr. Lloyd and Board Members, hi, my 24 name is Steve Kirsch and I'm the CEO of Propel and Silicon 25 Valley startup developing ECommerce Software. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 339 1 Formerly, I was the CEO of InfoSeek, one of the 2 most popular portals on the Internet acquired by Disney 3 last June. I'm sorry I couldn't be there today, but I had 4 a really important business meeting that I couldn't miss. 5 I wish I could be there to tell you how much I 6 love to drive my EV1. I drive it all the time, 59 days 7 out of 60. That's no exaggeration. My wife drives a 8 RAV4, electric. Both of us have other cars that almost 9 never get driven. We're on 100 percent green power, so 10 when we drive our ZEVs we aren't polluting at all. 11 Why do we drive ZEVs? Because when I look out my 12 window at work, I can't see the mountains. It's one 13 simple thing that everyone can do to help clean up the air 14 for us and for our kids and for their kids. It's simply a 15 lot cheaper not to pollute in the first place than later 16 to clean up. 17 So why isn't everyone driving ZEVs? Several 18 reasons I think. The cars are relatively expensive, there 19 aren't enough models available and the advertising on the 20 benefits is minimal. Nobody knows that the range is more 21 than adequate, they cost virtually nothing to charge and 22 how fast they accelerate and where you can go to get a 23 ZEV. 24 Have you ever gone to the Chrysler web site and 25 looked for information on their electric minivan? It's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 340 1 not there. And the automakers have done zero to advertise 2 electric vehicles, that this is an incredible difficulty 3 for people to drive a ZEV. So when you couple that lack 4 of promotion and the benefits with the automakers telling 5 people that you can only buy one of these vehicles if you 6 qualify and then we'll put you on a wait list and there is 7 no guaranteed delivery date, is there any wonder that 8 people aren't tripping over themselves to get these 9 vehicles. 10 Even with the lame marketing, the problem is not 11 lack of demand. There are zero ZEVs sitting on the car 12 lot waiting to be purchased, zero, zilch, nada. That's 13 not a lack of demand, that's a lack of supply. 14 The automakers would argue let the market decide. 15 Well, I'm all for free markets, but there's one problem 16 with that logic, we have an air quality problem in 17 California and free markets have led us to a market place 18 that prefers SUVs over more efficient and clean vehicles. 19 The argument of ZEVs are too expensive to make 20 and economic to sell is certainly true. If ZEVs have the 21 same profit margins as SUVs, car makers would be promoting 22 ZEVs like crazy. I wish we had these economics today. 23 But you know we aren't that far away. 24 You can buy a Selectria which is a conversion for 25 under 25K. And you can buy a handmade electric car, a T0, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 341 1 a high performance hand made electric car for less than a 2 lot of luxury cars. And the T0 is a lot faster than a 3 Ferrari. 4 Society is all about imposing rules of behavior 5 so that we can all live together. For example it is 6 socially unacceptable to commit a crime like murder. Have 7 you ever read those warning signs when you pull up to a 8 gas station. Take a look next time you fill up. Gasoline 9 is toxic. The exhaust from gas vehicles isn't safe 10 either. 11 So it's very reasonable for us to regulate this. 12 In fact, I'd argue that the mandate doesn't go far enough. 13 We should only sell ZEVs in California and then we'll let 14 the market decide which models to sell. 15 So is it reasonable for us to regulate the auto 16 industry on this? Gas and car exhausts are toxic. 17 California has an air quality problem where 90 percent of 18 us live in areas where the air can be unsafe to breathe. 19 In fact, let's say we mandated 100 percent of all new 20 vehicles sold to be ZEVs. Do any of you know how many 21 years it would take before California came into compliance 22 with state and federal clean air guidelines? 23 I've asked some experts and they couldn't give me 24 an answer. In fact, they said it might be never. So to 25 me the question is not whether ZEVs are required. That's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 342 1 not the issue. The question you should be asking 2 yourselves is, is four percent ZEVs enough? 3 You know, we only need four things to survive in 4 the world, air, water, food and shelter. One of these 5 essential elements is seriously at risk here. If you 6 weaken or delay the mandate, the air will not be cleaner. 7 automakers will stop making ZEVs and consumers will not 8 have a choice of whether to make an environmentally 9 responsible purchase decision. 10 In fact, even with the ZEV program in place 11 today, you can't get a ZEV at any price. It doesn't take 12 a rocket scientist to figure out that things won't get 13 better if the mandate is weakened. So there's no question 14 in my mind that the ZEV program must continue. And the 15 really good news is that the California State Legislature 16 has finally figured out that you need a carrot as well as 17 a stick to get something done. They passed AB 71 to 18 compensate for the inconvenience and AB 206 went to 19 compensate for the higher cost of ZEVs. 20 Both just happened recently. What was the point 21 of that legislation if there are no ZEVs available? In 22 fact, with these pieces of legislation, the California ZEV 23 program now makes a lot of sense. So everything is 24 aligned now for ZEVs to take off. 25 We finally got the monetary and the non-monetary PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 343 1 incentives in place. We have the technology and we have 2 the California ZEV program. We have an opportunity to do 3 something that can substantially clean up the air in 4 California. I urge you to continue California's ZEV 5 program. It's the only chance we have if we are ever to 6 meet state and federal clean air standards. We owe it to 7 our families and to our kids. 8 Thank you. 9 (Applause.) 10 CHAIRPERSON LLOYD: Thank you, Steve, for that, 11 and also as he was saying, all this help in the 12 Legislature of actually trying to get some of the 13 incentives and getting some of the subsidies. 14 MS. FRANK: Right. And in fact, if you'll 15 indulge me for just another couple of minutes, and I thank 16 my colleagues for allowing me to go ahead of them, I just 17 want to very quickly talk a little bit about incentives. 18 I think I'm supposed to do this, so let me -- 19 most of you, I think, or some of you know about the Kirsch 20 Foundation. I won't spend a lot of time talking about 21 what we do. And Steve obviously already told you what he 22 does. But we are in the business of both grant making and 23 advocacy, and my job is as Director of Environmental 24 Programs for the foundation. 25 We talked a little bit about incentives earlier. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 344 1 Steve mentioned them in the video. AB 71 has passed. 2 It's in place. We've got all of these great vehicles now 3 able to use the carpool lanes. And unfortunately, the 4 rest of us can't take advantage of this benefit, because 5 there aren't any vehicles to be had, and so that is the 6 bad news, no vehicles available. We want to be able to 7 promote it. We'd love to be able to a