Report to/Rapport au:

Transportation Committee

Comité des transports

and Council / et au Conseil

13 October 2005 / le 13 octobre 2005

Submitted by/Soumis par :  R. G. Hewitt,

Acting Deputy City Manager/Directeur municipal adjoint intérimaire,

Public Works and Services/Services et Travaux publics 

Contact Person/Personne ressource : Ron Gillespie, Director/Directeur

Fleet Services/Service du parc automobile

(613) 842-3636 x2201, Ron.Gillespie@ottawa.ca

REPORT RECOMMENDATION

That the Transportation Committee and Council receive this report for information.

RECOMMANDATION DU RAPPORT

Que le Comité des transports et le Conseil municipal prennent connaissance du présent rapport.

EXECUTIVE SUMMARY

The Fleet Emissions Reduction Strategy, approved 2002 and updated in 2004 identified the Diesel Electric Hybrid technology as the mid-term solution in the move to a zero emission transit fleet.  Compressed Natural Gas (CNG) was examined as an option and rejected as too costly in capital investment while providing no emissions advantage as clean diesel and diesel-electric hybrids evolved.

In 2004, Enbridge, Gas Distribution approached the City Manager to propose a CNG solution for the mid-term.  Their information was incomplete and the City Manager committed Fleet Services to work with Enbridge to provide feedback and technical information to aid in developing their information.  Feedback and information was exchanged by staff over the past year.

In August 2005, a consortium headed by Enbridge, along with Cummins-Westport and Clean Energy, presented an unsolicited proposal to the City Manager and Deputy City Manager, Public Works and Services to acquire CNG buses in lieu of the diesel-electric hybrid buses being considered in the hybrid bus study for acquisition during 2007-9, citing four main reasons for doing so; financial, reliability, environmental, and directional. Their submission acknowledged the high cost and inefficiency of first generation CNG engines, but claimed that second and third generation engines altered the financial situation significantly.

Staff analyzed the information and subsequently met with consortium staff to review the source of information and assumptions.  Staff also consulted with other transit organizations and federal government bodies.  The analysis also revisited the Fleet Emissions Reduction Strategy.  The work confirmed the validity of the Fleet Emissions Reduction Strategy, even when using newer information on costs provided by the consortium, and confirmed that the diesel-electric hybrid is the appropriate technology for the mid-term solution.

Public Consultation/Input

Enbridge Gas Distribution, Cummins-Westport Inc. and Clean Energy Fuels have been consulted in analyzing the unsolicited business case.  No other public consultation or input was obtained for the business case analysis as the matter is administrative in nature.

BACKGROUND

Fleet Services has been reviewing the option of CNG buses for Ottawa since undertaking the analysis for the Council approved Fleet Emission Reduction Strategy (FERS) in 2002.  The 2004 FERS update reconfirmed that CNG was not the preferred alternative as a mid-term solution in moving toward the prime strategic objective of zero-emission buses.  In the transit industry, most transit organizations with CNG experience (eg Toronto, Brampton, New York, Washington, Mississauga, London, Waterloo, Burlington, Cornwall and Hamilton) are procuring clean-diesel or hybrid buses rather than continue their CNG programs.  The only Canadian exception is Translink in British Columbia.  Transit organizations claim substantial initial infrastructure and ongoing maintenance costs for CNG buses in comparison to other options.

In summer 2004, Enbridge presented the City Manager with a request for the City to consider the purchase of compressed natural gas (CNG) buses for revenue service in Ottawa.  At that time the data presented was inadequate for an informed decision to be made and the City Manager agreed that Fleet Services Branch would provide information on fleet needs to Enbridge to enable them to develop their costing model.

In late November 2004, Enbridge presented Fleet Services with their initial life cycle cost (LCC) model for CNG buses, benchmarked against both conventional diesel and hybrid diesel-electric buses.  Fleet Services held discussions with Enbridge pertaining to their costing model.  Subsequently, Fleet Services staff undertook a review of the Enbridge material including a rough first-order approximation of the LCC model primarily to assess the methodology employed and the accuracy of the underlying assumptions.  At that time, Fleet Services identified several areas of concern and a detailed response was prepared and transmitted to Enbridge personnel in early March 2005.

Enbridge responded with a 2^nd revised and clarified analysis in April 2005 and again requested that Fleet Services review their updated model.  In May 2005, Fleet Services staff met with Enbridge in Ottawa to discuss the Enbridge model further.    Meanwhile, results from the Hybrid Bus Feasibility Study were starting to become available from National Research Council, which afforded staff an opportunity to assess costs, and in particular fuel costs savings based on actual testing of hybrid buses under Ottawa winter conditions.

DISCUSSION

Prior to finalization of the Fleet Services review of the 2^nd Enbridge submission, an Enbridge, Clean Energy, Cummins-Westport consortium made a presentation to the City Manager and Deputy City Manager, Public Works and Services indicating the City would save up to $36M Net Present Value (NPV) if 226 Compressed Natural Gas (CNG) buses were purchased instead of the planned 226 diesel-electric hybrids.  The consortium presentation in August 2005 focused on four main reasons for accepting its proposal:

1.      Financial

2.      Reliability

3.      Environmental

4.      Directional

These issues were examined and related to the Fleet Emission Reduction Strategy (FERS) that lays the groundwork for pursuing the diesel-electric hybrid technology.  FERS rejected CNG for the following reasons:

·        Cost of infrastructure (initial and operating);

·        Emissions reductions can be achieved and surpassed with other technologies.

On 12 August 2005, the consortium revised its cost projections and requested a meeting with Fleet Services personnel to provide further information pertaining to their analysis.  This meeting was subsequently held on 22 August 2005.

This report examines the Enbridge consortium’s proposal based on follow-up discussions and meetings with the consortium, as well as discussions with transit organizations and government staff to confirm the sources and use of information presented.

Financial

Compared to diesel-electric hybrid, the consortium initially claimed $14M-$29M NPV savings, subsequently adjusted to $21M-$36M NPV.  Their analysis and assumptions are believed to be flawed as follows with noted effects on NPV:

·        Infrastructure Costs:  Discussions with the Enbridge consortium confirmed infrastructure costs were based on an average cost from a McCormick-Rankin study undertaken for the Toronto Transit Commission (TTC) for one garage.  As 226 buses account for 1/3 of the City’s 40-foot bus fleet, at least two of the City’s four garages would need to be upgraded as would supporting workshops.  The Enbridge Group estimated $13M for one garage; the City’s assessed minimum requirement includes two garages, a major repair workshop, and fuelling capability at a minimum cost estimate of $33M based on the most recent unit costs available (McCormick Rankin).   This creates a NPV change of -$20M to the consortium’s savings estimate.

·        Bus Maintenance Costs:  The Enbridge consortium advised their bus cost data was derived from a Cummins Westport journal publication report on Pierce Transit reflecting one year of new fleet operations.  Reported operating costs by other transit organizations (e.g. Hamilton and Washington) experienced with diesel and CNG buses reflect maintenance costs of 2 to3 times the $.14/km used in the consortium’s estimate.  For example, The US Department of Energy reports the Washington Metropolitan Area Transit Authority (WMATA), operating with the Cummins Westport engine, has maintenance costs of US$0.52/mile or CA$.39/km on 164 CNG buses.  Hamilton, also using the Cummins Westport engine, reports similar cost experience to WMATA.  Using the US DOE findings generates a NPV savings change of -$33M to the Enbridge Group savings estimate.

·        Fuel Station Maintenance:  Discussions with the Enbridge consortium confirmed that they reviewed the TTC tendered portion only of fuel station maintenance (contract costs ranged from $.029/km to $.065/km in 2001 to 2003) and not the full cost of station maintenance.  The total fuel station maintenance costs (in-house and contracted) reported by TTC are $.15/km.   These order of magnitude costs are supported by other transit operations such as Hamilton, the only major Canadian city using current CNG technology, which cites fuel station maintenance costs as a major cost component leading to their decision to cease procurement of CNG buses in 2004.  The Enbridge consortium’s estimate of $.03/km is based on their experience operating public station facilities.  The consortium’s annual maintenance costs for over 30 stations are less than the tendered-only portion of the TTC fuel station maintenance costs, indicating that transit refueling stations are significantly more expensive to operate than public sites (higher capacity, faster fill rates, larger compressors, etc are likely contributing factors).  Using TTC reported actual costs of fuel station maintenance creates a NPV savings change of -$21M to the Enbridge consortium’s estimate.

·        Total NPV Savings Impact:  Considering the above three factors adjust the consortium’s estimated savings by -$74M.  If only one facility were to be provided as per the Enbridge Group submission, the CNG implementation would still generate a net additional cost of $18M to the City.

Taking the above three factors into consideration would result in the CNG bus proposal costing the City at least $38M NPV greater than the hybrid bus option reported on by the National Research Council. Fleet Services also completed a duplication of the Enbridge consortium’s LCC model and has run a number of sensitivity cases to assess the impact of various assumptions on the net present value savings claimed.  The primary conclusion of the Fleet Services review was that the risks and costs associated with pursuing a CNG option for City buses would be unacceptably high, which is in line with recent findings from other Canadian and United States municipalities.  In staff’s opinion, not only is there a high probability of exceeding the CNG costs estimated by the Enbridge consortium, but overall LC costs are likely to be substantially higher, as compared with both conventional diesel and diesel-electric hybrid options.  The conclusion is that CNG does not present a viable financial option to the City of Ottawa.  The cost variances are summarized in Document 1 appended to this report.

Reliability

The Enbridge consortium claimed improved reliability with the latest version of the C+ engine.  Latest CNG technology users such as Hamilton indicate that the C+ engine is better than previous versions but still less reliable than diesel. The hybrid bus is approaching the reliability of diesel buses as reported by New York City.  New York City is the largest operator of hybrid transit buses and also has over 200 CNG buses in service.  Emissions solutions for diesel engines have kept pace with regulatory requirements and this trend continues with engines now meeting 2007 standards available; this trend is expected to continue to 2010 standards.  Therefore it is assessed there is no reliability advantage for CNG buses compared to hybrid buses. 

Environment

The Enbridge Group claims the CNG bus is the cleanest available environmental solution.  CNG has historically had advantages in some regulated emissions; however, the emergence of current clean-diesel technology and hybrids has significantly changed the situation.  Environment Canada and the Northeast Advanced Vehicle Consortium (NAVC), a public-private research consortium, have done extensive testing and comparison of competing technologies.  The following are considered relevant observations regarding the merits of CNG emissions:

·        NAVC reports that diesel-electric hybrids operating under severe duty cycles (assessed as comparable to those recommended by NRC for use in Ottawa) produce less emission than CNG buses;

·        Hybrid buses have an advantage in non-regulated emissions such as GHGs.  This has significant relevance in Canada that has ratified the Kyoto Protocol, whereas the USA has not;

·        CNG has no renewable fuel option such as bio-fuels.

The conclusion from this is that under the NRC recommended Ottawa duty cycles (ie high stop frequency, low speed), CNG presents no environmental benefit compared to hybrid diesel-electric buses.

Directional

The Enbridge consortium claims that CNG represents the path to hydrogen and furthermore that “all fuel cell buses will carry pressurized vessels on board and will need to be regularly refueled using essentially the same infrastructure as today’s CNG buses”.  This is not supported by current thinking in the transit business, which strongly indicates that the path to hydrogen is very unclear, whilst the path to zero tailpipe emissions is through electric propulsion systems.  Furthermore, electric propulsion technology is available now in the form of hybrid electric vehicles, and in particular hybrid gasoline-electric for passenger cars and hybrid diesel-electric for transit buses. 

By adapting hybrid technology as soon as possible, the City will have an opportunity to realize immediate operational savings, while staff gain valuable new experience with electric propulsion infrastructure.  Our recent Ottawa hybrid feasibility study[1] has shown that hybrid diesel-electric technology offers significant savings on high-stop density, low-speed routes; i.e., fuel reductions of 17% to 26% (with comparable reductions in green house gases and criteria air contaminants) as well as a significant reduction in brake maintenance costs, when compared to conventional diesel.  Consequently, current hybrid transit technology is well suited for operation in Ottawa’s congested downtown areas, and may also be ideal for a future “hub and spoke” operation centred on Light Rail Transit. 

Hybrid vehicles have the added advantage of gaining from future advances in both internal combustion engine as well as electric drive-train technologies.  Significant performance improvements in hybrid bus propulsion are likely in the near-term driven by: 

·         Smaller and cleaner hybrid bus diesel engines, meeting future, more stringent emission requirements;

·         Higher torque traction motors for the electric drive;

·         Smarter control systems permitting, for example, engine off when the bus stops;

·         More by-wire technology with electric/electronic servo systems;

·         Higher energy density batteries coupled with ultra-capacitors, to maximize brake regeneration and electric-only mode capability.

Another important factor that bodes well for hybrid diesel-electric buses is the parallel development that is ongoing for the light-duty vehicle hybrid market, which is centred on liquid petroleum fuels for the engine component, gasoline now but probably targeting the more efficient diesel engine in the future.  One only has to observe the similarities between the Toyota Prius electric drive system and the Allison parallel drive for buses to appreciate that transit will benefit by developments in the light vehicle market.  For transit application, indications are that the diesel component of the propulsion system will likely continue to get smaller and cleaner as the electric component becomes more dominant, eventually probably providing an extended range capability for zero tailpipe emissions in the electric mode.  This capability would be well suited to Ottawa’s operational mix, allowing efficient clean diesel operation on cruise portions of the transit system, where torque requirements are minimal, coupled with electric-only propulsion to launch the vehicle and for urban routes.

Without doubt, hydrogen represents the ultimate energy source because it is the simplest element in nature, invisible, odourless and non-toxic, and is potentially readily available either in water or in carbon compounds.  However, it is not available naturally in a form that can be used as a fuel, hence chemical processing is required.   Consequently, the cost–effective generation, distribution and storage of hydrogen fuel remain formidable problems that require long-term solutions.  Once hydrogen is readily available, the zero tail pipe emissions and superior energy efficiency of an electro-chemical fuel cell device that produces electricity for propulsion will give fuel cells a decided advantage over burning hydrogen in internal combustion engines.  By the time hydrogen fuel is commercially available, Ottawa’s electric propulsion expertise, gained through the use of hybrid vehicles, will make the transition to hydrogen fuel, no matter what form the hydrogen takes – solid, liquid or gas – much more seamless.

There are many potential routes to manufacturing hydrogen but a growing consensus seems to be that production of hydrogen using non-renewable petroleum-based fuels (including natural gas) will not be cost-effective or environmentally friendly.  For example, a recent study prepared for Natural Resources Canada using a “well-to-wheel” lifecycle approach concluded that for heavy-duty vehicles (including transit buses), the most competitive pathway to hydrogen mass-production would be through decentralized methanol reforming[2].  For this process, hydrogen is produced at the fuel station itself (on-site, with no distribution requirement), by reforming a liquid methanol feedstock using high temperature steam.  Other pathways included in this study were centralized hydrogen production by reforming natural gas and then distributing it to fuelling stations via pipeline, decentralized natural gas reforming at the fuel station itself, decentralized reforming of gasoline, and centralized production using electrolysis with electricity from a variety of sources.  The study normalized the results using fuel costs on a per kilometre basis, with decentralized methanol reforming 9% more expensive than baseline diesel for heavy-duty vehicles, and the next most economical process, decentralized natural gas reforming, 31% more costly than diesel.

Methods for cost effective and environmentally acceptable mass-production of hydrogen fuel are currently under development worldwide, such as the next generation high-temperature gas-cooled nuclear reactor that Japan is developing, which incorporates a thermochemical iodine-sulphur process for hydrogen production[3].  Additionally, there are other areas related to hydrogen distribution and storage where development effort is ongoing.  In gas form, existing natural gas infrastructure cannot be adaptable for hydrogen because of the unique properties of hydrogen including small molecular size leading to permeation and sealing problems, low energy density and lower compressibility at high pressure, increased flammability range, and hydrogen embrittlement/hydrogen-induced cracking in metals that come in contact with hydrogen.  Consequently, for example, Transport Canada has determined that for on-board storage of hydrogen gas, a new standard and new cylinder design are required[4].  Alternatively, to store hydrogen in cryogenic liquid form requires very low temperature cooling and insulated containers.  Hydrogen can also be stored as a solid in metal hydride form, as exemplified by the development program launched by General Motors and Sandia National Laboratories, to develop and test a solid-state hydrogen fuel for onboard storage[5]. 

In summary, there is currently no clear path to a cost-effective means for mass-producing and supplying hydrogen and to make a transit decision now favouring a CNG pathway to hydrogen is not supportable, hence carries an unacceptably high level of risk.  Conversely, electric propulsion as a means leading to zero tailpipe emissions is no longer in question and is currently available in the form of hybrid diesel/gasoline-electric vehicles that offer a compatible transition to hydrogen fuel, whenever it becomes available.

CONCLUSION

The Enbridge consortium’s proposal when analysed does not provide advantage in the mid-term - financially, in reliability, environmentally, nor directionally and therefore will not be pursued further.

CONSULTATION

Enbridge Gas Distribution, Cummins-Westport Inc. and Clean Energy Fuels have been consulted in analyzing the unsolicited business case.  No other public consultation or input was obtained for the business case analysis as the matter is administrative in nature.

FINANCIAL IMPLICATIONS

Operating Implications

The 2005 budget identified continued budget pressures for 2006 and 2007, even after considering rate of inflation increases in fees and service charges and taking into account assessment growth from new properties.  Without adding any new programs or capital projects, the 2006 tax increase is estimated at approximately seven percent.

As in the 2005 budget, there are basically four means of funding additional program requests:  identifying new sources of revenue, offsetting program reductions, increasing existing fees, or increasing taxes.  Operating costs in excess of those predicted by the Enbridge consortium of $54 million over the life cycle of the vehicles would likely be offset by an additional tax increase.  These operating costs could result in as much as $3 million yearly operating pressures and a  resulting additional tax increase of 0.4 percent on an annual basis.

Capital Implications

The purchase of 226 growth and replacement buses between 2006 and 2008 was identified in the Long Range Financial Plan and the 2006–2014 Capital Forecast.  The adoption of CNG technology, however, is not within the available envelopes identified in the 2005 budget documents without displacing other existing projects due to $33 million in anticipated initial start up costs. These costs would be offset by $27 million between 2006 and 2008 due to the fact that a CNG bus is approximately $120,000 less expensive than a the budgeted cost of a Hybrid.  The residual $6 million would remain outside the available envelope.

SUPPORTING DOCUMENTATION

Document 1 – Enbridge Group Proposal Savings Analysis

DOCUMENT 1

ENBRIDGE GROUP PROPOSAL SAVINGS ANALYSIS

The Enbridge Group proposed CNG versus diesel-electric hybrid net present value (NPV) savings: $21 to $36 million (formerly $14 to $29 million).  The following table begins with the Group’s upper bound of predicted savings of $36 million (shaded grey) and applies McCormick-Rankin infrastructure information, US DOE (WMATA) bus maintenance information and TTC fuel station maintenance information to the predicted savings (shaded yellow). This quickly erodes the predicted savings to an additional life cycle cost of about $38 million over diesel-electric hybrid buses.

[1] National Research Council Canada, Hybrid Diesel Electric Bus Technology and Feasibility Study, August 2005.

[2] Tax Policy Services Group of Ernst and Young, An Economic Analysis of Various Hydrogen Fuelling Pathways from a Canadian Perspective, a report for Natural Resources Canada, 29 October 2003.

[3] Society of Automotive Engineering, Hydrogen Power for the Masses, AEI January 2005.

[4] Transport Canada, Compressed Hydrogen Gas Vehicle Cylinder Development, TP 13023E.

[5] Society of Automotive Engineering Advances Towards Hydrogen Storage, SAE OHE March 2005.