980 N.

Michigan Suite 1277 Chicago, Illinois 60611

Traverse City Chamber of Commerce

Natural Gas Vehicle Feasibility Study

Final Report

July, 2012

TRAVERSE CITY AREA CHAMBER OF COMMERCE: NATURAL GAS VEHICLE FEASIBILITY STUDY

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OVERVIEW The Traverse City Chamber of Commerce commissioned this analysis to determine the feasibility of converting the bus fleets operated by the Bay Area Transit Authority (BATA) and Traverse City Area Public Schools (TCAPS) from conventional fuel (e.g. unleaded gasoline and diesel) to compressed natural gas (CNG). The elements that were addressed include: Economic Feasibility, projecting operating and capital costs and savings over a ten-year period, 2013 to 2022. To complete this analysis, historic and projected prices of the various types of fuel were examined and adjusted for the consumption required to generate equivalent amounts of energy; order-of-magnitude capital costs were developed; and costs and savings were projected under three scenarios. One assumes private sector development of fueling facilities with costs reflected in the fuel price and all other infrastructure costs borne by the agencies. The second assumes the agencies buy fuel that is priced as a commodity and secure financing to develop all infrastructure, and the third also assumes the agencies buy fuel that is priced as a commodity while securing federal and state funding for infrastructure development. The third scenario results in the most favorable cost-savings profile. Environmental Analysis, identifying the impacts of CNG vehicles. Historically, CNG is a cleaner-burning fuel, although the margin of advantage has narrowed recently with development of clean diesel technology. Nevertheless, there is a positive impact from CNG conversion, particularly when the oldest vehicles in the fleet are converted first. Safety, assessing both health and safety factors. Compressed Natural Gas is a safe and reliable fuel technology that has already been adopted by nearly 20% of transit fleets in the United States, and numerous school bus operators as well. With the proper staff training, maintenance, facilities elements, and emergency procedures, it can be operated safely and reliably. There is no apparent safety concern that should prohibit BATA and TCAPS from pursuing CNG technology. Sustainability, reviewing how CNG compares to other emerging fuel technologies. Because of its projected long-term domestic availability, its positive environmental impacts, and its success in both transit and school bus operations, CNG is a recommended technology. The CNG Conversion Plan laying out the sequence of actions required for conversion of the BATA and TCAPS fleets and organizes them into immediate, mid-term and long-term sequences, and The Final Recommendations calling for securing favorable fuel price agreements and converting the BATA and TCAPS fleets to CNG.

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TABLE OF CONTENTS ECONOMIC FEASIBILITY .....................................................................................................................................................................................1

Cash Flow Analysis 1 .................................................................................................................................................................................................. 2 Cash Flow Analysis 2 .................................................................................................................................................................................................. 3 Cash Flow Analysis 3 .................................................................................................................................................................................................. 5

ENVIRONMENTAL ANALYSIS ...............................................................................................................................................................................7 CNG SAFETY ANALYSIS ...................................................................................................................................................................................11 SUSTAINABILITY ANALYSIS ...............................................................................................................................................................................15 CNG CONVERSION PLAN ................................................................................................................................................................................19 FINAL RECOMMENDATIONS .............................................................................................................................................................................22

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ECONOMIC FEASIBILITY In considering the question of economic feasibility, it is important to understand the peculiarities of funding transit systems. The U.S. Department of Transportations Federal Transit Administration (FTA) provides funding for capital investments, and generally, this funding is matched by the State of Michigan. Under most circumstances, 80% of capital funding is provided by FTA, and 20% is provided by the state. In some circumstances, where the state does not have adequate funds, or when the local agency wishes to accelerate a project or provide an extraordinary match to gain a higher priority in the competition for increasingly scarce federal funds, that local agency may provide some or all of the total required funding. Of course, BATA strives to take full advantage of available federal and state funds. There are no comparable funding programs that benefit TCAPS, so TCAPS is fully responsible for all capital investments in the school bus system. In this analysis, capital costs include the bus fleet, any modifications that are required for the maintenance facilities, and fueling stations. However, in one of three scenarios, fueling stations are excluded from the capital cost analysis since the local utility, DTE, plans to develop the fueling stations. When DTE develops the fueling station(s), the facilities costs are absorbed in the projected local distribution charges and incorporated into the fuel price projections. Approaching these costs in this manner means that they are shifted from the capital side of the ledger, with the potential for 100% federal and state funding for BATA, to the operating

budget. A practical advantage is that the utility company assumes all responsibility for engineering, installing and maintaining the fueling facilities, essentially establishing a public-private partnership. Disadvantages to this approach include the probability that CNG-related savings are deferred to a later year and that BATAs and TCAPS operating costs are perpetually higher. Cash Flow Analysis Three scenarios were developed to examine different approaches to the economics of converting the BATA and TCAPS fleets to CNG. Under all scenarios, it is assumed that both BATA and TCAPS fleets are replaced as scheduled over the ten-year period, 2013 to 2022, and that all replacement buses use CNG. This assumption means that almost 80% of BATAs fleet will have been converted to CNG by 2022, as will over 90% of TCAPS fleet. Differing assumptions of each scenario are enumerated below. In all instances, operating costs related to CNG include fuel and the incremental (additional) maintenance costs associated with maintaining vehicles that are equipped for CNG. 1. The Cash Flow Analysis 1 apportions incremental costs to the local agency as the CNG buses are phased in. As noted above, the fuel cost calculations assume that DTE provides the CNG fueling station(s) and related facilities, with distribution charges built into the fuel cost. Even with a small number of CNG vehicles in the first year, 2013, this results in immediate fuel cost savings. However, those savings are offset by increased maintenance and capital costs that include the Page 1

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incremental cost of new vehicles and the retrofit of maintenance facilities. In this Analysis 1, the capital costs are spread over the entire 10-year period and beyond because they are based on a Federal Transit Administration report which apportions them by cost per vehicle, so these costs are incurred as the CNG vehicles are phased into the fleet. In this scenario, conversion to CNG results in total operating and capital cost savings starting in 2022.

However, it is the most expensive approach, costing BATA and TCAPS almost $6.5 million over the ten-year period. It is possible that the cost could be reduced by negotiating more favorable delivered fuel costs with DTE.

Cash Flow Analysis 1 Summary 2013 - 2022 Allocation of All Costs. Costs Incurred as Fleet Expands OPERATING COSTS Fuel Costs Proportional and Cumulative Incremental Cost (Savings) Annual Maintenance Cost - Phasing-in CNG Proportional and Cumulative Incremental Cost TOTAL OPERATING COST (SAVINGS) CAPITAL COSTS Bus Costs Incremental Cost of CNG Buses Retrofit of Maintenance Facilities TOTAL CAPITAL COST INCREMENT TOTAL NET COST (SAVINGS)
2 1

Total Costs (Savings), 2013 to 2022

($4,305,014) $4,266,558 ($38,456)

$4,508,774 $1,950,480 $6,459,254 $6,420,797

Notes: 1 Assumes indoor facilities for all buses improved as new buses are purchased 2 Total combined cost for BATA and TCAPS over ten years: $6,420,797 3 First year that BATA and TCAPS realize a total net cost savings: 2022

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2. In Cash Flow Analysis 2, CNG is priced as a commodity and does not include the utility companys facilities costs. Even with the incremental maintenance costs related to CNG, the agencies realize a net savings in operating costs immediately, starting in 2013, because of the substantial fuel cost savings. In this model, the local agencies, BATA and TCAPS, assume the financial responsibility for retrofitting maintenance facilities and developing the fueling facilities in a more realistic mannerthat is developing complete facilities with a one-time investment. This model assumes that: The investments in BATAs maintenance facility and in a central fueling station shared by BATA and TCAPS would be repaid over a twenty-year period at a compounded interest rate of 3%. The investments would possibly be funded by a local bond issue, and BATA and TCAPS would share the debt obligation of the fueling facility. Retrofitting TCAPS maintenance facility requires a relatively modest investment which is not amortized. To accurately reflect the incremental cost or savings of converting the fleet to CNG, only the incremental cost of CNG buses (as compared to conventionally-fueled vehicles) is incorporated into the summary scenarios.

substantial investment that would be made in its larger maintenance facility. Over the ten-year period covered by the analysis, BATA and TCAPS almost achieve equilibrium between costs and savings with a total net cost of about $118,000. Since the net savings become significant in the out years, it is reasonable to assume that substantial benefits follow the tenth year.

In this scenario, TCAPS begins to realize net savings in operating and capital costs as early as 2016. BATAs net savings occur later, in 2020, because of the more Page 3

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Cash Flow Analysis 2 Summary 2013 - 2022 Allocation of All Costs, Based on Current Maintenance, Storage Practices OPERATING COSTS Fuel Costs Proportional and Cumulative Incremental Cost (Savings) Annual Maintenance Cost - Phasing-in CNG Proportional and Cumulative Incremental Cost TOTAL OPERATING COST (SAVINGS) CAPITAL COSTS Bus Costs Incremental Cost of CNG Buses Retrofit of Maintenance Facilities BATA-Retrofit full facility for 60% of Fleet in 2013; 1 amortize over 20 years (@3% interest) TCAPS-Develop full 4-bay repair facility in 2013 Fueling Facilities for major central station-amortize over 20 years (@3% interest) for small Leelanau County Station TOTAL CAPITAL COST INCREMENT TOTAL NET COST (SAVINGS) Notes: 1 Remaining $222,870 principal to be amortized, 2023-2033 2 Remaining $956,130 principal to be amortized, 2023-2033 3 Total combined cost for BATA and TCAPS over ten years: $117,698 4 First year BATA realizes net cost savings: is 2020; first year TCAPS realizes net savings is 2016 $1,096,101 $615,782 $6,495,509 $117,698 $232,270 $42,583 $4,508,774 $4,266,558 ($6,377,811) ($10,644,369)

3. In Cash Flow Analysis 3, BATA takes advantage of federal and state grant programs to cover the full cost of investing in maintenance and fueling facilities that are needed for CNG, as well as the cost of vehicle procurement which includes the additional increment for buses that are compatible with CNG. A possible consequence of this approach is that the rate of vehicle replacement might be extended over a longer period to adjust for the higher cost of the buses, but the analysis has not incorporated that assumption. BATA would share access to the fueling stations with TCAPS, thus avoiding the need for a local bond issue. Since the agencies share fueling facilities now, there are undoubtedly existing systems for handling charges and apportioning costs which should constitute the basis of any agreements going forward. In this instance, the only capital investments for which a local agency would be responsible accrues to TCAPS investments in its vehicles and its small maintenance facility. In this scenario, BATA realizes immediate total net savings in 2013, while TCAPS, which does not benefit from consistently available sources of grants to offset any necessary capital investments, does not realize savings until 2016. This is the same year that TCAPS begins to realize total net savings in Cash Flow Analysis 2, but the savings are more substantial in this final Analysis 3. Clearly, the approach reflected in this third scenario, minimizing both the capital investment burden at the Page 4

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local level and the fuel costs, offers the greatest financial benefit to the local agencies, saving them over $5 million over a ten year period. It is worth noting that one other public transit agency in Michigan, Blue Water Area Transit in Port Huron, employs this approach. That agency indicates that it begins to enjoy payback on any investments within one and one-half years. Blue Waters experience is relatively consistent with the results of this analysis. Assumptions and Analytical Basis The assumptions that were used in all three of these analyses are detailed in a technical memorandum. Accompanying that memorandum are spreadsheets with detailed fuel price analyses for CNG, diesel and gasoline, as well as economic impact analyses for each of the three scenarios. The economic impact analyses lay out the costs and savings by year for the ten year period, 2013-2022, for BATA and for TCAPS. Conclusion As indicated in Cash Flow Analysis 3, there is a substantial benefit to contracting with the utility company (DTE in this case) for fuel procurement, and pursuing federal and state funding to develop the facilities necessary to converting the bus fleets to CNG. If for some unforeseen reason, federal and state funds are not available, there is still a long term benefit to funding the facilities with local resources (see Cash Flow Analysis 2). However, BATA does not begin to realize net savings until later in the ten year period, 2020.

Cash Flow Analysis 3 Summary, 2013 - 2022 OPERATING COSTS Fuel Costs Proportional and Cumulative Incremental Cost (Savings) Maintenance Cost - Phasing-in CNG Proportional and Cumulative Incremental Cost TOTAL OPERATING COST (SAVINGS) CAPITAL COSTS Bus Costs Incremental Cost of CNG Buses (for BATA, 100% funded by Federal and State Grants) Retrofit of Maintenance Facilities BATA-Full Facility Cost of $436,462 (to accommodate 60% of fleet) covered by grants TCAPS-Develop full 4-bay repair facility in 2013 Cost of Fueling Facilities
1

($10,644,734) $4,266,558 ($6,378,176)

$1,005,461

$0 $42,583 $0 $1,048,044 ($5,330,132)

TOTAL CAPITAL COST INCREMENT TOTAL NET COST (SAVINGS)

1 2

BATA installs fueling facilities using federal and state grant funds and shares with TCAPS Total combined savings for BATA and TCAPS over ten years: $5,330,132 3 First year BATA realizes net savings: 2013; first year TCAPS realizes net savings: 2016

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ENVIRONMENTAL ANALYSIS Compressed Natural Gas (CNG) is a cleaner burning fuel, historically offering a reduction in emissions when compared to diesel or gasoline. As emissions standards have recently tightened for diesel engines, though, the gap between relatively clean CNG and relatively dirty diesel has been closing, making the relative advantage of CNG less dramatic. For example, in a study of Washington Metros natural gas and diesel buses, all 2004 heavy duty transit bus models showed an 84% reduction in particulate matter and a 49% reduction in NOx emissions for CNG vehicles. However, another study of model year 2010 transit buses shows that improvements in diesel technology have eliminated CNGs advantage related to particulate matter. As emissions standards continue to evolve, new CNG and diesel engines will require increasing levels of innovation to meet standards. To comply with regulations, it will be necessary to retrofit existing vehicles. A variety of harmful emissions are regulated by state and federal law. They include: Hydrocarbons HC: Hydrocarbons are a precursor to ground-level ozone, which causes breathing and cardiovascular difficulties, and is a major component of smog. Hydrocarbons are caused by incomplete fuel combustion and by fuel evaporation. Nitrogen oxides NOx: Formed when nitrogen and oxygen react at high temperatures, nitrogen oxide is a contributor to smog and acid rain. Particulate matter PM: Particulate matter refers to microscopic solid or liquid particles found in air which

can enter the lungs during respiration. Particulate matter has been implicated in causing or exacerbating symptoms of asthma, and is the primary concern for on-vehicle passenger air quality. Carbon monoxide CO: Also caused by incomplete combustion in engines, carbon monoxide is dangerous to human health because it reduces oxygen delivery to the bodys organs and tissues.

All of these substances are considered to pose immediate local and regional threats to human health and are therefore regulated under emissions law. Yet another environmental factor related to combustion engines is Greenhouse Gases, GHG, considered to have larger atmospheric and global climatological implications. Not every substance regulated under emissions law is defined as a greenhouse gas. Unlike figures related to emissions, estimates of greenhouse gas footprints also attempt to quantify atmospheric hazards posed by the extraction, production, and transportation of the fuel. In addition to air quality impacts, fuels may have adverse environmental effects on groundwater and soil. When considering the environmental implications of using different fuel types in transit vehicles, all these factors should be considered. Environmental Comparison: Diesel, Gasoline, and CNG Environmental impacts can be divided into three categories: greenhouse gas emissions; regulated tailpipe emissions; and other environmental hazards related to storage, disposal, and spills. These three categories are discussed below. Page 7

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Greenhouse Gases (GHG) For the purposes of greenhouse gas analysis, the full life cycle of a fuel is considered. Life cycle can be divided into two categories: Well-to-tank emissions related to the extraction, refinement, and production of a fuel Tank-to-wheels engine and tailpipe emissions as well as vapors that may escape from on-board fuel tanks.

These compounds can occur at either life cycle stage, depending on the fuel type. These compounds also have different heat producing potentials. Therefore, to make comparison easier, estimates of these GHGs are converted into a common unitusually based on the heat potential of CO2and combined into a total life cycle GHG estimate. Gasoline and Diesel. For gasoline and diesel, about 20% of the total lifetime greenhouse gas emissions occur during the wellto-tank period, with the remaining 80% occurring while the fuel is actually being combusted inside an engine. Of all three fuels, gasoline has the highest total life cycle GHG footprint, at 17% higher than that of diesel. CNG. Over the entire life cycle, CNG greenhouse gas emissions are estimated to be 17% lower than that of diesel buses. About 25% of CNGs total lifetime greenhouse gas emissions occur during the well-to-tank portion of the life cycle. Regulated Tailpipe Emissions Diesel. Diesel engines have lower HC and CO emissions than gasoline engines. Beginning in 2007 with a series of regulations designed to tighten diesel emissions standards, the phase-in of these more stringent standards was completed in 2010. Therefore, a diesel engine built prior to model year 2010 is likely to compare less favorably to gasoline emissions than the newer models. While historically, diesel emissions contained more particulate matter associated with respiratory ailments among bus passengers, the new regulations remove this disadvantage almost entirely, both in post 2009 model Page 8

For all three fuelsgasoline, diesel, and CNGmost of the GHG production occurs during the tank-to-wheels portion of the life cycle. CNG has the lowest overall life cycle GHG impact of all three fuels. Interestingly, CNGs well-to-wheels life cycle portion accounts for a larger percent of its total GHG footprint than does the well-to-wheels portion of diesel or gasoline. The following chemical compounds are the most common GHGs associated with petroleum based fuels. CO2 (Carbon Dioxide): a byproduct of combustion that contributed to global warming by capturing infrared energy in the earths atmosphere N2O (Nitrous Oxide): an extremely powerful contributor to global warming, it has 310 times the warming potential of carbon dioxide CH4 (Methane): methane is the main chemical component of natural gas

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year new engines and in older engines retrofitted with a particulate matter filter. With the current model year, diesel engines maintain a slight advantage when it comes to CO emissions. Gasoline. Gasoline engines have lower levels of NOx and PM than diesel. Because gasoline engines have been meeting stricter emissions standards for a longer period of time, the technology used to control gasoline emissions is generally less expensive and has stood the test of time. Despite recent improvements in diesel technology, gasoline engines still perform better than diesel when it comes to NOx measurements. CNG. As recently as 2006 model year, CNG buses emitted less CO and NOx than diesel engines. While CNG buses still offer a savings in NOx emissions, 2010 model emissions tests show that diesel buses now emit lower CO emissions than new CNG buses. The following chart shows a side-by-side comparison of model year 2010 transit vehicles.
Emissions Comparison of 2010 Model Year Transit Vehicles Diesel Gasoline Substance g/mile g/mile CNG g/mile Carbon Monoxide Nitrogen Oxides Particulate Matter Non-Methane Hydrocarbons Life cycle Greenhouse Gas Emissions using diesel as base case 0 0.65 0 0.01 23.6 0.2 0 0.3 117% (17% higher than diesel) 21.91 0.22 0 0.02 85% (15% lower than diesel)

Storage, Disposal, and Spills Diesel and Gasoline. In most cases, a diesel or gasoline spill is considered to be contamination by a hazardous substance, although the precise rules regarding the handling of a spill vary from state to state and depend on factors such as how much fuel is spilled and where the spill occurs. According to the US EPA, diesel and gasoline are major sources of soil and groundwater pollution, primarily due to leaking underground fuel tanks. Diesel and gasoline are toxic to soil, water, and plant and animal life, and they degrade slowly. Gasoline vapors unrelated to combustion and tailpipe emissions are also regulated as these vapors contain carcinogenic benzene as well as volatile organic compounds that react with NOx to form smog. CNG. While natural gas is not itself considered to be toxic to human health, it can cause asphyxiation if at a sufficient density. Also, due to the physical properties of CNG, this fuel has a higher risk of GHG release related to a fuel spill or fuel tank failure. Methane emissions are of greater concern when it comes to greenhouse gases because, as discussed above, it has a much higher heat potential than the other GHGs.

100%

Units- Grams per Mile. Source- TCRP Report 146

Reducing Emissions in Older Model Diesel Buses An alternative approach to reducing tailpipe emissions of older diesel vehiclesrather than purchasing a new CNG vehicleis to retrofit existing diesel and gasoline engines to reduce pollutants. For diesel bus engines, there are several types of retrofit and filtration systems that can help reduce Page 9

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emissions. These retrofit options vary in their effectiveness and cost. The first option is diesel particulate filters which collect particulate matter in exhaust stream. These systems require low sulfur diesel and can be quite expensive to install. Crankcase filtration systems are placed within the engines crankcase and catch particulate matter before it enters the exhaust stream. Crankcase filters are a relatively inexpensive option, around $800 per unit, but also require more maintenance and are typically recommended for use in conjunction with an exhaust line filter as well. Since they catch particulates inside the engine, their highest value is that they do the most to clean the buss interior air breathed by passengers. Diesel oxidation catalysts cost about $5,000$6,000 and reduce particulates, hydrocarbon, and carbon monoxide emissions; they do not require specialized fuel. These technologies can be effective and reducing certain pollutants, but they cannot reduce all regulated tailpipe and life cycle GHG substances. Further, opting to retrofit older diesel buses with these filters rather than replacing the older buses with new CNG vehicles prevents the transit provider from enjoying some of the other advantages related to CNG, the biggest one being lower fuel costs. In conclusion, while the relative advantage of CNG fuel from an environmental standpoint has decreased over time, it continues to be considered a cleaner fuel, especially in terms of respiratory ailments caused by particulate matter (a major problem with older diesel models) and toxicity of fuel leaks to

soil and water. Even though a current model year diesel bus is much cleaner than the older models, replacing old diesel with new CNG results in substantial advantages over buses of model years prior to 2007. While it is possible to retrofit older diesel engines with a variety of emissions control mechanisms, these retrofits are costly and only variably effective on select pollutants. As recommended by the US EPA, the way to have the biggest impact in terms of reduction in emissions is to replace older model vehicles first, since they are likely to have the worst emissions performance in a fleet.

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CNG SAFETY ANALYSIS As a technology, Compressed Natural Gas (CNG) vehicle propulsion has been evolving over several decades. Application of CNG to transit vehicles began to gain in popularity during the 1980s and early 1990s with the advent of the clean cities and clean air movement. The American Public Transportation Association reported that 19% of the nations full size transit buses (about 12,000 vehicles) in service in 2009 were fueled by CNG. In addition, there are approximately 2,800 CNG school buses in operation. Clevelands transit system was one of the first early adopters of CNG bus fleets, beginning operation of CNG vehicles in 1991. Cleveland now operates over 100 CNG buses. Currently, the largest transit application of CNG buses in the U.S. is Los Angeles METRO with 2,500 CNG buses. CNG technology has also been embraced by Los Angeles United School District which has the largest CNG school bus fleet in the nation, with over 400 vehicles. Safety and Health Risks of CNG Compressed Natural Gas is considered to be a more volatile fuel then gasoline or diesel. CNG is stored under high pressure, around 3,600 pounds per square inch (psig), making adherence to safety specifications extremely important. When CNG is released, it is in a gaseous state, unlike other liquid fuels such as gasoline or diesel, and can release quickly and at high pressure. Due to these factors, CNG can ignite more quickly than liquid fuels, can combust at higher temperatures, will not respond to water application, and can re-ignite even after the fire has been extinguished (if the

remaining fuel is hot enough). Natural gas itself is not toxic to the health of people who are in the vicinity of a leak. The only direct health risk associated with the gas is the possibility of the gas acting in such a way as to displace oxygen from an area, causing suffocation. However, no cases of CNG leading to suffocation were found. CNG can pose a safety risk to maintenance personnel if they happen to be in direct proximity to a high pressure leak as it occurs. Personnel must be made familiar with how to safely interact with the CNG fuel system, avoiding any improper opening of valves or loosening of fittings that could cause sudden releases of pressure. CNG Bus Breakdown, Accident, and Injury Risks Because Compressed Natural Gas is considered to be a volatile compound, concerns may be raised that CNG vehicles are more likely to experience fire. This is only partially true. While CNG itself is more easily combustible than other common liquid fuels, it is also true that historic data from agencies operating CNG buses indicate that the actual occurrence of fire is about the same for CNG vehicles as for diesel vehicles. In 2009 and 2010, the National Renewable Energy Laboratory surveyed ten representative transit agencies using CNG buses and reported that the incidence of fire on a CNG vehicle is about the same as it is on diesel vehicles. Therefore, most agencies surveyed consider the occurrence of fire on CNG vehicles to be at a normal level. None of the agencies that experienced an on-board fire reported serious injury or loss of life.

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The only published report found to indicate that CNG buses have a higher safety risk than diesel buses is a study from the University of Maryland published in 2002 which performed a statistical comparison of passenger fatalities due to fire on diesel buses versus CNG buses. This study found that the likelihood of fire fatality on a CNG vehicle is 2 orders of magnitude higher than that of diesel buses. However, this study is based on predicted fire occurrences, not on historic counts of fires on CNG vehicles. Also, as the study report itself states, this is only one statistical method and is focused on one specific outcome (fire fatalities); therefore additional studies using different methods are needed in order to come to a full understanding of the true risk inherent to vehicle type. A report released by Argonne National Laboratories in 2010 states that there has been only one fatality in the United States associated with a natural gas vehicle. That fatality was the result of noncompliance with safety standards. CNG bus fires on-board the vehicles are typically caused by: Exhaust system heat that builds up and causes the ignition of adjacent materials Hydraulic system leaks on hot components such as exhaust manifolds and turbochargers Electrical-system short circuits Turbocharger failure resulting in oil leak Impact of cylinders on an elevated structure such as an overpass Operator error (brake or tire fire) or an accident. Safety Precautions and Procedures There are three key elements to insuring safe CNG vehicle operation. First, it is imperative to have properly trained staff

who consistently follow all CNG safety precautions when fueling, maintaining, operating, and inspecting vehicles and fueling facilities. Secondly, the operator must insure that all facilities are properly equipped with leak detection, fire suppression, and ventilation equipment and that all potential sources of fuel ignition are removed. Finally, agency staff as well as municipal emergency responders including fire and police departments should be briefed on the nuances of how to respond properly to a CNG leak or fire. Routine Maintenance and Inspections The cornerstone of CNG safety is thorough and timely inspection of CNG fueling systems, both on-board and offboard components. At a minimum, regular system inspections should include: visual inspections of the on-board fuel cylinders every 3 years or 36,000 miles; inspecting and draining fuel filters at a regular interval recommended by the manufacturer; changing sparkplugs every 18,000 miles (average); and inspecting hydraulic hoses and replacing if needed. The National Highway Transportation Safety Administration (NHTSA) and bus manufacturers should be consulted for a full list of maintenance requirements. Bus manufacturers must be required to provide training personnel in order to properly train staff experts. Mechanic training averages about 180 training hours. Additional training for cylinder inspection procedures averages 16 hours for two inspection technicians. Operators must also be trained on the unique aspects of CNG buses, fueling procedures, and emergency response procedures. Also, if agency staff are involved in operating and/or maintaining Page 12

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fueling facilities, the facility builder must train staff on the safe and effective use of the facility as well as how to conduct routine fueling station maintenance. Facility Modifications: Detection, Fire Suppression, and Ventilation Modifications may also be needed for vehicle maintenance and storage facilities, even if refueling does not take place there. The primary concern is the ability to detect and contain fuel leaks and to avoid fire. Because natural gas is lighter than ambient air, leaked fuel will rise toward the ceiling. It is very important to detect any gas leaks in a timely manner and have a proper ventilation system that can remove the gas from the building. To this end, it is important to have adequate ventilation at ceiling level in any area where the fuel is likely to pool. The type and configuration of the roof structure can affect the behavior of the leaked gas and the safety procedures needed. For instance, slopped roofs are preferable since they allow the gas to pool in one area of the ceiling (at the peak). Flat roofs, on the other hand, can allow the gas to spread out throughout the entire ceiling area, making it harder to vent. Also, in order to avoid the possibility that a ceiling mounted electrical fixture could ignite pooled gas, it is recommended that all electrical fixtures hang at a minimum of 18 inches or further from the ceiling. All combustion, catalytic, or infrared heaters must be sealed units and must have an outer skin temperature not to exceed 800 degrees F. Open flame heaters are not allowed within the 18 inch clearance space. Facilities should be equipped with methane detectors (to quickly detect leaked fuel).

Emergency Response Training All operating or maintenance staff should be trained on proper emergency procedures related to gas leaks, fires, and emergency facility evacuations or shut-downs. As noted previously, it is also recommended that municipal emergency response personnel including fire and police departments be trained on specific response techniques recommended for CNG vehicles. This training is usually provided by the transit agency upon the delivery of new CNG vehicles or the installation of CNG fueling facilities. Although police and fire departments typically have extensive emergency protocols for use in fires or transit vehicle accidents, it is vital that first responders know the unique behavior of CNG leaks and fires and take appropriate action. For example, if a CNG leak occurs under an overpass, vehicles traveling on the bridge could act as an ignition source for the leaked fuel. Some agencies have elected to also provide emergency responders with binders containing response procedures that can be referred to later if needed. Conclusion and Recommendations Compressed Natural Gas is a safe and reliable fuel technology that has already been adopted by nearly 20% of transit fleets in the United States, and numerous school bus operators as well. With the proper staff training, maintenance, facilities elements, and emergency procedures, it can be operated safely and reliably. There is no apparent safety concern that should prohibit BATA and TCAPS from pursuing CNG technology.

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In the event that BATA and TCAPS move forward with CNG technology, the following actions are recommended: Perform a detailed audit of all indoor and outdoor fueling, maintenance, and storage facilities to identify possible ignition sources, ventilation needs, fire barriers (such as insulation and/or fire doors) to protect adjoining facilities, and potential areas where leaked natural gas may collect. Install methane detectors and CNG specific fire suppression mechanisms. It may also be necessary to install back-up generators to insure that detection and suppression components will not fail during a power outage. Consult local building code officials for any additional required facilities modifications. Coordinate with vehicle and fueling station manufacturers to provide specific training on how to work with and around CNG vehicles and fueling equipment. Coordinate with fire and police departments to provide training and reference information for proper response procedures regarding CNG emergencies.

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SUSTAINABILITY ANALYSIS Compressed Natural Gas (CNG) is but one of several alternative fuel technologies that are available in todays market, and new technologies are continually being developed to advance fuel efficiency and environmental sustainability. Some of these alternatives are still in the demonstration phase, and some require much refinement before they could be real contenders as sources of transit vehicle fuels. The alternative fuels that have been employed or tested in various transit systems include hybrid electric, electric battery and hydrogen. Another potential alternative is dimethyl ether. Of all the alternative vehicle fuel options, compressed natural gas is most used in transit fleets in the United States. According to the American Public Transit Association, in 2009 about 19% of U.S. transit fleets ran on compressed natural gas. Because CNG technology has been used in transit applications for a couple decades now and because CNG buses offer both emissions and fuel cost savings, CNG is only growing in popularity. One of the biggest advantages to natural gas is that it is a largely domestic fuel source. Approximately 85% of natural gas consumed in the United States is extracted here. The increasing availability of domestic natural gas is due, in part, to new extraction technologieshorizontal drilling and hydraulic fracturingthat have become available in the last decade, allowing previously inaccessible pockets of natural gas to be utilized. While some controversy exists regarding the risks of these extraction methods, companies are increasingly

utilizing these methods. However, with respect to CNG, it must be noted that the majority of natural gas produced domestically comes from traditional oil well sources, not from shale sources associated with these controversial methods. In addition to mined sources of natural gas, methane is also available as a byproduct of decomposition of organic matter such as that which occurs in landfills. A technique for capturing and purifying biomethane into a form appropriate for natural gas vehicles is available and has been adopted at several waste facilities throughout the United States. However, this technology is still very new and, when compared to extracted natural gas sources, comprises a very small portion of domestically available fuel. Beyond the increasing prevalence of CNG transit fleets and the availability of domestic natural gas, another advantage to utilizing a CNG fleet is the availability of a number of state and federal incentive programs designed to encourage CNG vehicle design, production, purchase, and use. However, it must be noted that, as of this writing, the most useful of these incentivesthe $0.50 federal tax break given to transit providers using CNG fuelhas expired and has not yet been reinstated. This incentive may be renewed once new surface transportation legislation is enacted, but it is not a certainty. While some states including California, Colorado, and Utah offer incentives such as tax breaks or grants to help pay for CNG vehicles or infrastructure, no such incentives are currently offered in Michigan. These extraordinary incentives are not to be confused with the traditional federal and state grants, discussed in connection with Task 1, that are available

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for capital investments and would certainly be available for CNG vehicles and infrastructure. CNG applications in transit fleets first started to rise in popularity during the early 1990s with the advent of grassroots and government programs promoting clean air and cleaner combustion technologies. During this time, CNG engines were made more efficient by the addition of turbochargers, further helping to reduce emissions, most notably nitrogen oxide. Diesel Diesel, the primary fuel for the nations transit fleet for decades, is a tried-and-true transit technology that maintained a relatively steady market share for years. It is a very trusted and reliable technology which has recently undergone a new wave of innovation related to reducing emissions. Since about 2005, though, diesel began to lose market share as alternative fuels including CNG started gaining in popularity. Traditional diesel fuel is refined from crude oil. In 2011, a slight majority55% of crude oil consumed in the United States was extracted here. Contrast this with the fact that 85% of natural gas used in the United States is from domestic sources and it is apparent that natural gas is a more secure fuel, from a political perspective. Emerging technologies related to diesel include synthetic diesel, a diesel equivalent fuel produced from coal or natural gas, and biodiesel, which is produced from renewable plant

resources such as soybeans. However, these technologies are still very young and currently only produce fuels that are used in very small proportions as additives to traditional diesel fuel. Currently these technologies are considered to be designer fuels in that, while they may offer the possibility of more renewable diesel, are also very costly to produce, an expense which is risky given the volatility of the worlds crude oil market. It is unlikely that these synthetic diesels will soon, if ever, become an affordable viable alternative to traditional diesel. Gasoline Like diesel, gasoline is a product refined from crude oil. Gasoline is the most common transportation fuel worldwide, with about 40% of the worlds crude oil being refined into gasoline. However, due to differences in the ignition process, gasoline does not produce as much engine power as diesel, and is not the fuel of choice for heavy-duty vehicles including traditional transit buses. If there were to be an argument for increasing the use of gasoline in heavy duty transit vehicles, it would be based on the need for cleaner emissions, which have been realized with the latest 2007-2010 strengthening of emissions standards. Diesel, by its nature, is a much dirtier fuel, provoking a concern as to whether diesel engines would be able to conform to the new emissions standards. As of 2010 however, new diesel engines succeeded in meeting the tight new standards. As long as these engines prove to be reliable over time, it is increasingly unlikely that gasoline will be

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sought as a heavy duty transit fuel since its primary advantage, emissions savings, will no longer apply. Other Emerging Alternative Fuel Technologies Hydrogen Fuel Cell. While hydrogen is considered to be the long-term future of vehicle fuel, hydrogen fuel cells are far from being fully developed. Between 1998 and 2000, the Chicago Transit Authority (CTA) operated three hydrogen-powered vehicles on a trial basis, but opted not to proceed with the technology at that time because the vehicles cost $1.4 million, compared to $250,000 (in year 2000 dollars) for a traditional diesel bus, in addition to other retooling costs. In all, CTA invested over $9.6 million in the trial. Hydrogen fuel can be produced by chemically separating the hydrogen from a variety of substances including petroleum fuels, natural gas, or even water, although none of these processes has been perfected. If a technology for producing hydrogen from water can be perfected, hydrogen could hold promise as a domestic fuel source. Dimethyl Ether. Like hydrogen fuel cells, dimethyl ether is still at the experimental phase. It can be produced from natural gas, coal, or biofeedback sources such as methane associated with landfills. Potential benefits offered by this fuel could include: quieter operation compared to diesel engines; lower emissions; and a lower lifecycle greenhouse gas footprint than diesel fuel. However, there have been

very few applications of this fuel in the transportation sector. As of 2010, no U.S. transit agencies have used dimethyl ether. Further, it is difficult to predict when this technology may come online and how much it would cost the end user. Electric Battery. Electric vehicles work better in smaller vehicle applications. For instance, in the transit market, battery powered vehicles are mostly applied to the 22-30 foot vehicle size range. Also, electric buses have a shorter range before they have to be charged, and lower speed capabilities, with maximum speeds at around 40mph. While electric battery powered vehicles have zero emissions and can use electricity produced from domestic renewable sources, limitations in driving range, speed, and capital costs prohibit this technology from being a viable option in many cases. Interestingly, CTA recently (June 2012) used federal funds to award a $2.5 million contract for development of two all-electric buses that will be required to travel up to 100 miles on a single charge. Clearly, the technology development is proceeding, but the capital cost continues to be high. Electric Hybrid. Hybrid electric engines, specifically diesel hybrids, are less experimental than some other alternative technologies (such as hydrogen and dimethyl ether); however, hybrid technology is still relatively new when compared to diesel and CNG. Page 17

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Increasingly, hybrids are being applied in transit settings. Hybrids offer fuel economy and emissions savings, but require a nearly 30% higher capital outlay than conventional vehicles. While hybrids are increasing in use, they still lag far behind traditional fuels and CNG in terms of number of fleets using hybrids. Again using CTA as an example, the agency bought 20 hybrid buses in 2007, and was authorized to lease another 150 buses in December 2008. These buses were expected to achieve an annual operating cost savings of $60,000 per vehicle, including a 77% improvement in energy efficiency. Clearly CTA, an agency that continues to experiment with alternative fuel vehicles to save costs and achieve air quality improvements, was pleased with the performance of its initial 20-bus procurement and elected to acquire more hybrid vehicles. Benefits that accrue to agencies the size of CTA with its 1,800 bus fleet, however, do not necessarily apply to the Traverse Bay area where the scale and characteristics of operations are entirely different. They are cited, though, because this Chicago agency continues to explore alternative fuel vehicles and to collect both experience and data pertaining to their characteristics. In sum, based on the domestic availability of CNG, its predicted long-term future availability, its relatively low cost and beneficial air-quality impacts, as well as the positive experiences of bus fleet operators using CNG, converting the

BATA and TCAPS fleets to CNG would be a responsible use of public funds.

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CNG CONVERSION PLAN The elements of the CNG Conversion Plan are implicit in the economic feasibility analysis. The critical elements of infrastructure related to conversion include buses, maintenance facilities and fueling facilities. In every scenario, the economic feasibility analysis assumes that all buses in the BATA and TCAPS fleets would be replaced as scheduled, and that all replacement buses would be CNG vehicles. TCAPS, which has a fleet of about 100 buses, strives to replace about 10% of the fleet each year. BATA has about 75 buses (potentially 78 with expansion), including the 22 new buses that were delivered in 2012. BATAs buses are replaced when the vehicles have reached the end of their useful life, typically between eight and twelve years. Scheduled replacements of both fleets are summarized in the chart below.
Scheduled Bus Replacements, 2013 - 2022

For BATA, and primarily for logistics reasons, the last part of the fleet to be converted should be the buses assigned to operate in Leelanau County. In this analysis, developing a fueling station in Leelanau County would be deferred until 2021, but of course, that could change with local preferences. Refitting the existing bus fleets with CNG-compatible fueling systems is not recommended because of the cost and the operational complexity of removing vehicles from active service. Following the recommended approach of procuring CNG equipped buses on a normal replacement cycle permits an orderly phase-in. It also allows time for maintenance personnel to become familiar with proper procedures for maintaining and repairing these vehicles. Finally, a gradual phase-in of the CNG fleet allows the operators to evaluate the effectiveness and associated costs of these vehicles before making a wholesale commitment to fleet conversion. It should be noted though that, based on literature reviews and anecdotal evidence, other operators of CNG fleets throughout the U.S. are quite satisfied with their decisions to procure CNG vehicles. While different approaches to retrofitting the maintenance facilities were addressed in the economic feasibility analysis, only one really makes sense, and that is to tackle the changes to the indoor maintenance facilities that are required for safety reasons as one-time projects for BATA and for TCAPS in anticipation of full fleet conversion. Because the TCAPS facility is small, this does not require a large outlay of funds. For Page 19

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BATAs large facility which accommodates 60% of its fleet, however, the investment would be considerable, approaching one-half million dollars. For this reason, it is recommended that BATA seek federal and state funding support. As it is unlikely that the grant processes could be completed with funding in place in 2013, it is more realistic to plan to address the maintenance facilities in 2014. And finally, there is the question of developing fueling facilities. Again, there is a significant cost advantage for BATA to seek grant funding from federal and state sources. It is recommended that BATA pursue this grant funding to develop facilities that can also be shared with TCAPS. As with funding for maintenance facilities, it is unlikely that grant funding would be available as early as 2013; 2014 is a more realistic target year. Meanwhile DTE, the utility company, is planning a phased sequence of developing fueling facilities for the two public agencies and may have initiated engineering of these facilities. A DTE spokesman indicated that Phase 1 plans include fueling stations for 40 buses, approaching the number of vehicles that BATA and TCAPS plan to acquire in 2013 and 2014. There may be merit in pursuing a bifurcated strategy, with DTE proceeding with its Phase 1 plans, to be followed subsequently by BATAs use of grant funds to complete development of the fueling stations. Public-private cooperation between DTE, BATA and TCAPS, which is implicit throughout the process, would potentially speed up the conversion process, with the attendant fuel cost

savings. This strategy would also complement the objective of assuring that all future bus procurements are equipped for CNG. It may, however, reduce the $5.3 million cost savings projected over 10 years because, somewhere in the pricing structure, the utility company would have to recover its development costs. (The costs associated with DTEs providing all facilities and adjusting its pricing structure to reflect the infrastructure costs are arrayed in Cash Flow Analysis 1 in the first part of this document.) A straight-line calculation of the impact on net savings that could result from this two-pronged approach, affecting about 22% of the BATA-TCAPS combined fleets, causes a benefit reduction of $1.2 million. However together, the agencies would still realize a substantial net savings of $4.1 million over 10 years. The following displays the infrastructure sequence for BATA

BATA
16 14 12 10 8 6 4 2 Fueling Stations Maintenance Facilities Buses

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and for TCAPS.

TCAPS
16 14 12 10 8 6 4 2 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Maintenance Facilities Buses

A multi-part strategy for early implementation of CNG conversion is as follows. In the near term, 2013 to 2015:
TCAPS must address necessary safety changes to its facility. It should then be used for the maintenance of all CNG vehicles, including BATAs. BATA should apply for federal and state grants to configure its maintenance facility for CNG safety requirements. BATA should also apply for federal and state grants to develop CNG fueling stations that are conveniently located and can be used by both BATA and TCAPS. Because CNG fueling stations that have been developed with grant funds by other transit agencies can be used by the public, there

should be no impediment to joint use by two public agencies. Assuming that all new buses will be configured for CNG, BATA and TCAPS should develop specifications for CNG buses. BATA should apply for federal and state funding for the transit bus fleet. (TCAPS does not receive federal funding for its fleet.) BATA and TCAPS should develop an agreement that spells out responsibilities for maintaining the fueling station and methods for apportioning costs related to such maintenance, as well as the method of tracking fuel consumption and fuel payment procedures. BATA and TCAPS should negotiate an agreement with DTE regarding fuel costs at the fueling stations supplied by DTE, if any. They should consider the length of the contract (3, 5 or 10 years) and remuneration for facilities costs. They should also address, in principal, future costs of delivered fuel at any fueling stations that would be developed by BATA so that there is an understanding going forward. In developing its own facilities, BATA should explore any benefits and economies that might result from DTEs having engineered Phase 1 fueling facilities. TCAPS should continue its existing practice of storing buses outdoors, especially any new CNG vehicles. Until its facility is reconfigured to address CNG safety requirements, BATA

should store any new CNG buses outdoors. In the mid-term, starting in 2014 or 2015 (there may be some overlap in terms based on funding availability):
BATA and TCAPS should develop maintenance procedures for CNG vehicles, as well as systems for monitoring maintenance and fuel costs associated with operating these vehicles. The agencies should have good comparative cost

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data in determining the advantages of converting their entire fleets and the merits of continuing this program. BATA should engineer and redevelop its indoor maintenance facility. BATA should engineer and develop fueling stations that it will share with TCAPS. BATA and TCAPS should reaffirm their agreements BATA and TCAPS should finalize their contracts with DTE. Both public agencies should continue to procure CNGequipped buses.

And finally, in the long term, 2020 to 2022:

BATA should develop a fueling station in Leelanau County.

The financing approach that yields the greatest benefit, stated in terms of potential net cost savings, is achieved by BATAs procuring federal and state grant funds to develop maintenance and fueling facilities. If for any reason, such funds are not available, it is still worth converting to CNG using local funding. If local funding is required, issuing bonds may be the best strategy, but in this scenario, significant payback for BATA will not begin to materialize until the late in the ten-year period. In either instance, TCAPS begins to realize net savings in 2016. Buying fuel that is priced as a commodity is an important part of realizing economies in either case. To recap, the abundance of our domestic natural gas supply is likely to assure relative price stability over the long term, although it is a commodity and commodity prices do fluctuate. Nevertheless, the historic trends, displayed on the following graph, offer evidence of favorable prices, which is reinforced by the US Energy Information Administrations future price projections for CNG. CNG fuel cost savings can be substantial and, with appropriate fuel pricing, warrant converting the BATA and TCAPS fleets from gasoline and diesel to CNG.

FINAL RECOMMENDATIONS The Traverse City area agencies should phase in to CNG, following their regular planned fleet replacement schedules. This approach permits an orderly conversion and allows for developing the required support facilities and addressing safety issues, as appropriate, throughout a ten-year period. With every procurement, both BATA and TCAPS should monitor costs and benefits of the CNG vehicles to assure that financial and other targets are being achieved.

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Cost per GGE www.afdc.energy.gov/afdc/data/ www.afdc.energy.gov/afdc/data/ Cost per GGE Cost per GGE

$5.00 $5.00 $5.00 $4.50 $4.50 $4.50 $4.00 $4.00 $4.00 $3.50 $3.50 $3.50 $3.00 $3.00 $3.00 $2.50 $2.50 $2.50 $2.00 $2.00 $2.00 $1.50 $1.50 $1.50 $1.00 $1.00 $1.00 $0.50 $0.50 $0.50 $0.00 $0.00 $0.00

Worksheet available at www.afdc.energy.gov/afdc/data/ See "Data" tab for supporting data, sources, notes, and conversion factors Last updated 02/7/2012

U.S. U.S. Average Average Retail Retail Fuel Fuel Prices Prices U.S. Average Retail Fuel Prices

TRAVERSE CITY AREA CHAMBER OF COMMERCE: NATURAL GAS VEHICLE FEASIBILITY STUDY

4/1/00 7/1/00 4/1/00 4/1/00 10/1/00 7/1/00 7/1/00 1/1/01 10/1/00 10/1/00 4/1/01 1/1/01 1/1/01 7/1/01 4/1/01 4/1/01 10/1/01 7/1/01 7/1/01 1/1/02 10/1/01 10/1/01 4/1/02 1/1/02 1/1/02 7/1/02 4/1/02 4/1/02 10/1/02 7/1/02 7/1/02 1/1/03 10/1/02 10/1/02 4/1/03 1/1/03 1/1/03 7/1/03 4/1/03 4/1/03 10/1/03 7/1/03 7/1/03 1/1/04 10/1/03 10/1/03 4/1/04 1/1/04 1/1/04 7/1/04 4/1/04 4/1/04 10/1/04 7/1/04 7/1/04 1/1/05 10/1/04 10/1/04 4/1/05 1/1/05 1/1/05 7/1/05 4/1/05 4/1/05 10/1/05 7/1/05 7/1/05 1/1/06 10/1/05 10/1/05 4/1/06 1/1/06 1/1/06 7/1/06 4/1/06 4/1/06 10/1/06 7/1/06 7/1/06 1/1/07 10/1/06 10/1/06 4/1/07 1/1/07 1/1/07 7/1/07 4/1/07 4/1/07 10/1/07 7/1/07 7/1/07 1/1/08 10/1/07 10/1/07 4/1/08 1/1/08 1/1/08 7/1/08 4/1/08 4/1/08 10/1/08 7/1/08 7/1/08 1/1/09 10/1/08 10/1/08 4/1/09 1/1/09 1/1/09 7/1/09 4/1/09 4/1/09 10/1/09 7/1/09 7/1/09 1/1/10 10/1/09 10/1/09 4/1/10 1/1/10 1/1/10 7/1/10 4/1/10 4/1/10 10/1/10 7/1/10 7/1/10 1/1/11 10/1/10 10/1/10 4/1/11 1/1/11 1/1/11 7/1/11 4/1/11 4/1/11 10/1/11 7/1/11 7/1/11

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10/1/11 10/1/11

Propane Propane E85 Propane E85 E85 B99/B100 B99/B100 B20 B99/B100 B20 B20 Gasoline Gasoline Diesel Gasoline Diesel CNG Diesel CNG CNG