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Can Fleets Help Rescue Auto Industry? Four Actions Could Make a Difference
Nov 14, 2008 (From the CalCars-News archive)
This posting originally appeared at CalCars-News, our newsletter of breaking CalCars and plug-in hybrid news. View the original posting here.
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Developments in Washington have become "fast and furious." Judging from today's news reports, it appears Congress (especially but not only Republicans) may be insufficiently receptive to steps to keep the Detroit Three alive. Many are focusing more on blame for past mis-steps than on a responsible appreciation of the consequences for communities and for our green automotive future if these companies go under. We hope that this turns out to be brinkmanship and that Congress will in fact act next week. (If they ignore the crisis, attitudes reflected in aphorisms like, "they made their own bed" or "let them stew in their own juices" -- or "what, me worry?" will prove to be short-sighted.) We can't hold this email -- search for terms like "Detroit support" to read about carmakers and the auto union launching multiple on and off-line campaigns to make the case for federal support.

HERE ARE FOUR NEW DEVELOPMENTS THAT COULD CHANGE THE GAME. The first is independent of what happens in Congress; the second addresses members of Congress. And the third and fourth propose a creative broader strategy:

  • Utilities consider making down payments for thousands of plug-ins for delivery starting 2010-2011
  • CalCars suggests one achievable condition for federal aid
  • Pacific Northwest leaders suggest fleet moratorium; we couple it with an idea for Congress
  • CalCars suggests text for a "plug-in-next" pledge for chief executives and fleet managers to adopt NOW

"HEY, AUTO INDUSTRY, NEED A JUMP? UTILITIES CONSIDER BUYING ELECTRIC CARS" on page A13 of the Friday November 14 Wall Street Journal­article/­SB122662769283027123.html. Rebecca Smith's story shows growing support for a strategy that if adopted quickly and at large scale could provide a lifeline to automakers. We follow that story with several comments.

The auto industry's quest to launch a new generation of electric cars may get a big boost from a sector with much to gain from getting advanced vehicles on the road: U.S. electric utilities.

Top executives at several utilities are mulling the possibility of ordering thousands of the vehicles -- known as plug-in electric cars -- as an expression of support for the technology they fear could be derailed by the auto industry's financial traumas. The cars would run primarily on electricity, with gasoline to extend their range, and would recharge by plugging into standard electrical outlets. Utilities stand to gain by selling the electricity needed to power the cars. Because power companies own tens of thousands of cars for their own company fleets, the idea under discussion involves putting in a substantial order to put weight behind development and, perhaps, persuade Congress to give the auto industry the assistance it needs.

"Our industry is interested in reducing carbon-dioxide emissions, and it seems like a good idea for auto makers and us to pull together," says Bill Johnson, chief executive of Progress Energy Inc., Raleigh, N.C.

Another reason the sector is keenly interested is that it has excess generating capacity at night when power plants mostly go to sleep because demand drops. A study by the Pacific Northwest National Laboratory, a federal energy lab, found that 73% of the nation's light vehicles could be recharged with the existing utility infrastructure if the vehicles were plugged in overnight. Such a shift from gasoline to electricity as a primary transportation fuel could displace an estimated 6.2 million barrels of oil a day, about 52% of current oil imports. Another report, by the Electric Power Research Institute, a utility-funded research group, and the Natural Resources Defense Council, an environmental group, concluded that if 60% of U.S. light vehicles were electrified by 2050, it would increase national electricity consumption by less than 8%. But it would cut total U.S. carbon-dioxide emissions by 450 million metric tons annually, equivalent to taking 82 million cars off the road.

Many in the industry are concerned about the stresses such new cars could put on the nation's electric grid. If utilities become early plug-in-car adopters, they'd have a prime opportunity to make sure recharging happens in a way that strengthens the electric grid, rather than weakens it. What they don't want is a repeat of what happened after air conditioners became popular after World War II. Starting small, the appliances eventually became a major factor in pushing up summertime demand. Many utility systems that historically peaked in winter now reach even higher peaks in the summer -- usage that took utilities by surprise.

Companies participating in the informal talks include Xcel Energy Inc., Progress Energy, PG&E Corp., Edison International, Wisconsin Energy Corp. and others.

The idea still is in the formative stage and could come to nothing, although Mr. Johnson of Progress said it is "gaining momentum." He indicated that talks with auto makers have occurred individually and through the electric industry's primary trade organization, the Edison Electric Institute. Utilities would take possession of vehicles when they debut, likely in 2010 or 2011 if development efforts stay on track for cars such as the Chevy Volt, Saturn Vue or Ford Escape.

"If we get enough of us together, we could put in a very large order and maybe a big down payment," says Dick Kelly, chief executive of Xcel Energy in Minneapolis. "I would do it," says Gale Klappa, CEO of Wisconsin Energy, adding that his utility has about 3,000 vehicles in its fleet and replaces 20% each year.

The discussions, though exploratory, are being conducted at top levels and among firms regarded as among the most earnest concerning climate issues. They see electric cars as transformative for the way energy is used in the U.S.

A spokesman for General Motors Corp. said the company "welcomes the interest" of utilities.

Best for auto makers would be multiyear orders, says Mark Duvall, a researcher at the Electric Power Research Institute, the utility-funded group. That is because early models may be money losers, so multiyear orders would help auto makers achieve profitability. He estimates fuel savings, for utilities, at $10,000 to $15,000 per car. Utilities may have another benefit. Mr. Kelly said that if the companies go forward with the idea, he also would like to see a mechanism worked out so that utilities would get credit for some of the environmental benefits their adoption would create.

COMMENTS: Utilities in "decoupled" states (where rate structures no longer reward companies for selling more power California, soon Maryland, in development in many others) also support plug-ins because it enables them to use their billion-dollar plants more effectively off-peak, when loads are low, potentially lowering everyone's electric bills. We're often asked for the source of the studies on emissions and on the nation's charging capacity:

  • Emissions: see our July 2007 summary "EPRI-NRDC Definitive Study: PHEVs Will Reduce Reduce Emissions If Broadly Adopted"­calcars-news/­797.html
  • Capacity: we summarize the still under-reported January 2007 "Pacific National Lab's Surprising PHEV Study Released"­calcars-news/­657.html showing that if we woke up tomorrow and all our cars could plug in, if we recharged them at night, today's power grid could handle 84% of all cars, pick-up trucks and SUVs, and, more broadly, 73% of the entire light-duty fleet. This is conclusive proof that in the coming years, we won't have to build new power plants to charge cars whose plugging in is managed to avoid the top peak hours (hot summer late afternoons).

FROM CALCARS: "TIPPING POINT FOR PLUG-IN CARS: HOW MEMBERS OF CONGRESS CAN RESPOND TO THE DETROIT THREE" -- CalCars developed this draft as a contribution to an effort by a number of organizations to provide Washington lawmakers with specific conditions for additional federal aid to automakers. We're not suggesting this is the only criterion -- and we hope that the issue actually does come before Congress. Feel free to forward this to your Representatives and Senators.

Next week the U.S. auto industry will fight for its life in the chambers and hallways of Congress. No one who recognizes the industry's central position -- and the lives and livelihoods that depend on its continuation -- wants to see any of the Detroit Three fail. They need immediate life support -- and a medium- and long-term way to return to growth and prosperity.

The electrification of transportation can give them that roadmap. Electricity -- cheaper, cleaner, and domestically sourced -- addresses our intersecting challenges of economics, environment and energy security. We believe most future cars will be hybrids. Within that, a rapidly growing proportion will plug-in. And many households' second cars will be highway-capable all-electric.

President-Elect Obama has a strong platform for plug-in cars: his goals are most White House vehicles within a year, half of federal purchases by 2012, and one million on the nation's roads by 2015.

Majority Leader Reid and House Speaker Pelosi agree. Their November 8 letter to Treasury Secretary Paulson called urgently for action to "restore the preeminence of our domestic manufacturing industry so that it can emerge as a global, competitive leader in fuel efficiency and in new and path-breaking energy-efficient technologies that protect our environment."

That call, for "new" and "green" automotive technologies, best fits plug-in cars. That technology is available and meets all criteria. Plug-in cars will be sold globally in 2010-2012. No other solution is as scalable, as low in greenhouse gases, and as independent of requirements for new infrastructure or invention. No other solution is modular, upgradable, and fully compatible with improvements in engine technology and with all low-carbon liquid fuels, as they become available, for range extension.

We believe the President's 2015 goal is achievable -- and if anything, could be surpassed.

Who will be the customers? Almost half are already accounted for: 250,000 buyers eligible for tax credits under the Emergency Economic StabilizationAct (the $700B bailout bill) and 130,000 from 50% of federal 2012-2015 fleet purchases. There will be no shortage of buyers for clean, powerful, quiet and economical plug-in cars from the consumer, business and fleet customers who buy over one million vehicles a month.

Can the carmakers meet the timetables? One U.S. manufacturer is already on schedule to produce tens of thousands of Chevy Volts and Saturn Vues in 2011. GM alone could realistically supply more than one third of that million vehicles four years later. When Ford and Chrysler step up, they can bring the number to 500,000. And international manufacturers are certain to match these levels to reach a million. To those new passenger vehicles, we can add 40,000 plug-in school buses replaced annually and hundreds of thousands of transit buses and other commercial vehicles. Finally, we expect to see significant numbers of conversions of hybrids and gasoline vehicles already on the road. That's why the million-vehicle target can be significantly exceeded.

Can automakers design and produce the cars in time? The Volt is going from announcement to mass production in less than four years -- and it's an entirely new design. This timetable can be accelerated for PHEVs that are line extensions of existing vehicle types: the Ford Escape Hybrid, Ford Fusion Hybrid, the Chrysler Town & Country Minivan and the Jeep Wrangler. It's reasonable that these vehicles can be in mass production by late 2011.

Can the suppliers deliver components in time? No one suggests this is impossible for power electronics, motors, or control software. And while the expansion of global battery capacity, and the establishment of a substantial domestic manufacturing capability, will cost billions of dollars, the battery industry is prepared to commit if demand is certain. GM is confident that today's batteries are good enough to get started toward mass production; further improvements will be icing on the cake.

What will it take? Agreement by the Detroit Three to work to meet and exceed President-Elect Obama's goals. We propose that a pre-condition for each company receiving additional funds be its commitment to have produced and offered for sale 60,000 new plug-in vehicles by the end of 2011. We hope that the response of the automakers will be "that's what we're already planning," and that the proposal will be welcomed.

MEANWHILE, FROM SEATTLE, A BIG IDEA FOR FLEET LEADERSHIP: Two prominent thought-leaders have floated a breakthrough idea that could bring together the other two approaches. (Published on Election Day, it received little notice.) They ask, what if corporate and municipal fleets across the nation, themselves stretched for funds and increasingly reluctant to put more gas-guzzlers on the road now, could instead commit to volume purchases of the plug-in cars just over the horizon? This would spur Detroit (and foreign automakers) to accelerate their efforts. And this would give batterymakers the signals they need to start now to expand their domestic and international capacity.

WHO'S BEHIND THE PROPOSAL? The newspaper's short bios of the authors don't do them justice: "Steve Marshall is a senior fellow at the Cascadia Center and an expert on energy and transportation. Denis Hayes is president of the Bullitt Foundation." Here's more: STEVE MARSHALL is the indefatigable co-organizer of the annual conferences held at the Microsoft Campus that in three years have catapulted the Pacific Northwest into a plug-in leader. (Most notably see the 2007 Evergreen Fleets Initiative by 21 government agencies, and last month, the King County 2008 blueprint­kcdot/­green/­electric/­evergreen.stm .) His efforts shuttling between Washington State and Washington DC helped spark the first federal Executive Order on plug-in cars (for which, unfortunately, the Bush Administration did little followup). He's a former senior utility executive and headed the Municipal League. DENIS HAYES, "practical visionary," was chief creator/organizer the first Earth Day in 1970; he then headed the federal Solar Research Institute (now the National Renewabe Energy Laboratory). He has chaired the Energy Foundation and received more honors than could be listed. You'll find photos of each of them with CalCars plug-ins at­photos-people.html -- and King County Chief Executive Ron Sims and U.S. Rep. Jay Inslee at­photos-leaders.html

(Think of this as the logical next step for the very successful "soft buy orders" program run by Plug-In Partners from 2006-2008 .)

by Steve Marshall and Denis Hayes, guest columnists
Seattle Post-Intelligencer, November 4, 2008­opinion/­386374_gasmoratorium05.html

With Washington's government facing a $3.2 billion budget deficit, we need to cut expenses now. One smart place to start is with a two- to three-year moratorium on buying new state fleet vehicles and to begin the transition from oil to electricity in transportation.

Virtually every major automaker will sell plug-in hybrid or all-electric vehicles starting in 2010-12. General Motors is advertising the plug-in Chevy Volt for 2010. Ford, Chrysler, Toyota, Renault, Nissan, Mitsubishi, BMW, Volkswagen and Mercedes will have plug-in cars on the road within three years. Last month Warren Buffett bought a major stake in BYD, a Chinese company that will have an electric-powered five-passenger car for sale this month.

Instead of buying state vehicles that will be consuming gasoline for the next decade or two, the governor should order an immediate moratorium on buying new gasoline-powered cars for the state fleet and make firm plans for the purchase of the coming plug-in cars that use little or no gasoline.

Washington can become a national leader in moving beyond foreign oil to domestic electricity in transportation. We already have a small but important national demonstration project for plug-in cars in the Puget Sound region that can be expanded, integrated into the transportation system and developed into a national model.

Other fleet purchasers should join the state moratorium. Mayors, county executives and CEOs can direct their fleet managers to hold off light-duty vehicle replacements except for emergency vehicles and stretch out maintenance schedules on existing cars.

This is a bipartisan issue. Both presidential candidates emphasized that our addiction to oil is harming the economy, national security and the environment. A federal fleet moratorium inspired by Washington can help end that addiction.

Five years ago oil cost $23 a barrel. Despite the recent wild swings, oil prices remain historically high. Last year the U.S. paid $300 billion for imported oil, and this year we will double that. According to Henry Kissinger, our foreign oil purchases have resulted in the "largest transfer of wealth in human history." What's worse is that a major share of the world's oil revenues ends up in countries hostile to our interests, undemocratic or both.

In 2006 when oil prices averaged $60 a barrel, Washington drivers used 3.6 billion gallons of gasoline that cost $9.3 billion -- more than the state spends on K-12 education.

With 97 percent of all transportation fueled by oil, we have had no choice other than to pay up until now. But with recent advances in more powerful, lighter-weight and durable batteries, we can begin to replace oil with electricity in light-duty transportation.

Every new internal combustion car that's sold will make it more difficult for us to reduce our oil dependence. And over its lifetime each such vehicle will also generate several tons of global warming gases a year. Around Puget Sound, transportation produces more greenhouse gases than all other sources combined.

No gasoline-only cars should be exempt. The state owns hundreds of Toyota Prius cars that average 45 mpg and plans to buy more. But plug-in hybrids will get 100 to 150 mpg -- and all-electric cars will not use a drop of gasoline. A Wall Street Journal car column advised a reader not to buy another Prius now: "It would be prudent to wait. More carmakers, including Toyota, are working on hybrids that plug in and run for extended periods and distances on electric power alone. This characteristic is expected to give the next generation of hybrids greatly improved fuel economy compared with current models."

Cleaner, cheaper domestic electricity offers our best available opportunity to move beyond oil in transportation. A moratorium on buying new gasoline vehicles with a plan to buy the coming plug-ins would be an added incentive to automakers to speed up the transition we need for the economy, national security and the environment.

CALCARS PROPOSED "PLUG-IN-NEXT" MORATORIUM PLEDGE FOR CHIEF EXECUTIVES AND FLEET MANAGERS. Paired with this pledge, to compensate automakers for lower near-term fleet sales, since pre-orders may be difficult for companies and municipalities to reconcile with their budget processes, the federal government could take hard orders and provide loan guarantees or other financing to spur the even more rapid retooling of the auto industry.

WE INVITE ANY PUBLIC OR PRIVATE LEADERS TO ANNOUNCE THEIR SUPPORT. It would be great if next Monday and Tuesday we have C-level corporate executives, fleet managers, mayors and county executives announcing their endorsement. Here's a template for a statement to be used by any of them: modify as appropriate. Send to the media, to your elected representatives and to info@....

"OUR NEXT CARS WILL PLUG IN." [COMPANY/CITY/COUNTY/STATE] has decided to declare a Purchasing Moratorium for most of our fleet. We'll hold onto our [TOTAL #] of cars, vans, pickups and SUVs a few years longer than usual. When we can buy mass-produced plug-in vehicles, as early as 2009-2012, we'll replace our gas-guzzlers.

It no longer makes sense to buy new cars that run only on gasoline. American and international car maker plan to mass-produce plug-in hybrids (PHEVs) and all-electric vehicles (EVs) within five years. We hope they'll further speed up their timetables. We're willing to wait. Before then, we may convert some cars to begin to get experience with plug-ins.

We're customers for cars that run on cheaper, cleaner, domestic electricity. We want cars that run on the equivalent of under $1 a gallon. We want lower greenhouse gas emissions. And we don't want to fuel them mostly from imported oil.

Purchasing a car for a fleet is a practical decision -- and a long-term commitment. We can reduce our capital expenditures now by retaining our current vehicles. We've decided not to buy new but obsolete 20th century vehicles that will have lower resale values years from now when plug-ins are broadly available.

Plug-in vehicles will have a higher first cost. But because of lower operating costs and better trade-ins, we still expect lower lifetime cost of ownership. Today a standard 40 MPG hybrid merits a $3,400 tax credit. Now 250,000 plug-in cars will get up to $7,500 in tax credits. So it's reasonable to plan for over $5,000 credits for 100+MPG plug-ins -- not only for individuals but for public and private fleets, for new and for safe, approved conversions. These incentives, that have broad bipartisan support and are part of President-Elect Obama's Clean Energy Fund program, will further improve the value proposition of plug-ins.

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