8 MS. GATES: Good morning. I'm Valerie Gates and 9 I am a real person from the Sierra Club. I received a 10 letter in the mail regarding this issue, and signed my 11 name saying it sounded good to me, so they sent me an 12 email and asked me to come and here I am.

13 ( Laughter.)

14 MS. GATES: I am a community leader concerned 15 with supporting a village environment in Fair Oaks, which 16 is 17 miles east of Sacramento. My husband and I bought 17 some subdivision land in Butte County, and so I took some 18 planning classes because I wanted to learn how to 19 ethically develop that land in Butte County.

20 As an aside, the air quality isn't good enough 21 for me to live up there, because of the rice burning. I 22 have some lung problems because I've  I put fiberglass 23 insulation in my attic. Even though I wore a mask, I had 24 some severe problems after, but I didn't sue anybody. I 25 just try to live a healthy from now on.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 98 1 But anyway, my neighbors found out that I was 2 taking these planning classes and asked me to help with 3 concerns in our village where contractors are demolishing 4 the historic buildings and putting up subdivision quality 5 homes, so needless to say we have a community involved 6 with this preservation.

7 My direct air quality concern with air pollution 8 is caused by the asbestos fibers unleashed during the 9 demolition. But my husband and I are presently members of 10 the Sierra Club. I was at birth. My father a pathologist 11 and environmentalists studied causes of cancer in the 12 1950s and 1960s.

13 I met my husband, a landscape architect on a 14 Sierra Club trail maintenance trip in 1968. We are a 15 family who supports conservation of energy. We wear wool 16 sweaters in the winter, sip ice lemonade by a fan in the 17 hot summer.

18 However, blackouts are life threatening to my 19 paraplegic mother who requires a moderate temperature in 20 her environment. We must balance our energy needs with 21 our requirement for clean air. The Sierra Club has 22 recommended several modifications with respect to DG 23 technologies.

24 Briefly, the district guidance should strongly 25 recommend that all the distributed generation meet PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 99 1 emission standards that are equivalent to the cleanest 2 central station powerplants by 2007; that the proposed 3 certification regulation and draft guidance that exempts 4 distributed generation units that are registered under 5 CARB's portable equipment registration program, PERP, has 6 language that exempts  the proposed certification has 7 language that exempts the distributed generation units.

8 And because units registered under PERP are held 9 to weaker emission standards, I'm concerned that 10 stationary units could be easily converted to portable 11 units and moved once a year to avoid the stronger 12 emissions reductions under the DG certification 13 regulation.

14 To avoid creating greater environmental and 15 public health problems, CARB should act to make the 16 emissions limits in the PERP consistent with the standards 17 in the certification regulation and guidance to districts 18 as soon as possible.

19 Finally, I urge the Board to strongly recommend 20 that the air districts adopt the definition of emergency 21 generation in the draft guidance, somebody already said 22 that okay.

23 Anyway, we need energy. However, air pollution 24 has life threatening consequences for some people.

25 Regarding concern for the cost to the manufacturers, the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 100 1 potential costs to the manufacturers, I think that this 2 process could also be considered to be economic 3 stimulation that the people who designed the new features 4 to make these things have better air quality, deserve to 5 make a living, too, that's about all I have to say.

6 CHAIRPERSON LLOYD: Preferably in California.

7 MS. GATES: Excuse me?

8 CHAIRPERSON LLOYD: Dr. Friedman.

9 BOARD MEMBER WILLIAM FRIEDMAN: Could staff just 10 comment about the potential misuse of the PERP approach.

11 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Well,

12 first of all, I will say that if anybody is aware of 13 someone using a piece of equipment registered under the 14 portable equipment program for a DG purpose, let us know,

15 and we'll work with the district to make sure that doesn't 16 happen, because that's an improper use of the equipment.

17 Second, we are intending when we do come back to 18 board

19 BOARD MEMBER WILLIAM FRIEDMAN: I appreciate 20 that, but what is the likelihood of that kind of whistle 21 blower activity, if you will? I mean, you know how  I 22 mean I presume that this is going to be reasonably 23 clandestine uses. So is this a real  could this be a 24 problem or real problem?

25 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: The PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 101 1 issue has been brought to our attention before. And it is 2 a potential problem. We have put people on notice that we 3 think it's an improper use of portable equipment under our 4 program.

5 And when we run across these individuals, we have 6 been taking action and making sure that they don't use it 7 that way.

8 CHAIRPERSON LLOYD: Professor Friedman.

9 BOARD MEMBER HUGH FRIEDMAN: How do you run 10 across it? How do we run across it?

11 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP:

12 Usually, it's through either the districts in their 13 day to day activities inspecting. We don't go out and do 14 any inspections ourselves. We have been tipped off a few 15 times by anonymous people. But for the most part, it's 16 through district inspections where they run across this 17 activity.

18 CHAIRPERSON LLOYD: I think the concern is likely 19 to be a significant problem or is it isolated?

20 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: I 21 think it's probably an isolated problem. You know we have 22 quite a few pieces of equipment registered under our 23 program. And the program is designed, equipment can move 24 from source to source, point to point to operate.

25 The districts do a good job of, you know, they're PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 102 1 out there, they're doing the inspections. When they see 2 it, they do make sure it's a proper use. So we don't see 3 this as a widespread problem, but there may be individual 4 cases where it does occur.

5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I think we 6 had greater fears of what might happen during this last 7 summer. These units are very expensive to rent, but 8 during the prospects where certain businesses were facing 9 black outs at unknown times and the loss of their business 10 or their loss of production, quite a few of the units 11 won't go out as rental units and people were paying the 12 $ 5,000 a week or thereabouts what it cost.

13 And we did have fears that some of those that 14 once they had the unit on site might be tempted to say 15 during times when I'm paying high rates it's cheaper to 16 use this generator than not.

17 We gave them guidance and guidance to the 18 districts that putting the generator on site, using it 19 during a blackout at the facility was appropriate. Using 20 it as a way to mitigate high power bills was 21 inappropriate.

22 I think now we seem to be past that and blackouts 23 are no longer a major concern, that relatively few people 24 would be induced to want to bring one of these units and 25 pay that amount that way.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 103 1 ASSISTANT CHIEF BARHAM: This is Bob Barham with 2 the Stationary Source Division. I just want to also add 3 that in the longer term, I think the solution to this 4 problem will be through the diesel program, where we're 5 going to be mandating lower sulfur fuel catalysts on these 6 diesel engines, things that will make them much, much 7 cleaner than they currently are.

8 CHAIRPERSON LLOYD: Thank you, Mr. Barham.

9 Thank you very much.

10 We'll take a break. I make it about 17 minutes 11 past, why don't we reassemble at 11: 30, since there's no 12 clock in this room, 11: 30.

13 ( Thereupon a brief recess was taken.)

14 CHAIRPERSON LLOYD: I'd like to recommence,

15 please.

16 As often is the case, we have more witnesses than 17 we had before, so we better move ahead.

18 I'll start with Eric Wesselman, Martha Arguello,

19 and S. N. Prakash.

20 MR. WESSELMAN: Good morning. My name is Eric 21 Wesselman. I'm with the Sierra Club. And I'm happy to be 22 here today to provide comments on the proposed distributed 23 generation certification program and the draft guidance.

24 The Sierra Club is also a membership based 25 organization with nearly 200,000 members in the state of PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 104 1 California alone. Some of them actually are on the table 2 before you here. Nearly 3,000 of our members submitted 3 some comments regarding these proceedings, so I hope 4 you'll have the time to take a look at some of them.

5 This Sierra Club is generally very supportive of 6 the certification program and the draft guidance, that the 7 staff has come up with. And, again, we'd very much like 8 to congratulate the staff on a job well done.

9 There are some important modifications that we 10 would also like to recommend. We've heard a number of 11 them from other organizations, such as CALPIRG and NRDC 12 already. And so a lot of my comments will be reaffirming 13 of those comments, and so I'll be brief and to the point 14 with a little bit of some changes given what we've heard 15 so far here today.

16 Our primary goal, of course, is to ensure that DG 17 units are clean as the cleanest central station power 18 units out there. And that's something that the Sierra 19 Club feels could be stronger in the draft guidance, and 20 that there should be a clear statement that it should be 21 by 2007, so we're assured to get to the stated intent of 22 the legislation.

23 The second major recommendation for modifications 24 is along the lines of what NRDC had stated, the different 25 types of distributed generation that is covered in the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 105 1 draft guidance performs essentially the same or 2 substitutable functions, and therefore they should be held 3 to the same environmental standards, and that gets to the 4 different standards that are set for the different costs 5 and technologies in the documents in the regulations.

6 So we would urge that the standard for that 7 uniform standard of five parts per million volume be 8 adopted. And the standards are already set for units that 9 are between 3 and 50 megawatts, so it sets these other 10 turbines outside of those parameters, essentially you have 11 the same purpose. We would urge the adoption of the 12 uniform standard.

13 And barring that from happening today, we would 14 urge that the staff express an intent to get to a uniform 15 standard over time. I mean, we'd be happy to continue to 16 work with the staff and the Board to ensure that kind of 17 an outcome, obviously for environmental and public health 18 concerns.

19 Finally  well, not quite finally, but thirdly 20 is the portable generation issue. The exemption we've 21 already heard a lot about that, and I appreciate the 22 questions and comments regarding that issue. The Sierra 23 Club is very concerned about that exemption for portable 24 units. While right now there may not be that many units 25 that would  there might be a problem with that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 106 1 currently. I think that with the stricter emission 2 standards for 2007, we see an increasing incentive, as the 3 years go on, for the stationary units to become portable 4 units or to have some sort of problems with this 5 exemption.

6 Therefore, we really do feel that the PERP 7 standards need to be brought  emission standards need to 8 be brought in line with the standards that are being set 9 here today as soon as possible.

10 And as I expressed at the outset, we would also 11 support the adoption of an interim standard and strong 12 enforcement to ensure that  right now, of course,

13 emergency backup generators are not included in this 14 proceeding, but a concern is though that some of these 15 units could be used to reduce business costs or the costs 16 of buying power off the grid, generate yourself to save 17 some power.

18 Well, if that happens, then all of a sudden we 19 have a problem and enforcement could help to deal with 20 that to ensure that they're brought in to be covered by 21 the certification program.

22 And finally, I think the issue of natural 23 security is very valid with this issue of distributed 24 generation. And I think distributed generation technology 25 does have and can play a very important role in protecting PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 107 1 national security.

2 My brother happened to be in the Pentagon when it 3 was struck by the plane and so I was touched as millions 4 of other Americans were, of course, by this issue. But I 5 really do feel, though, that sense, emergency generators 6 are excluded from this proceeding, that those events, and 7 that issue and the issue of national security really 8 shouldn't be brought to bear on this proceeding. I don't 9 think this is the right place for that, since really the 10 issue there for national security would be to ensure that 11 in a situation of emergency that we have electricity.

12 And to wrap up, I just want to again thank the 13 Board for your efforts and the staff for an excellent job.

14 I'd be happy to take any questions.

15 CHAIRPERSON LLOYD: Thank you very much.

16 Dr. Burke.

17 BOARD MEMBER BURKE: I will make this very quick.

18 Now, Ms. Gates is a member of the Sierra Club, right, and 19 I found her testimony very powerful and she's the kind of 20 person that makes me getup in the morning and come to do 21 this, and I'm sure also my other fellow board members.

22 Now, you represent the organization is that true?

23 MR. WESSELMAN: Yes.

24 BOARD MEMBER BURKE: So how do you formulate your 25 policy for what you're going to testify to?

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 108 1 MR. WESSELMAN: Well

2 BOARD MEMBER BURKE: Is it by the national 3 organization, California organization, your office, three 4 guys in your office, how do you do that?

5 MR. WESSELMAN: Well, it varies actually 6 depending on the issue.

7 BOARD MEMBER BURKE: How did you do it for today?

8 MR. WESSELMAN: For today, since this is a state 9 issue, I had to clear my thoughts with the California 10 Sierra Club, with the staff that are involved in the 11 California Sierra Club.

12 BOARD MEMBER BURKE: And when you clear it with 13 the state organization, do they give you some kind of 14 resolution or authorization?

15 MR. WESSELMAN: No, it's verbal. There's an 16 energy committee that the Sierra Club has formed that has 17 the authority for the State of California to authorize 18 actions and

19 BOARD MEMBER BURKE: What prohibits you from 20 changing the testimony, other than losing your job, when 21 you come up to testify?

22 MR. WESSELMAN: I didn't change it, I just 23 changed my emphasis.

24 BOARD MEMBER BURKE: I see. Well, I just 25 wondered, you know, because you could change it.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 109 1 Thank you.

2 CHAIRPERSON LLOYD: Thank you.

3 Martha Arguello, S. N. Prakash and Tim French.

4 MS. ARGUELLO: Good morning and thank you.

5 My name is Martha Arguello. I am the coordinator 6 of the environment and health programs for Physicians For 7 Social Responsibility. We're also a national 8 organization. We have over a 35 year tradition of working 9 on public health issues, always guided by the principle 10 that it is better to prevent what we cannot cure.

11 We have been the conscience of American medicine 12 for those 35 years. We have promoted adoption of more 13 precautionary principles to protect human health and the 14 environment. And so today we applaud you and hope that 15 you adopt these strong rules on distributed generation.

16 Rules that will be protective of both health and 17 the environment. We hope you establish aggressive 18 distributed generation standards that will eliminate the 19 dirtiest DG. We also encourage the Board to recognize the 20 importance of reduction of CO2. And we are deeply 21 concerned that the current issues do not address existing 22 backup generators. These generators are, by and large,

23 diesel.

24 At some preliminary mapping that was conducted by 25 environmental defense and presented at a recent conference PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 110 1 that we had on energy and health co sponsored between 2 Physicians For Social Responsibility and American Lung, we 3 found that many of these backup utility generators are 4 located in densely populated parts of the state, where we 5 imagine there will be considerable environmental justice 6 impacts and disproportionate impacts in some of 7 California's most vulnerable populations, children, the 8 elderly and the emergent majority groups that still have 9 not received equal protection by many of the laws and 10 rules.

11 PSR also encourages you to begin to look at the 12 ethical implications of using diesel backup generators in 13 health care settings and hope that you will work with us 14 to incentivize the switch to cleaner sources of energy,

15 particularly in health care settings, where they will have 16 disproportionate impacts on those who are ill and most 17 vulnerable. Again, we support the recommendations that's 18 been made by the NRDC and again we hope that you adopt the 19 strictest possible protections and rules on distributed 20 generation.

21 Thank you.

22 BOARD MEMBER HUGH FRIEDMAN: Are there any 23 questions from the Board?

24 Thank you very much.

25 The next speaker is Mr. Prakash and then Mr.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 111 1 French.

2 MR. PRAKASH: Chairman of the Board and members 3 of the Board, my name is Prakash. I'm representing STM 4 Power Incorporated, maker of Stirling engines. We power 5 up engines in the range of 25 kilowatts of electricity,

6 using various different  various types of fuels.

7 Thank you for organizing this public meeting and 8 giving STM power the opportunity to present its views on 9 the proposed CARB rules.

10 We believe that STM is the world leader in 11 external combustion Sterling engine technology. Our first 12 product is a 25 kilowatt DG unit, that is truly multi fuel 13 capable and can run on heat produced by different types of 14 fuels, conventional gasses, and liquid fuels, renewable 15 resources, such as biomass, solar energy, resource liquid 16 fuels such as landfill gas, flare gas and bio gas waste 17 heat from municipal processes.

18 As the nation's electric and gas networks are 19 reaching capacity, most people would agree that 20 utilization of modular, environmentally clean DG 21 technologies closer to the energy user can augment the 22 supply capacity reduced in this interest, improve 23 reliability and reduce the straining on the grids and 24 pipelines experienced recently in California and 25 elsewhere.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 112 1 Moreover, recent events have highlighted the one 2 liberty of large powerplants and transmission lines as 3 potential terrorist targets, liberating the energy 4 secretary on top of the national security agenda.

5 Multi fuel capable DG technology, such as the STM 6 power units, are well suited to our nation's national 7 security and energy security. STM firmly believes that DG 8 technology should not be more polluting than central power 9 stations, after appropriate adjustments are made for 10 losses in transmission and distribution system.

11 According to these losses and intangible benefits 12 of DG, STM believes that a higher level, one pound per 13 megawatt of NOx is a reasonable, cost effective, regulated 14 standard for 2003 and beyond.

15 STM does not believe that the proposed 2007 NOx 16 standard applied to .05 pounds per megawatt however is 17 cost effectively achievable, but will nonetheless continue 18 its aggressive dial up of low NOx combustion system, so 19 that it can remain among the cleanest available DG 20 technologies.

21 STM will continue to work with regulators or 22 other organizations in crafting new rules that not only 23 protect the environment and public health but also provide 24 room for the DG industry to prosper and grow. We at STM 25 are committed to bringing efficient cost effective and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 113 1 socially responsible products to market.

2 STM is committed to making our environmentally 3 friendly external heat engine technology as commonplace as 4 diesel engines are today. And we hope that the CARB 5 regulated actions will support the cause.

6 For this, STM suggests to CARB to reconsider its 7 proposed standards to allow for the development of the 8 nascent DG industry in California and throughout North 9 America.

10 Thank you for your attention.

11 I'm happy to answer any questions you have.

12 CHAIRPERSON LLOYD: Thank you very much.

13 Any questions?

14 So what you're saying is we should delay until 15 you catch up?

16 MR. PRAKASH: Things are technically feasible.

17 It doesn't mean that it is cost effective. It doesn't 18 mean that the marketplace will buy it at that price. So 19 until some technologies take root, you will not know what 20 is the cost impact on the generation.

21 For example, somebody generating 300 megawatts 22 can amortize the cost. What about guys developing 100 23 kilowatts and less, those are also DG units. Engines 24 cannot do the same thing. There are technological 25 limitations out there, and on top of that there are size PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 114 1 limitations too.

2 You cannot operate the best technology to 3 everything. The standards should also be based on sizes.

4 Size is an important factor. Combustion is not just a 5 chemical conversion, it is size dependent. I'm a chemical 6 engineer, so I'm talking like that.

7 CHAIRPERSON LLOYD: Does staff want to comment?

8 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Just 9 one comment on the proposed standard that STM is 10 mentioning that would be essentially for 2003 double the 11 number that staff is proposing. And, again, the directive 12 of SB 1298 was to set the first stage of the standard at a 13 level that reflected the cleanest technology out there.

14 And as you might remember, we mentioned a couple 15 of the size categories that would fall under our cert 16 program. And those would be, you know, relatively small 17 in the same category as the STM technology would be.

18 MR. PRAKASH: From what I understand by the 19 testimony, I think it was less than three megawatts will 20 have the same standard, but 100 kilowatts is a little 21 bit  much small than three megawatts.

22 CHAIRPERSON LLOYD: Staff.

23 PERMIT ASSISTANCE CENTER MANAGER MARTIN: One 24 clarification. I think there may be some confusion on the 25 part of STM in that we've differentiated our BACT PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 115 1 recommendations. That would be for the guideline document 2 by size, and that's for that equipment which would fall 3 under district jurisdiction.

4 It is unlikely that the size that the STM product 5 currently as it's configured at, which I believe is 25 KW,

6 would fall under district permitting. But it's easy to 7 confuse the guidance recommendations with the cert 8 program.

9 MR. PRAKASH: Am I to understand that under three 10 megawatts it would be district property and there would be 11 some leeway because of the size?

12 AIR RESOURCES ENGINEER CHIN: This is Grant Chin.

13 The certification program applies to electrical generation 14 that's not in their district jurisdiction. In terms of 15 some of the size, you know, we've heard mentioned 16 reciprocating engines, less than 50 horsepower and then 17 for a gas or combustion turbine, typically they're exempt 18 if they're 300 KW or less.

19 CHAIRPERSON LLOYD: Okay.

20 MR. PRAKASH: Thank you.

21 CHAIRPERSON LLOYD: Professor Friedman.

22 BOARD MEMBER HUGH FRIEDMAN: But do you 23 understand 1298 in its requirement that we apply BACT, do 24 you understand that to preclude cost considerations? I 25 mean, best available control technology that's available PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 116 1 may not be salable, I guess is the point.

2 MR. PRAKASH: Correct.

3 BOARD MEMBER HUGH FRIEDMAN: At least a price 4 that people are willing to pay. And so I guess my 5 question is, is there any validity to that position or do 6 you even consider it?

7 I mean, I know we did cost it out and there is 8 some argument, I guess at least some have said it that 9 you've underestimated the costs of these units.

10 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Again,

11 for the equipment that would fall under our cert program,

12 we refer to that as the small stuff basically. The 13 directive in SB 1298 was to look at the cleanest 14 technology that was currently in operation out there.

15 There was no mention of BACT for that first stage of 16 standards.

17 So it was more of a directive to just look and 18 identify and craft our standard to reflect the cleanest 19 technologies.

20 BOARD MEMBER HUGH FRIEDMAN: Out there,

21 regardless of cost, but we do  at least we've attempted 22 to make cost estimates.

23 PERMIT ASSISTANCE CENTER MANAGER MARTIN: We did 24 address cost estimates for both the manufacturers in the 25 field now out there selling units as well as those that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 117 1 anticipate it.

2 BOARD MEMBER HUGH FRIEDMAN: And you feel those 3 are underestimated?

4 MR. PRAKASH: The cost numbers are reasonable 5 from what I see, but does the

6 BOARD MEMBER HUGH FRIEDMAN: For 2003?

7 MR. PRAKASH: Yes.

8 BOARD MEMBER HUGH FRIEDMAN: But for 2007, we 9 understand that that's going to have to be reviewed.

10 MR. PRAKASH: But to comply with the 2003 11 standard, there are penalties in the technology, either in 12 efficiency or more gas consumption, things that. So at 13 that level will the people buy it?

14 CHAIRPERSON LLOYD: Mr. Prakash, are you based

15 where are you based?

16 MR. PRAKASH: Anarbor, Michigan.

17 CHAIRPERSON LLOYD: How much discussion have you 18 had with the staff on this item?

19 MR. PRAKASH: Not me personally, but I'm aware of 20 the discussions that have gone on earlier. We can taylor 21 the engine to meet different standards.

22 CHAIRPERSON LLOYD: It sounds as though, I think,

23 that you will probably benefit to having some more 24 discussions from staff, because I think mutual exchange of 25 information would be beneficial there.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 118 1 MR. PRAKASH: Okay, thank you, sir.

2 CHAIRPERSON LLOYD: We appreciate it very much.

3 Thank you.

4 Tim French, Chuck Solt, Karl Stoffers.

5 MR. FRENCH: Mr. Chairman, Members of the Board,

6 good morning. My name is Tim French. I'm counsel with 7 the Engine Manufacturers Association. EMA, among other 8 companies, represents the leading manufacturers of gaseous 9 fuel, natural gas fueled, reciprocating internal 10 combustion engines, what we sometimes call RICE. And some 11 of these engines are used in distributed generation or DG 12 applications.

13 And my comments today will go to the 14 certification proposal that's before you as opposed to the 15 guidelines.

16 Before I address EMA's principal concerns with 17 respect to the certification program, I, like the others,

18 on behalf of EMA do want to commend your staff for their 19 efforts in this matter.

20 At all times all of your staff exemplified 21 professionalism, in putting this rule making together.

22 They ensured that all points of view were solicited and 23 fairly reconsidered and they provided many opportunities 24 for a truly open debate about these issues. And I want to 25 personally salute Grant, Kitty and Marcelle for all their PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 119 1 really good work that was done in this effort.

2 Now, that being said

3 ( Laughter.)

4 MR. FRENCH:  we do have some concerns about 5 where we ended up as we discussed.

6 CHAIRPERSON LLOYD: We're not surprised.

7 ( Laughter.)

8 MR. FRENCH: In a nutshell our basic concern is 9 while the 2003 standards do properly reflect BACT, what 10 is, you know, best achievable in practice. And for 11 gaseous fueled RICE it already requires that 2003 12 standards that you apply either an SCR or a TWC type 13 catalyst system which can be very expensive.

14 That while those standards reflect BACT, the 2007 15 standards are frankly infeasible and cost prohibitive for 16 RICE applications, natural gas reciprocating engines. And 17 this result, in our view, is not reflective of sound 18 public policy, and is, in fact, in conflict with some of 19 the other initiatives that are going on.

20 You've heard of the ARICE program being 21 spearheaded by your California Energy Commission, the 22 DOE's ARES program. Both of these programs are trying to 23 look at ways to advance RICE technologies and efficiencies 24 and put out a product by 2010.

25 Now, some of the stretch goals that are being PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 120 1 considered there actually match the 2003 level. But the 2 point is that the 2007 standard, if you adopt it today,

3 recognizes that in all likelihood you are effectively 4 banning RICE engines, natural gas fueled RICE engines for 5 these applications. And I just think we need to be clear 6 about that.

7 And in light of our concerns, we're seeking two 8 basic changes to the proposal that's before you today and 9 ask you to consider them.

10 First, we would ask that you suspend the 2007 11 standards, and in their place have a more comprehensive 12 technology review as we'll discuss in more detail. We 13 think the technology review in 2005 may be, with respect 14 to RICE, be preordained to find unavailability of RICE 15 technology.

16 So, either, you know, suspend the 2007 standards 17 and in their place have a more comprehensive technology 18 review that can better align itself with the ARICE program 19 and the ARES program, take advantage of some of the 20 research that's being done there or alternatively defer 21 the 2007 standards to 2011.

22 Again, that will allow for full coordination with 23 some of these other programs that are going on at DOE and 24 CEC level.

25 Now, you may be asking yourself, well, we've got PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 121 1 an underlying statute to deal with and you absolutely do.

2 But as we've heard before, Senate Bill 1298 talks about 3 implementing standards equivalent to combined cycle 4 powerplants as early as practicable, not as early as 5 possible, as early as practicable.

6 And I think it's incumbent upon us to consider 7 all of the types of sources that are reasonably used in 8 this category and factor in what is practicable and not.

9 And we're saying that if you're considering or want to 10 hold open the door for RICE type natural gas engines 2007 11 is not practicable.

12 The remainder of my comments will just sort of go 13 to highlight some of the reasons behind changes that we're 14 suggesting. So if I'm belaboring a point or if it's 15 something you've already read in our written comments, let 16 me know and I'll move on, because I know you've got a busy 17 docket today.

18 CHAIRPERSON LLOYD: We're agreeing with you.

19 MR. FRENCH: Under the 2003 standards, understand 20 that we are already achieving BACT, and that requires for 21 natural gas RICE installation of catalytic advanced 22 after treatment systems. Some of these system can cost 23 $ 30,000 to $ 50,000 a unit. And remember that in your 24 certification rule, in the certification program, you're 25 dealing with engines that are generally under 100 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 122 1 horsepower, those that already are, sort of, under the 2 radar for your district programs.

3 And these engines may cost as little as $ 5,000.

4 So you're already in a range where the after treatment is 5 exceeding the cost of the underlying engine. Now, 2007 6 would go way beyond 2003. You'd have an 86 percent 7 compelled reduction in NOx, a 98 percent reduction in CO 8 emissions.

9 And that type of step for these types of engines 10 will require some, as of now, unforeseen advancements in 11 the cost efficiency and effectiveness of NOx catalysts and 12 other technologies, and we're just not confident we can 13 get there.

14 We would also say that that target is so 15 aggressive that given the overall market volume that we're 16 dealing with for DG, you may find some manufacturers 17 facing a disincentive to really see if they can get to 18 2007 thinking. It's a forgone conclusion that they can't,

19 which is why I said before the 2005 technology review, if 20 the 2007 is standards are set in stone, may become for 21 RICE engines, natural gas engines, somewhat of a wasted 22 exercise, because you may not find a lot of manufacturers 23 spending a lot of money to try to achieve a 98 percent 24 reduction over a four year period. It just may not be 25 cost effective. From an economic perspective, it may not PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 123 1 be feasible for manufacturers to spend those dollars in 2 that manner.

3 And, again, if that's what the effect of this is 4 to drive RICE out of this marketplace, aren't we setting 5 up a dynamic that's fundamentally inconsistent with the 6 ARICE program and the ARES program. And if we are, I 7 think we ought to double check whether or not that's sound 8 public policy for all the reasons that we've seen for 9 either over the course of the summer with respect to 10 energy concerns.

11 Bear in mind that the relative efficiency of a 12 turbine, not counting CHP, but a turbine is at about 20 to 13 25 percent energy efficient. A RICE engine is generally 14 in the range of 45 to 50 percent efficient, so there are 15 energy tradeoffs that you're concerned with when you're 16 ruling out RICE engines.

17 We've also seen the greenhouse gas factors for 18 some of these other technologies, where RICE engines are 19 very favorable on that front as well.

20 The proposal that's before you, in our view, does 21 not adequately address the cost issues to manufacturers.

22 In fact, there are no cost parameters considered with 23 respect to what happens in 2007, the types of expenditures 24 in R& D and result in product costs that would follow from 25 the implementation of 2007.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 124 1 People say, well, we'll just get to that when we 2 get to that. I'm not entirely sure that that's consistent 3 with your legal obligations to fully consider the cost 4 impacts of what you're voting on. But understand also for 5 2007, you're voting on something that you don't know what 6 the cost impacts are. And I would submit that they are 7 cost prohibitive impacts for natural gas RICE engines.

8 We have other more technical comments that we've 9 submitted in our writing to the Board. We would recommend 10 those to you.

11 And just in summary then, we would ask that you 12 give earnest consideration to either delaying the 2007 13 standards to 2011 to allow better coordination with some 14 of our other public policy initiatives or have a much more 15 comprehensive tech review in 2007 that will therefore 16 create the prospect that that can be a meaningful review 17 process.

18 And I might also add that bear in mind that the 19 emissions from this source, under a 100 horsepower DG 20 application, the aggregate emissions are not even in your 21 inventory right now according to your staff report.

22 So if you try to do a cost per ton benefit 23 analysis, you couldn't do it. It would be off the chart.

24 So that also weighs in terms of the cost effectiveness of 25 what's being discussed here today.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 125 1 That concludes my comments. Again, those 2 concerns, notwithstanding despite 2007, a process that 3 your staff undertook under an accelerated time frame was 4 admirable. And that's all I have. I'd be happy to try to 5 answer any questions you have.

6 CHAIRPERSON LLOYD: Professor Friedman.

7 BOARD MEMBER HUGH FRIEDMAN: In your summary you 8 said among other things that you urged a more 9 comprehensive assessment and review in ' 07. Did you mean 10 05?

11 MR. FRENCH: No. I mean ideally we'd like to see 12 the tech review in ' 07, because I think that affords more 13 opportunity for the research programs that are in ARICE 14 and ARES to come to the floor. Now, if you're going to 15 stick with a 2005 tech review, I would say that definitely 16 needs to be more comprehensive. Not just be a report to 17 the Board, but a full  not adjudication, but a full 18 consideration of the merits of what those 2007 standards 19 are looking like at that point.

20 We've heard from other commenters on no, no, no,

21 make sure you set the 2007 standards in stone so that the 22 2005 tech review doesn't allow for any slippage. Well,

23 then what's the point of having the review. And, in fact,

24 we're saying that without a real opportunity to look at 25 where we are in 2005 the prospect of full reconsideration,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 126 1 I fear that our natural gas engine suppliers are going to 2 exit this marketplace.

3 BOARD MEMBER HUGH FRIEDMAN: Just a follow up,

4 what does the staff understand the technological review 5 would consist of in 2005?

6 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Staff 7 anticipates that that review would be along the same lines 8 as what we did to get here today. So we'd talk about

9 BOARD MEMBER HUGH FRIEDMAN: Comprehensive,

10 reassessment, full discussion.

11 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Yes.

12 BOARD MEMBER HUGH FRIEDMAN: Whatever has been 13 chiseled in stone can be rechiseled? I mean, unless it's 14 in front of a burning bush, in which case

15 ( Laughter.)

16 MR. FRENCH: If there's a burning bush talking,

17 we all go home, I stipulate to that.

18 ( Laughter.)

19 PERMIT ASSISTANCE CENTER MANAGER MARTIN: You got 20 me earlier with the love and the diamonds thing, so the 21 burning bush, we'll include that if you want.

22 CHAIRPERSON LLOYD: Be careful of the bush.

23 ( Laughter.)

24 CHAIRPERSON LLOYD: Your comment about ARICE, did 25 someone comment on that? I wasn't aware of this program PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 127 1 when it started. It sounds from your testimony that ARB 2 is not involved and I think is that true ARB is not  is 3 ARB involved with that program?

4 PERMIT ASSISTANCE CENTER MANAGER MARTIN: I'd be 5 glad to comment on that. Peter Venturini is a member of 6 the ARICE Committee over at the CEC. Peter is our 7 Division Chief. We also have one of our managers in the 8 division in the diesel program as a member of that.

9 And in the course of developing this measure, we 10 were in close contact with the main staff person about the 11 levels we were considering. In fact, I got an Email as 12 recently as a couple of weeks ago. They wanted to double 13 check and make sure their targets for an RFP that they 14 were released were in line with what we were recommending.

15 So we intend to stay dialed into that.

16 CHAIRPERSON LLOYD: That program is already 17 underway?

18 DEPUTY EXECUTIVE OFFICER SCHEIBLE: And clearly 19 we need advances in the control level for internal 20 combustion engines that are used beyond for electricity 21 generation, whether or not the engine will be clean 22 enough, so that it's desirable relative to the other way 23 of generating electricity is independent of how it is used 24 in portable equipment, how is it used for backup emergency 25 generation, how is it used for all the other uses of the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 128 1 internal combustion engine.

2 MR. FRENCH: And I understand that, but I just 3 want the Board to be aware from the manufacturers'

4 perspective that when you say aye to 2007, you're probably 5 saying so long to natural gas engines in this application.

6 CHAIRPERSON LLOYD: I guess you can turn that 7 around in saying when you're look at the business cycle 8 for business purposes at least you have some parameters 9 that you can evaluate in terms of that business decision.

10 MR. FRENCH: Right, but you know 86 percent and 11 98 percent off of a .15 gram standard over four years in 12 this market share is very, very tough.

13 Thank you very much.

14 CHAIRPERSON LLOYD: Thank you Tim.

15 Sorry, Mr. Calhoun.

16 BOARD MEMBER CALHOUN: Mr. French, you talked 17 about the 2003 standards and the 2007 standards, isn't it 18 somewhat premature to make a definitive statement about 19 the feasibility of the 2007 standards?

20 MR. FRENCH: All we can do is go on with what we 21 know about today in terms of relative cost for this size 22 engine. Now, if you're talking about a 4,200 horsepower 23 engine that is in some very large distributed generation 24 situations or pumping applications, there I agree, that if 25 we were talking about what's feasible in 2007, we'd have a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 129 1 lot more leeway in terms of what we could promise.

2 But this is a 100 horsepower or less where the 3 underlying cost of the engine might be $ 5,000, $ 7,000,

4 $ 10,000. And in that application, we feel pretty 5 confident that the cost prohibitiveness, even if you could 6 make technology breakthroughs is going to not keep us in 7 this marketplace.

8 BOARD MEMBER CALHOUN: Well, I'll now go ahead 9 and ask you the question I had intended to ask.

10 MR. FRENCH: Oh, I'm sorry.

11 BOARD MEMBER CALHOUN: No, that's fine. I said 12 are the standards of technology, are they technically 13 feasible is that the problem, or is it that the cost to do 14 that would be prohibitive?

15 MR. FRENCH: I think our principal concern right 16 now is that for this size category, given what we know 17 today about catalysts that can be used either lean burn or 18 rich burn natural gas engines is technologically 19 infeasible to think that we can get to those numbers in a 20 commercially viable way.

21 BOARD MEMBER CALHOUN: The staff has indicated 22 that

23 BOARD MEMBER HUGH FRIEDMAN: But he's combined 24 his answers, as I heard it. When you added it in a 25 commercially economic way or feasible way, you're  is it PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 130 1 not feasible technologically, regardless of cost?

2 MR. FRENCH: Right.

3 BOARD MEMBER HUGH FRIEDMAN: And then when you 4 consider, and take cost into account and what you think 5 the consumer will or won't pay, what the market will bear,

6 then does that render what is technologically, we're 7 capable of achieving, no longer viable economically?

8 MR. FRENCH: It's the first point is the crux of 9 our comment.

10 BOARD MEMBER HUGH FRIEDMAN: So it's back to the 11 drawing board. Technologically we can't do it.

12 MR. FRENCH: We can't do it.

13 BOARD MEMBER HUGH FRIEDMAN: No matter what the 14 cost is?

15 MR. FRENCH: As we sit here today, that's our 16 best assessment.

17 BOARD MEMBER HUGH FRIEDMAN: Yeah, that's your 18 estimate of what will happen several years from now?

19 MR. FRENCH: Yes. And, again, you just don't 20 have as much opportunity when the source and the package 21 is at this size range.

22 PERMIT ASSISTANCE CENTER MANAGER MARTIN: One 23 follow up comment from staff. You might have noticed when 24 we did our presentation on the certification side of these 25 two items, you did not see an IC engine example given, a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 131 1 photograph. That's primarily because we're not aware of 2 any engines in that size category that are being used for 3 DG.

4 Larger IC engines would fall under the permit 5 program. And Mr. French mentioned earlier that the 6 inventory was limited for this category. To our 7 knowledge, we have not been able to identify an existing 8 unit. There are some manufacturers who have indicated an 9 interest and now have an IC engine based unit out there.

10 However, that would fall under district requirements.

11 CHAIRPERSON LLOYD: Ms. D'Adamo.

12 BOARD MEMBER D'ADAMO: I'm looking through the 13 material here, and I missed this morning's presentation by 14 staff, so I apologize if you went over this, but did staff 15 prepare a cost effectiveness analysis?

16 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Staff 17 presented some cost information this morning. And 18 essentially what we estimated for the cost of complying 19 with the 2003 standard, the cost would be somewhere 20 between $ 10,000 and $ 20,000. That would include the cost 21 of doing a source test, pulling the application materials 22 together and paying the $ 2,500 application fee.

23 We noted that in the case of the 2007 standards,

24 it was not possible for us, at this time, to make an 25 estimate of what the cost of compliance is. There are a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 132 1 number of alternatives that the manufacturers can use to 2 reduce or can consider to reduce emissions including 3 redesign, increasing efficiency, adding on CHP or adding 4 on control equipment. But because there is a variety of 5 measures that they have at their hands, we didn't go into 6 a detailed cost analysis. We intend to revisit that in 7 2005 as part of our technical review.

8 BOARD MEMBER D'ADAMO: How does that analysis or 9 lack of an analysis when a regulation is technology 10 driven, how does that compare to other regulations? I 11 don't know if you'd be the proper person to answer that or 12 someone else on the mobile source side of things, where we 13 adopt a regulation and we realize upfront that the 14 technology is not yet present, do we normally defer cost 15 effective analysis for a later date?

16 EXECUTIVE OFFICER KENNY: Let me try to take a 17 stab at this. Normally, we do not defer. The difference 18 here is that we do have legislative direction that we 19 were, essentially, to put together standards for 20 distributed generation for 2007, so that's why we have 21 done this.

22 I would also, essentially, I think, add that with 23 regard to the answer you just heard, that I think there's 24 a kind of clarification that needs to be added to it. We 25 do have cost estimates with regard to a number of the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 133 1 technologies, even before 2007 and those would be the 2 solar, the wind, the fuel cells things like that.

3 And the 2003 cost estimates that we provided to 4 you today would be essentially applicable also for 2007 5 with the anticipation also that with additional time,

6 those numbers would be potentially lower than we are 7 anticipating for 2003.

8 What we don't have is essentially the ability to 9 provide cost estimates in 2007 for the IC engine 10 technologies or for the microturbine technologies. And 11 the reason for that is that they are going to have to make 12 a substantial jump with regard to their emission controls 13 in order for them to be able to meet those particular 14 levels that are being established for 2007.

15 But, again, what we were trying to do is meet the 16 base line direction of the Legislature, which is that we 17 were to establish standards that matched up with central 18 station power plants, so that, in fact, the general power 19 that was provided throughout the state of California would 20 be as clean or cleaner than central station powerplants.

21 BOARD MEMBER D'ADAMO: Right, and the legislation 22 doesn't require cost effectiveness as part of the 23 analysis.

24 EXECUTIVE OFFICER KENNY: Correct, and I think 25 what we  and part of the reason that we are trying to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 134 1 come back in 2005 is that we will have a better handle on 2 some of the technologies that have been developed for 3 microturbines and for IC engines and to provide you with 4 kind of numbers that can then be used for consideration.

5 I do think it's going to be a very, very tough 6 challenge for the microturbines or for the IC engines to 7 meet those particular numbers at lower costs.

8 BOARD MEMBER D'ADAMO: Thank you.

9 CHAIRPERSON LLOYD: Thank you very much.

10 Chuck Solt, Karl Stoffers and Mohsen Nazemi.

11 MR. SOLT: I only have one item I was going to 12 address today, and that's basically the same item that 13 Ralph Ordonez talked about earlier, the issue of the 14 recommended change by staff in the certification program 15 to drop the efficiency threshold and the recommendation 16 that that be carried over into the guidance documents 17 also.

18 I would like to suggest that consideration of the 19 heat recovery credit is not an option. The heat recovery 20 from large central gas turbines was considered in 21 establishment of the .07 pounds per megawatt hour number 22 which is the 2007 number. No existing large gas turbine 23 projects or any of the ones that are currently under 24 construction can meet the .07 without the heat recovery 25 consideration, and none of them meet 60 percent overall PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 135 1 average annual overall efficiency.

2 Distributed generation needs the same appropriate 3 consideration of the emission reductions associated with 4 the heat recovery in order to meet the .07.

5 At .07 with the heat recovery credit, any 6 distributed generation unit will be as clean or cleaner 7 than the alternative of purchasing electricity and using a 8 boiler to provide the heat requirements. Exclusion of a 9 heat credit by an efficiency threshold would kill many 10 clean distributed generation projects.

11 If the efficiency threshold is maintained, it 12 will have a negative impact on the environment. It will 13 impose economic hardship on many California companies and 14 on the State of California institutions. And accordingly,

15 it will have a significant impact on the California 16 economy and it will eliminate many distributed generation 17 projects that would have provided much needed electric 18 generation capacity in California.

19 That's all I have.

20 Thank you.

21 CHAIRPERSON LLOYD: A pretty strong statement in 22 there in terms of what impact that phrase would have. I'd 23 like to get staff's response on that.

24 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 25 Tollstrup, again. The .07 standard, Mr. Solt, is correct PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 136 1 that's based on what we believe is equivalent central 2 station powerplant 50 percent efficiency for that type of 3 a unit. It does use heat recovery. It does make that 4 consideration.

5 The CHP into that, which is an option that we 6 provided, again, we've asked that we be able to come back 7 with updates to not only the BACT numbers but the CHP 8 numbers as well and to work with others to establish the 9 proper procedure, at least on the certification side  or 10 on the guidance side to see how that gets incorporated.

11 CHAIRPERSON LLOYD: Does that satisfy you?

12 MR. SOLT: If, in fact, there will be additional 13 consideration of what I presented, yes.

14 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Yeah,

15 we will.

16 CHAIRPERSON LLOYD: Thank you.

17 Professor Friedman.

18 BOARD MEMBER HUGH FRIEDMAN: This is not a 19 complete sentence, so I'm having trouble understanding 20 what it is. I mean, unless I'm missing something. The 21 phrase is out of context, and I didn't go back and read 22 its source. But that you agree with all of the 23 consequences that he's pointed out will ensue if that 24 phrase is not deleted?

25 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: I'm PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 137 1 sorry, what?

2 CHAIRPERSON LLOYD: This is referring to his 3 letter.

4 BOARD MEMBER HUGH FRIEDMAN: I'm referring to his 5 letter. I'm referring to his letter and I don't see

6 I'm sorry, I didn't make myself clear. I'm referring to a 7 letter that Mr. Solt submitted.

8 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Staff 9 does not agree that this will have a negative impact on 10 the environment. Obviously, I think that the program that 11 we have before you today will result in the cleanest 12 technologies available being put into use. That's 13 definitely a positive effect.

14 We think that, again, that the DG market is 15 emerging. And we are evaluating that and we will come 16 back in 2005 with an update as to where that is and the 17 impacts that that does have. So we have a mechanism in 18 there to deal with these issues.

19 BOARD MEMBER HUGH FRIEDMAN: Well, do you, first 20 of all, agree that the continued presence and inclusion of 21 this phrase in the sentence, whatever it is that contains 22 it, is necessary and that if it's retained it will  you 23 said it will not have a negative effect on the 24 environment, in your opinion.

25 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP:

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 138 1 That's correct.

2 BOARD MEMBER HUGH FRIEDMAN: In deed, it's 3 presumably not counterproductive. It's intended to

4 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: To 5 provide and incentive or flexibility, yes.

6 BOARD MEMBER HUGH FRIEDMAN: Although, do you 7 agree that it will or will not have an economic

8 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: I 9 think, at this point in time, it's difficult to tell what 10 the economic impacts will be.

11 BOARD MEMBER HUGH FRIEDMAN: It could 12 potentially, that's part of this cost issue?

13 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: And 14 that's what staff has agreed to come back and address as 15 we get more information.

16 BOARD MEMBER HUGH FRIEDMAN: And you can't agree 17 that it absolutely for sure will eliminate a lot of 18 distributed generation projects?

19 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Well,

20 I think there is a number of technologies that are 21 available right now that can meet the standard. There are 22 some obviously in the market that can't.

23 CHAIRPERSON LLOYD: I think Mr. Solt's got our 24 attention, and I would suggest to staff that maybe given 25 the content of the letter and the distribution list, I PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 139 1 think, we should maybe  it would prudent to respond?

2 MR. SOLT: You mean right now?

3 CHAIRPERSON LLOYD: No, no, no, for them to 4 respond.

5 Thank you.

6 MR. SOLT: Thank you.

7 Karl Stoffers, and also if you could identify the 8 person with you, Mohsen Nazemi and Joan Lee.

9 MR. STOFFERS: Good morning. Thank you for 10 allowing us to speak. My name is Karl Stoffers

11 CHAIRPERSON LLOYD: Can you speak closer to the 12 mic, we can't hear you.

13 MR. STOFFERS: My name is Karl Stoffers. I am a 14 retired faculty member from California State University,

15 Sacramento. I'm a member of Gray Panthers and Joan Lee,

16 who is with me, is our chairperson.

17 I am concerned about clean air, because clean air 18 affects our health, my health. I am concerned about clean 19 air, because of the long range dangers of global warming.

20 I think you see presentations today have very much been 21 concerned with the balance of resources that use renewable 22 energy like solar and wind, and those that are based on 23 fossil fuels.

24 We all know about the fuel aspect. This one 25 thing with the renewable resources wind and sunshine is PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 140 1 that once you have installed your system, the energy comes 2 for free.

3 With fossil fuel based resources month after 4 month, you pay a bill for your fuel and we have 5 experienced during the last year, year and a half what can 6 happen to the prices of fossil fuels.

7 Additionally, we have had recent bad experiences 8 with terrorism and therefore the possibility that your 9 fuel resources will be disrupted by an evil act should not 10 remain outside of our thinking of what we will do.

11 If this Board adopts tough requirements for 12 emissions, then a beneficial side effect is that for the 13 foreseeable future the balance between small powerplants 14 based on renewable resources and small powerplants based 15 on fossil fuels, will be shifted in the direction of the 16 renewable clean resources.

17 I think this consideration is an additional 18 reason why the Board should resolve to have tough 19 standards for emissions, pursue certification of 20 facilities and impose penalties for violations of those.

21 Thank you for listening to me.

22 CHAIRPERSON LLOYD: Thank you for pointing out 23 that I think you've emphasized something which we've not 24 heard in the testimony and that is the benefits of these 25 zero emission technologies and renewables which clearly is PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 141 1 considerable and will only get more important.

2 Thank you.

3 MS. LEE: Thank you for allowing me to speak just 4 a little out of order here since the two of us have come 5 together to speak for Gray Panthers. I'm not only the 6 local chairperson of Gray Panthers, but also the 7 legislative liaison for the entire state.

8 And some gentleman over here who spoke about our 9 priority setting and so on, I would like to point out that 10 we set our priorities nationally through a democratic 11 process in a convention. And that trickles down until the 12 local chapters meet and discuss these issues and set their 13 priorities. And so it's all done in a very democratic 14 fashion.

15 The Gray Panthers have been involved in the 16 issues of clean air for 20 some years now. I testified 17 early on with Lloyd Connolley's efforts to bring into 18 control rice straw burning. We've worked with the Spare 19 The Air Program. And currently I've served on the rice 20 alternative grant awards review team, and we strongly 21 support the adoption of these standards and urge you to 22 set the strongest standards possible for emission and 23 efficiency.

24 And we're well aware that you need to strike a 25 balance in siting those times frames to allow new PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 142 1 technologies and support the entrepreneurs from becoming 2 strongly discouraged to cooperate with the standards and 3 work toward our mutual goals.

4 Don't lose sightof the fact that you here on the 5 Board represent us, that you are speaking for us when you 6 set these standards. And we count on you to represent the 7 interests of real people out there in the communities when 8 certifying and monitoring power sources.

9 In weighing the efforts of this program, remember 10 the costs of health care, which are way out of control,

11 out of control for individual Californians who are, in the 12 past winter, have been stressed by the problem of deciding 13 between food, between pills, between their rent and their 14 energy bills.

15 We have commiserated with them. We have 16 cooperated with the CARES program which is trying to help 17 them pay their energy bills, even retroactively. And we 18 can't postpone the speedy movement toward containment of 19 air quality problems.

20 There are so many of us, myself included, who are 21 chronic asthmatics, who have emphysema, who have heart 22 problems. And these people deserve your maximum effort to 23 move and support these strong protections.

24 Thank you very much.

25 CHAIRPERSON LLOYD: Thank you very much.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 143 1 Mohsen Nazemi, Joan Lee and Bud Beebe.

2 MS. LEE: That's me Joan Lee.

3 CHAIRPERSON LLOYD: Oh, thank you. Sorry.

4 Mohsen, welcome.

5 MR. NAZEMI: Good afternoon. My name is Mohsen 6 Nazemi. I'm Assistant Deputy Executive Officer of the 7 South Coast Air Quality Management District. And I'm in 8 charge of Permitting and Compliance of both central power 9 generation as well as distributed generation in South 10 Coast.

11 First of all, I want to indicate upfront that I 12 am in support of both programs that ARB is voting on 13 today. And I want to commend ARB staff for the hard work 14 they've done. I think they've done an excellent job.

15 As we all learned, sort of, painfully the last 16 couple of years, the electric generation is of significant 17 growth to an unprecedented urgency in the last two years.

18 And individually or cumulatively, the emissions could have 19 a significant impact on the air quality. So the efforts 20 that you're talking today is going to go a long way.

21 As recommended by Dr. Lloyd, I'm going to break 22 up my comments into two, one, regarding certification and 23 one regarding the guidance document.

24 On the certification, South Coast strongly 25 supports the program. These are sources of electrical PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 144 1 generation that are typically unregulated because of the 2 exemptions at the local districts. And again in 3 aggregate, the result in emissions could be significant 4 for the region and for localized areas.

5 We believe it's appropriate to recognize the 6 efficiency of fuel use and reduced greenhouse gases in the 7 certification program. And, in general, these sources do 8 not go through the regular permitting process where BACT 9 offsets and all the other stuff is looked at. So it is 10 appropriate to look at all of that.

11 My only two comments on the certification program 12 are, one, that enforcements should be a very integral part 13 of this program. I understand that ARB is responsible for 14 this program. And South Coast supports any effort that we 15 can do in terms of assistance and looking at random 16 testing of actual field units, because one particular 17 lesson that we have learned is that it's fine to have a 18 laboratory or a model unit certified, but once it goes out 19 in the field, especially if it has sophisticated control 20 systems associated with it, the actual operator could do a 21 lot of things with the unit that may not actually perform 22 in its intended performance level. So we urge you to have 23 a careful look at that.

24 And then, secondly, there are some requirements 25 that we use whenever we see a technology that hasn't PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 145 1 really been proven. And I just want to recommend that in 2 some cases you may need to look at tests from a couple of 3 models, the same model engines or whatever type of units 4 before the units are certified.

5 With respect to the guidance document, I, first 6 of all, recognize that this is just a guidance document.

7 So I understand that districts can do different things 8 with the guidance document as they go through their permit 9 process on a case by case basis. This was something that 10 the SB 1298 required and therefore it's there.

11 However, I want to point out that the guidance 12 document references what BACT is. And BACT is really a 13 program under new source review. It's generally 14 administered under the federal and state Clean Air Act and 15 the local new source review program. There are certain 16 requirements that we go through.

17 In general, what I want to point out is that,

18 first of all, the size of the units that are being 19 considered under this guidance document compared to the 20 previous guidance document that your board approved seems 21 to imply that if it's less than 50, it should be treated 22 differently than a central power generation.

23 I just want to point out that just this year we 24 have permitted nine units in that three to 12 megawatt 25 range that are being used for central power generation,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 146 1 and another six or seven in the 12 to 50 megawatt, again 2 at central generation. We have similar numbers actually 3 in the process of being permitted now.

4 So I want to leave with you the impression that 5 you shouldn't really draw a big distinction between 6 central generation and less than 50 megawatts. There 7 really is one type of unit that should be regulated.

8 The other point that I want to make is the 9 requirements or the guidance suggests that these standards 10 be established in pounds per megawatt hour. And I just 11 want to tell you what the reality of it is and I think 12 staff has recognized that as part of the information in 13 the document that the local districts are establishing 14 BACT requirements in terms of emission concentrations,

15 PPM. And to imply that there will be a different standard 16 in the guidance document, where in reality the local 17 districts impose those requirements in PPM, I think, may 18 be confusing to some of the public and industry who look 19 at it.

20 However, we don't really have an objection in 21 looking at different ways of requiring BACT. I'm just 22 telling you that I don't want the Board to believe that 23 once this document is approved that tomorrow districts are 24 going to impose pounds per megawatt hour. That's a much 25 more difficult type of a requirement to monitor PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 147 1 continuously in the field. And for permitted equipment,

2 we do require continuous monitoring and several other 3 things. So PPM is really what we rely on for enforcement 4 purposes.

5 On that basis then our BACT requirements, and 6 I've checked this with several other districts, I believe 7 it's common throughout California, is, at this time at 8 least, five PPM for simple cycle and two and a half PPM 9 NOx for a combined cycle or cogeneration unit.

10 And I think the real message should be this is 11 what the BACT requirement is, this is what the guidance is 12 telling the districts to do, anything that implies, for 13 example, that if you have a combined cycle, you can 14 actually have a threshold higher than five PPM, I think is 15 not in reality the case. The districts do require two and 16 a half PPM for combined cycle and cogeneration units, and 17 five PPM for simple cycle. Now, having said that, I think 18 we still support what you're doing in the certification 19 program, which is efficient use of fuel, recovery of heat 20 or power and reduction of greenhouse gases.

21 But as late as yesterday at the CEC hearing,

22 there was a big discussion on simple cycle versus combined 23 cycle, and the State still believes that there is a need 24 for certain peaking power that can be brought on line 25 quickly. And those are generally typically simple cycle PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 148 1 turbines. They're not combined cycle. So that's why 2 there are these two standards.

3 And these two standards are what's in place 4 today. I don't want to also give the impression that in 5 2007 BACT for central power and for cogeneration or 6 distributed generation will still be two and a half and 7 five. By then things may change and that's what the state 8 and federal law actually requires us to do to move ahead 9 with advancement in technology.

10 So in a nutshell, I think my recommendation, as 11 stated in the letter by Barry Wallerstein to the Board, is 12 that the guidance should really state that BACT is 13 implemented through the districts, which is two and a half 14 and five today, and with a caveat that local districts can 15 make further BACT determinations, go forward with 16 additional case by case determinations and determine what,

17 in each cast BACT should or shouldn't be.

18 My only other comment on this is that we actually 19 support the permit streamlining provisions and 20 recommendations in this report. Actually, our district 21 was the first that came up with the precertification 22 streamline standard permits and expeditious processing.

23 And Dr. Burke is aware, just last Friday we gave a 24 presentation to the Board that this year alone we have 25 reduced  or actually we have increased our permit PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 149 1 production by 50 percent and reduced our backlog by 37 2 percent.

3 So we are all with the recommendations and we 4 encourage that other districts also proceed with that.

5 With that, I'll be happy to answer any questions.

6 CHAIRPERSON LLOYD: Thirty seven percent of what?

7 MR. NAZEMI: Of our backlog at the beginning of 8 the year. By the end of this year we'll be down 37 9 percent on permits that we process.

10 CHAIRPERSON LLOYD: Thirty percent of what 11 number?

12 MR. NAZEMI: Our starting number was around ten 13 thousand applications and we're going to be down to 6,500 14 by the end of the year.

15 CHAIRPERSON LLOYD: I'd like staff's comment on 16 the point that Dr. Wallerstein made vis a vis the BACT 17 numbers of five and 2.5.

18 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 19 Tollstrup. First of all, I fully agree with Mr. Nazemi's 20 comments. He certainly had some valid points. When staff 21 put together the guidance document our intent was to set 22 the ceiling for these smaller units that are less than 50 23 megawatts. We did not set BACT levels for combined cycled 24 and simple cycle. We basically set the ceiling with the 25 understanding that districts will go through their BACT PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 150 1 process and evaluate on a case by case basis, and where 2 the particular application merits, where they can use the 3 low temperature catalyst that they would be down at the 4 combined cycle limits.

5 And we fully support that and we would certainly 6 push the districts toward that level. It is not 7 specifically listed in the guidance. Again, we had a 8 single level that represents the upper end and would be 9 the simply cycle limits.

10 CHAIRPERSON LLOYD: What about the comment that 11 the concern here that the district's BACT guideline would 12 be challenged based on CARB's recommendation of five?

13 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I think we 14 can go in and clarify in the guidance before we put it out 15 as a final that where someone is using a small turbine in 16 a combined cycle mode or where it's in a combined heat and 17 power, basically that reduces the temperature so that the 18 more efficient catalyst technology is feasible, then 19 that's BACT.

20 CHAIRPERSON LLOYD: Okay, good.

21 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We don't see 22 too many applications like that. Most of the combined 23 cycles are large units.

24 CHAIRPERSON LLOYD: But this would help, yes.

25 Dr. Burke.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 151 1 BOARD MEMBER BURKE: Well, since I have a vested 2 interest in his testimony, I'd like to thank Mr. Nazemi 3 for coming and I'd like to thank the ARB for considering 4 our letter. We did have some concerns. We are obviously 5 going to support this, but you know, we just wanted you to 6 recognize some of our concerns. We appreciate it.

7 CHAIRPERSON LLOYD: We appreciate it coming.

8 Our last person to testify is Bud Beebe from 9 SMUD.

10 MR. BEEBE: Good morning, still, I think. My 11 name is Bud Beebe. I am a regulatory affairs coordinator 12 for the Renewable Generation Assets Group at SMUD. And 13 all of that means that I work with a lot of distributed 14 generation, particularly those that can add societal 15 benefit and robustness to the local electrical grid, and 16 certainly distributed generation is a part of that.

17 SMUD has a stake in distributed generation. We 18 have been active in the process in working with the staff 19 and helping bring some of the experience that we've had 20 with distributed generation to set before the other people 21 who are in the stakeholders process.

22 And I'd like to congratulate the staff really on 23 being able to put together what is not only a set of 24 regulations done in a short amount of time, but also a 25 very concise set that I think adds an accessibility that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 152 1 is often not in regulations. I think people can read 2 these things and understand what they say and develop 3 business plans and future actions based on them, and I 4 think that's a very important piece of this.

5 Certainly, at SMUD we support the output that you 6 have before you today, and hope that this becomes a part 7 of California's future.

8 I'd like to comment on what the gentleman from 9 Bowman mentioned and that is that equivalent and equal is 10 a big issue. And we shouldn't try to confuse the two. I 11 think we are on track to understanding that we want to do 12 equivalence an not equals. Equals are easy for staff to 13 do because you can just like set them up there and people 14 can't really shoot at you, but equivalents are much more 15 difficult. They take technical depth. They take an 16 understanding of processes and a number of things, and 17 that is a difficult point.

18 And let's start to look at just some of the 19 examples of characteristics of distributed generation that 20 either need or deserve the equivalency that is not equated 21 vis a vis to central station power.

22 And certainly central station power is the bogey 23 that we're looking at here. Central station power today 24 in California is very clean and provides electricity 25 efficiently and reliably to this great society.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 153 1 But when you look, for instance, at line losses,

2 central station power has line losses inherent in the 3 transformers and the distribution getting it down to where 4 the loads are actually applied.

5 Distributed generation can make great strides 6 there. And these regulations should recognize that, and,

7 in fact, they do.

8 Some of the criteria pollutants that we deal with 9 in central station power need to be dealt with differently 10 when you realize that this stuff is going to be in 11 somebody's backyard. CO, Carbon Monoxide, for instance is 12 a ground release from a combustion source to a distributed 13 generator, may well need to have a different equivalency 14 for distributed generation relative to central station 15 power.

16 So these things that the staff, from my view, has 17 adequately addressed given the other big problem, which is 18 we don't really know what the future is going to bring.

19 We know what we have as a present system using emergency 20 diesel backups, central station power, those are the known 21 things. Some of these other items are pretty obvious,

22 like line losses and maybe carbon monoxide as a local 23 ground release.

24 But what we see as a paradigm shift in the use of 25 distributed generation is really what's of concern here.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 154 1 If we're looking at tens of thousands, hundreds of 2 thousands of these perhaps combustion based devices,

3 deployed throughout the urban and suburban environments,

4 we can no longer continue to treat these things as de 5 minimis as they certainly are in the local implementation 6 plans today.

7 And, of course, what Senator Bowen's bill in SB 8 1298 did was to recognize the potential for this big 9 change, and give this Board the requirement to put 10 together adequate defense for the future should that all 11 come to pass.

12 Photovoltaics on every roof, a combustion based 13 generator in every basement, whether this is really going 14 to happen or not we can't say, but we do know that we 15 can't be held back from progress in the future as we see 16 it by our fears of what could possibly happen.

17 And to that extent, what we have is these concise 18 regulations and guidance and certification criteria here 19 are, in our belief, very  we're very supportive of that 20 and we think that the process can go ahead in a practical 21 fashion based on these documents.

22 They are a reasonable starting point for the 23 process to go ahead, but really the challenge that I see 24 is to take these documents which should be accessible to 25 the general populous and for architects, mechanical PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 155 1 contractors, electrical contractors, local permitting 2 authorities that are not air permitting authorities, the 3 building owners, the building leasers, the people who rent 4 space, those are the people that have to begin to 5 understand that distributed generation is not emergency 6 generators and the central station normal distribution 7 system that we have today.

8 If it's going to give us the societal benefit for 9 the future, the people who use it and architects who 10 design it into their buildings are going to have to give 11 us projects that will allow us to understand how society 12 will use this so that this good start in the certification 13 and guidance procedures will have a practical foundation 14 in order to go from 2005 to 2007.

15 And so I call not only on this Board but on the 16 general population who could use this stuff to bring us 17 good projects that become good examples of how we can 18 overcome the difficulties of combustion technologies.

19 They're not particularly efficient in the distributed 20 domain, that have some other problems associated with them 21 and give us projects that show what can be done.

22 That's really the end of what I had intended to 23 say when I came into this building, but I want to take a 24 pot shot at the national security issue.

25 Distributed generation, as I've said, is not just PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 156 1 emergency generators in our present electrical supply.

2 Although, it's a very reliable supply, a very robust 3 supply as we've seen, for instance, in the disaster in New 4 York City. It's remarkable that we were able to look at 5 television cameras focusing on that stuff, even though the 6 electrical distribution system in New York City had been 7 greatly damaged at that point.

8 But for those of us who have been looking at 9 distributed generation, we see that with society's 10 changing needs, the way we use electricity, distributed 11 generation can bring with it a tremendous new robustness 12 to the electricity supply. And one of the things I would 13 be lost if we stayed in this present paradigm of thinking 14 of it only as an electrical emergency backup.

15 So we need to get beyond that. And if we do,

16 we'll certainly have a more robust  I just cut myself 17 off I've done that before  we will have a more robust 18 electric supply. And if we follow those processors and 19 certification procedures, we'll have an environmentally 20 superior electricity supply.

21 Thank you very much.

22 CHAIRPERSON LLOYD: Thank you very much. Any 23 questions, comments?

24 Dr. Burke.

25 BOARD MEMBER BURKE: I had two questions. One,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 157 1 how many units, microturbines, do you have at SMUD?

2 MR. BEEBE: I have one that's operational,

3 another that will be operational in three weeks. And 4 there's been an evolution there. Do you want to know 5 other distributed

6 BOARD MEMBER BURKE: What I was trying to 7 ascertain is when our staff gave us this presentation this 8 morning, they called on you as  they used you as a basis 9 of authority and I just wondered if  so they were basing 10 that on one unit.

11 MR. BEEBE: They tested one unit. It happened to 12 be ours. And I think that the advantage was that ours was 13 not a manufacturer's unit. It was a unit that was in the 14 field being tested in a grid connected environment.

15 BOARD MEMBER BURKE: Okay. But it was a 16 manufacturer that they had mentioned, because I recognized 17 it from the picture.

18 And on the national security issue, don't take 19 what I said too literally. My position is that if you 20 distribute the power and you're not based solely on the 21 grid as a source, it gives you a greater reliability 22 factor in certain areas, and I'm not talking about in the 23 standby generator capacity, I'm talking about the straight 24 power capacity.

25 You know, if a base has distributed generated PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 158 1 power, it can still operate if the main grid is out. So 2 you know, I don't want you to think that I'm talking about 3 the standby generator mode, I'm talking about an actual 4 sustainable reliable generation of distributed power mode.

5 MR. BEEBE: Dr. Burke, I'm very glad that you 6 made that so obvious to everyone here. That's really 7 good. And, as I said, SMUD is proud of our reliability.

8 We have a very liable distribution grid and we have 9 reliable resources coming in to it.

10 That's good. But if distributed generation can 11 make it more reliable, we want to see that for our 12 customers who own us. And if we can do all that and not 13 foul the air, that's even better.

14 CHAIRPERSON LLOYD: The unit that was tested at 15 SMUD, what manufacturer was that?

16 MR. BEEBE: That was a Capstone model 330. The 17 Capstone model 60 or the 60 kilowatt unit will go into 18 operation within about four weeks.

19 CHAIRPERSON LLOYD: I thought that was the case.

20 I just wanted to, again, point out that we have a letter 21 from Capstone but nobody was testifying on behalf of 22 Capstone today. And I gather from the comments of the 23 letter, they're supportive of our proposed staff 24 recommendations.

25 MR. BEEBE: I couldn't speak for them, but they PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 159 1 certainly have been an active participant.

2 CHAIRPERSON LLOYD: Thank you.

3 With that, Mr. Kenny, do you have anymore further 4 comments?

5 EXECUTIVE OFFICER KENNY: Two real short 6 comments. What we tried to do here is essentially carry 7 forward the Legislature's and Senator Bowen's intent with 8 regard to 1298. What we think we've presented to you is 9 something that actually does that.

10 And then secondly, I simply want to commend and 11 acknowledge ARB staff. I mean the objective and the 12 obligation that we actually had, and I'm talking 13 specifically about the people directly seated behind me,

14 was to bring this before you before January 1st, 2003.

15 And, in fact, the people behind me actually 16 brought this to you, you know, more than a year early.

17 And that was essentially a fairly daunting task and yet 18 they accomplished it. So I just simply wanted to really 19 kind of acknowledge them.

20 CHAIRPERSON LLOYD: I'm sure in that spirit,

21 you're going to let them coast between now and January 22 2003.

23 ( Laughter.)

24 EXECUTIVE OFFICER KENNY: Unfortunately no good 25 deed goes unpunished.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 160 1 ( Laughter.)

2 BOARD MEMBER RIORDAN: Mr. Chairman, might I 3 suggest that maybe, Mr. Kenny, you inform the author of 4 the bill that we were able to do that. I'm sure the staff 5 is probably tracking it, but that is commendable, and 6 normally government is never so efficient.

7 CHAIRPERSON LLOYD: I'd like to close the record 8 first, if you don't mind, Matt and then  or do you want 9 to ask some questions?

10 Mr. McKinnon.

11 BOARD MEMBER McKINNON: Yeah, I really apologize 12 for missing the first part of the session today. In my 13 other world, we began to experience another waive of 14 layoffs in the airline industry and  but there is one 15 little piece of this that I'm still trying to muddle 16 through. And that is the turbine efficiency question in 17 combined cycle settings where you're considering the use 18 of the heat and in some cases the reuse of the heat in the 19 turbine cycle.

20 And I think in raising this issue, first, is kind 21 of recognition that staff kind of was pretty innovative 22 here to start working through this area. What I'm 23 wondering is if our standard that we're setting in that 24 area is too far from what's really possible today, and if 25 we shouldn't think about getting it closer to what's PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 161 1 possible today to encourage folks to develop in that area?

2 So it's kind of a two part question, and I'm interested in 3 staff's opinion on that.

4 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 5 Tollstrup. Again, there certainly are some issues with 6 efficiency in meeting the standards that we try to 7 encourage the use of CHP, include efficiency numbers 8 there, recognizing that there were some hurdles to come.

9 We set a very high mark for folks to meet on that side.

10 On the other, well  go back to 2003 standards.

11 The 2003 standards we set them. They were achievable 12 levels that we believe are out there now. There is an 13 option to consider CHP efficiency standards on the cert 14 side for that program.

15 On the 2007 side, again, we set the levels 16 comparable to central station powerplants as directed by 17 the legislation. And in addition to that, it wasn't a 18 requirement of 1298, but it was to provide what we thought 19 was some needed flexibility, the consideration of CHP as 20 an alternative to meeting that direct central station 21 powerplant level.

22 I'm not sure if I answered your question, but 23 that's kind of where staff went with the numbers and what 24 we think is achievable now for 2003. And then 2007 there 25 certainly are some issues in meeting those numbers.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 162 1 CHAIRPERSON LLOYD: Professor Friedman.

2 BOARD MEMBER HUGH FRIEDMAN: Matt, I just wanted 3 to  I realize you missed some of this dialogue. I think 4 you came in after we had a fair amount of conversation on 5 that point. You're not the only that had concerns, I know 6 I did, about the cost and whether it was feasible, the 7 2007.

8 Apparently, they're satisfied that the 2003 9 standards are presently achievable. And we're in 2005 10 under this proposal going to have a pretty full blown 11 comprehensive review, technological review, which will 12 include what's now, or in 2005, one of the things that 13 would then be available are what the costs are and what 14 the problems are to move it forward and to attain these 15 set standards for 2007.

16 And then in light of what ever we learn then,

17 we're in a position or whoever our successors may be to 18 make appropriate adjustments, at least that was the 19 conversation, and the focus was largely on that.

20 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: I 21 might also add that we've had fairly extensive discussions 22 today on both sides from the environmental concerns and 23 then also from the industry side on the standard. And 24 staff has agreed to go back and look at the CHP to see if 25 there is a methodology we could use to enter in or bring PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 163 1 this consideration, provide some flexibility to the 2 manufacturers. And that will be part of the 2005 update 3 that we bring back to the Board.

4 BOARD MEMBER McKINNON: Okay. Well, I'm still a 5 little bit uncomfortable about it, but I think that it was 6 a pretty innovative piece to move in with this. And I 7 think, you know, you all did good with it. I'm just 8 wondering if we've left enough room there. And so I guess 9 we'll find out in 2005. I'm not overwhelmed with joy 10 about that approach to it, but I otherwise think that it's 11 very, very important that we do this regulation.

12 Thank you.

13 CHAIRPERSON LLOYD: We don't have to wait until 14 2005.

15 I guess what I'd like to do, I guess we'll have 16 some more discussion on this issue, but I'd like to close 17 the record on this agenda item. However, the record will 18 be reopened when the 15 day notice of public availability 19 is issued. Written or oral comments received after this 20 hearing date, but before the 15 day notice issue will not 21 be accepted as part of the official record on this agenda 22 item.

23 When the record is reopened for a 15 day comment 24 period, the public may submit written comments on the 25 proposed changes, which will be considered and responded PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 164 1 to in the final statement of reasons for the regulation.

2 And for my colleagues here, part of what we're 3 looking at here, we've got a two part  to issues that 4 we're going to be voting on. One part is regulatory, so 5 are there any ex parte communications?

6 Seeing none, again, I'd like to maybe have some 7 further discussion on the two aspects. Maybe the first 8 one we can do isw one of the things I think would be the 9 certification for distributed generation, and then we'll 10 follow up that with the guidelines. One of the things I 11 would like to just lead off with on the certification and 12 guidance I think for CHP, I think I was pleased to hear 13 Mike say that that will be looked at as part of the issue 14 there.

15 I think I'm compelled, I guess, I was initially 16 looking at an interim standard. I guess, I'll go with 17 staff's guidance there in terms of, at least I personally 18 feel that that seems to be a prudent approach. While I 19 listened to both sides of the argument there, clearly it 20 seems to me it may not be prudent. Although, I think 21 we've also heard today that we want to get down as soon as 22 possible to the low numbers in 2007.

23 Again, I was also very much reminded of part of 24 our job here when we had the testimony late on here, that 25 we should, in fact, be offering encouragement for PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 165 1 renewables and really inherently clean technologies here,

2 and that's in our charter to provide that opportunity for 3 clean air, so to me that was a very good reminder.

4 I think we had some initial comments which the, I 5 think, staff was going to look at very carefully. And 6 that was some of the issues in terms of the portable 7 generators and to bring those in line, I think, making 8 sure that, in fact, we were only talking about some of the 9 true emergency generators. I don't know whether that's 10 reflected in the resolution, but I think those are 11 important issues there.

12 Those are some of the things that I thought of.

13 And, again, I would like to reinforce what my colleagues 14 were saying here. And, Mr. Kenny, I think staff has done 15 a tremendous job here with a very difficult  but working 16 with all segments, I think it's really to be applauded.

17 Professor Friedman.

18 BOARD MEMBER HUGH FRIEDMAN: I would just like to 19 add that I think having heard all this that the proposal 20 from the staff, the recommendation on both, is very a 21 reasoned, appropriate response to the legislation. After 22 all that's what triggered it, and we're really responding 23 to a requirement.

24 And I understand the controversy over the time 25 line and I understand the, I think I hope I understand,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 166 1 the issues of cost concerns and whether the 2007 standards 2 can be achieved. But I think this is also not only a 3 reasonable and appropriate response to the legislative 4 mandate, but a very strategic one. Once again, the staff 5 has come up with, I think, a very strategic response in 6 the sense of what is a very goal oriented, and hopefully 7 it will have  hopefully our concerns about whether it 8 will be any kind of a disincentive won't be met and 9 hopefully we'll monitor and be able to see by 2005 what 10 we've brought.

11 But I commend the staff, once again, on a good 12 piece of work apparently in the light of a lot of public 13 input and all constituencies having had their say.

14 CHAIRPERSON LLOYD: I'd like to add another 15 point, which is part of my earlier comments about 16 renewables. Again, we talked about some of the energy 17 security concerns there, but I think we are now having

18 we're providing a significant incentive for people to go 19 to renewables getting away from some of the other fossil 20 fuels here.

21 I think that's  I think we're creating some 22 substantial opportunities which I think is going to be 23 very, very important, which ties into the health issues,

24 public health. And I think that's an important aspect,

25 which we haven't highlighted, but I think it's going to be PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 167 1 important.

2 Any other comments from the Board, before I 3 entertain a motion?

4 Dr. Burke.

5 I would concur if we can include the changes I 6 suggested on caveats, et cetera, et cetera, et cetera.

7 GENERAL COUNSEL WALSH: We can include that 8 language in the resolution based on the statement into the 9 record regarding the districts on making sure that the 10 program is properly implemented.

11 CHAIRPERSON LLOYD: And other things.

12 GENERAL COUNSEL WALSH: And the other things.

13 ( Laughter.)

14 CHAIRPERSON LLOYD: I guess we'll get a chance to 15 look at that. Okay, we're voting on the distributed 16 guidelines.

17 BOARD MEMBER D'ADAMO: Mr. Chairman, I just think 18 it's probably a little bit vague. For those of us in the 19 future who may want to go back, could staff just briefly 20 recount the additional changes, just so we have a record 21 of it.

22 EXECUTIVE OFFICER KENNY: Actually, I think the 23 changes that we were talking about were essentially 24 incorporating into the resolution the issue of CHP and 25 making sure that we actually do a comprehensive review of PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 168 1 that in 2005.

2 Additionally, there was the question about 3 portable power and ensuring that, in fact, portable power 4 is not improperly utilized.

5 And then lastly there was the concern about 6 renewables  or actually not a concern, but essentially 7 kind of an incentivization for renewables and making sure 8 that that's reflected in the resolution. And what we can 9 do is we can essentially incorporate those all into the 10 resolution, before it is finalized.

11 CHAIRPERSON LLOYD: The other one point, working 12 with the districts to make sure that, in fact, as we look 13 at these generators they're a true emergency.

14 EXECUTIVE OFFICER KENNY: That's correct.

15 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: And 16 there was also the issue of emergency backup.

17 BOARD MEMBER BURKE: I'll move that motion.

18 BOARD MEMBER D'ADAMO: Second.

19 CHAIRPERSON LLOYD: All in favor say aye?

20 ( Ayes.)

21 CHAIRPERSON LLOYD: Anybody against?

22 Thank you.

23 Now, we'll look at the issue of the guidelines.

24 Again, I guess we have some of the same comments in there 25 I think we've probably reflected it already.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 169 1 BOARD MEMBER McKINNON: Mr. Chairman, I'll move 2 it.

3 BOARD MEMBER RIORDAN: I'll second the motion.

4 CHAIRPERSON LLOYD: All in favor say aye?

5 ( Ayes.)

6 CHAIRPERSON LLOYD: Anybody against, no?

7 Well, thank you very much indeed again. Thank 8 you, staff, and thank you for all the contributions from 9 the various stakeholders. I thought we were going to go 10 through lunch, but I keep forgetting we have a court 11 reporter who needs feeding, as well as staff and board 12 members, so we're going to take actually try  do you 13 think you can eat in 15 minutes  okay a 15 minute break 14 and then we will continue with agenda item 01 9 2,

15 low emission vehicle regulations.

16 ( Thereupon a lunch recess was taken.)

17 18 19 20 21 22 23 24 25 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 170 1 AFTERNOON SESSION 2 CHAIRPERSON LLOYD: The next item on the agenda 3 today is 01 9 2, proposed amendments to the low emission 4 vehicle regulations.

5 Since this is a relatively straightforward item 6 and by specific request of my colleagues, I will go 7 directly to the staff's presentation.

8 Mr. Kenny.

9 EXECUTIVE OFFICER KENNY: Thank you, Mr. Chairman 10 and Members of the Board. As a staff we continuously seek 11 to improve California's vehicle regulations and test 12 procedures. Our goal is to improve clarity, increase 13 uniformity with the U. S. Environmental Protection Agency 14 of what is appropriate, minimize the cost wherever 15 possible and anticipate and resolve regulatory issues long 16 before they pose any serious problem for manufacturers.

17 In 1998, the Board adopted the second phase of 18 the low emission vehicle program, the LEV II program, that 19 action extended the original LEV I Regulation through 20 2010, thereby increasing the overall benefits of the 21 program.

22 In December 2000, the LEV II regulations were 23 revised, oncee again, to take advantage of some elements 24 of the federal tier 2 emission standards. And the latter 25 action ensured that California has the benefit of the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 171 1 cleanest vehicles possible.

2 Today the staff is proposing a number of minor 3 modifications to the LEV II regulations including the 4 addition of new emission standards for particulate matter.

5 As before, these changes will continue to facilitate the 6 certification of the cleanest possible vehicles in 7 California and to streamline the requirements for 8 manufacturers.

9 And with that, I would now like to turn it over 10 to Sara Carter who will make the presentation.

11 Sara.

12 AIR RESOURCES ENGINEER CARTER: Thank you, Mike.

13 Good morning, Chairman Lloyd and Members of the Board.

14 Today I will be presenting staff's proposal to adopt 15 particulate standards for gasoline vehicles and more 16 stringent requirements for multi fuel vehicles that 17 receive partial zero emission vehicle credit, as well as a 18 number of administrative revisions to the low emission 19 vehicle program.

20 ( Thereupon an overhead presentation was 21 presented as follows.)

22 AIR RESOURCES ENGINEER CARTER: In 1990 the Air 23 Resources Board adopted the low emission vehicle, or LEV I 24 program, which significantly reduced exhaust emissions 25 from the light and medium duty vehicle fleet between 1994 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 172 1 and 2003.

2 Both the LEV I regulations and the second phase 3 of these regulations, LEV II, adopted in November 1998 4 include three primary elements. The first consists of 5 tiers of exhaust emission standards for increasingly more 6 stringent categories of low mission vehicles. The second 7 is a mechanism requiring each manufacturer to phase in a 8 progressively cleaner mix of vehicles from year to year 9 with the option of credit banking and trading. And the 10 third is a requirement that a specified percentage of 11 passenger cars and trucks be ZEVs, vehicles with no 12 emissions.

13  o0o

14 AIR RESOURCES ENGINEER CARTER: These are the 15 emission standards for passenger cars under LEV II. The 16 benefits of these new standards compared the LEV I range 17 from a 75 percent reduction in NOx emissions from 18 passenger cars to a 90 percent reduction in NOx emissions 19 from the largest sport utility vehicles and trucks.

20 The nonmethane organic gas or NMOG standards 21 remain unchanged from the already stringent LEV I 22 standards. The LEV II program also establishes a near 23 zero super ultra low emission vehicle, or SULEV, emission 24 category. The transitional low emission, or T LEV,

25 category has dropped for LEV II.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 173 1  o0o

2 AIR RESOURCES ENGINEER CARTER: The ARB 3 continuously seeks to improve California regulations and 4 test procedures. Our goal is to ensure that California 5 continues to receive the cleanest vehicles possible, while 6 minimizing costs wherever possible.

7 Today's proposal supports these goals by 8 proposing a number of changes to the LEV II regulations,

9 including new emission standards and administrative 10 amendments.

11  o0o

12 AIR RESOURCES ENGINEER CARTER: The new emission 13 standards being proposed today include establishment of 14 particulate matter standards for gasoline vehicles and 15 modifications to the partial zero emission vehicle or PZEV 16 requirements for bi fuel, flexible fuel or dual fuel 17 vehicles.

18  o0o

19 AIR RESOURCES ENGINEER CARTER: Currently,

20 California only requires that diesel vehicles meet 21 particulate matter or PM standards. For LEV II vehicles 22 under 8,500 pounds, the standard is ten milligrams per 23 mile. Comparable federal regulations require both 24 gasoline and diesel vehicles to meet a PM standard of ten 25 milligrams per mile.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 174 1 Accordingly, staff is proposing to require that 2 gasoline LEV II vehicles also meet applicable PM 3 standards. The primary purpose of these standards would 4 be to ensure that manufacturers introducing direct 5 injection gasoline engines will continue to provide low PM 6 emissions.

7 Direct injection engines may offer improved fuel 8 economy compared to current engines, which makes them 9 attractive, but these engines tend to emit higher PM and 10 NOx emissions.

11 Therefore, staff feels it is appropriate to 12 require gasoline vehicles to meet applicable PM standards 13 in order to provide an additional measure of protection of 14 public health. Data indicate that current gasoline 15 vehicles can readily meet the proposed standards.

16  o0o

17 AIR RESOURCES ENGINEER CARTER: Currently, a 18 natural gas or alcohol bi fuel, flexible fuel, or dual 19 fuel vehicle may certify to two emission standards. The 20 lower standard when operating on the alternative fuel and 21 the next higher emission standard when operating on 22 gasoline.

23 The LEV regulations were structured to give 24 special consideration to these types of vehicles because 25 emissions from alternative fuel vehicles are likely to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 175 1 exhibit a lower ozone forming potential than emissions 2 from gasoline vehicles.

3  o0o

4 AIR RESOURCES ENGINEER CARTER: As part of the 5 LEV II rule making, the ZEV requirement was modified to 6 allow a manufacturer to meet a portion of its ZEV 7 obligation using extremely clean vehicles. The new 8 emission category of partial zero emission vehicle or PZEV 9 basically reflects the SULEV emission standards with 10 additional strict requirements, such as having to meet 11 this standards at 150,000 miles instead of 120,000,

12 meeting zero evaporative emission requirements and 13 providing a 15 year, 150,000 mile emission warranty.

14 A manufacturer that meets these strict 15 requirements may qualify for partial ZEV credits that can 16 be used to offset the ZEV requirement. The granting of 17 partial ZEV credits for PZEVs is premised on the 18 assumption that the PZEVs provide emission benefits beyond 19 those achievable by a vehicle certifying to the SULEV 20 standard.

21 Within this context, staff is proposing that any 22 bi fuel, flexible fuel or dual fuel vehicle that certifies 23 to PZEV standard must certify to the SULEV emission 24 standard on both gasoline and the cleaner fuel.

25 If a manufacturer does not wish to earn a partial PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 176 1 ZEV credit from a bi fuel, flexible fuel or dual fuel 2 vehicle, then the manufacturer would still be allowed to 3 certify to a higher standard when operating on gasoline.

4  o0o

5 AIR RESOURCES ENGINEER CARTER: In addition to 6 the proposed revisions just discussed, today's proposal 7 contains a number of administrative amendments. These 8 amendments include the adoption of a gasoline nonmethane 9 organic gas correction factor of 1.04. This factor would 10 allow manufacturers to reduce testing costs by not 11 measuring carbonates which are consistently low 12 percentages of gasoline exhaust and costly to measure.

13 This amendment would also align California and federal 14 testing requirements.

15 A second administrative amendment is extending 16 the applicability of generic reactivity adjustment factors 17 or RAFs indefinitely for alternative fuels.

18 Generic RAFs are also used to reduce testing 19 costs. These RAFs currently sunset after the 2003 model 20 year. It should be noted that the generic RAF of Phase 2 21 gasoline will not be similarly extended. The reason for 22 this is two fold.

23 First, the Phase 2 gasoline RAF was established 24 using fuel containing Methyl Tertiary Butyl Ether or MTBE.

25 MTBE has been banned from use in California gasoline PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 177 1 starting December 31st, 2002.

2 Second, limited testing on production vehicles 3 indicate that current generic RAFs for Phase 2 gasoline 4 are too low. Therefore, it would be inappropriate to 5 extend their applicability beyond the 2003 time frame.

6 However, manufacturers would be allowed to 7 develop specific RAFs for individual groups of gasoline 8 vehicles after 2003.

9 A third administrative amendment is to update and 10 revise the AB 965 guidelines. These guidelines are 11 required by the California Health and Safety Code. They 12 allow limited numbers of federal vehicles that do not meet 13 California emission standards to be sold here, provided 14 their emissions are offset by cleaner California vehicles.

15 Currently, the AB 965 guidelines do not extend 16 beyond the period covered by the LEV I regulations that is 17 the 2003 model year. They also do not reflect the changes 18 to the vehicle enforcement procedures due to streamline 19 certification measures adopted in 2000 known as the Cap 20 2000 program.

21 Today's proposal would revise these guidelines to 22 better reflect Cap 2000, as well as the LEV II program and 23 extend their applicability through 2010. The fourth 24 administrative amendment being proposed today is the 25 result of a previous oversight on the part of staff.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 178 1 Overall, the LEV II regulations provide slightly 2 less stringent in use standards for the first three years 3 that a new vehicle model is introduced that complies with 4 the LEV II program. However, intermediate in use 5 standards were inadvertently omitted for light duty trucks 6 engineered for heavier duty cycles. These vehicles have a 7 base pay load capacity of 2,300 pounds or higher. They 8 were also emitted for LEV II vehicles certifying to 9 150,000 mile standards.

10 Accordingly, staff is proposing intermediate 11 in use standards for these emission categories. Finally,

12 a number of primarily technical revisions to the 13 nonmethane organic gas test procedures are being proposed.

14 The maximum incremental reactivity scale is also being 15 updated to reflect new values adopted as part of a recent 16 consumer products rule making.

17  o0o

18 AIR RESOURCES ENGINEER CARTER: Staff is also 19 proposing a couple of changes to the original 45 day 20 notice. These 15 day changes are available at the back 21 table.

22 The first of these involves the use of dual fired 23 heaters on ZEVs. Currently, fuel fired heaters on ZEVs 24 are permitted to operate only below 40 degrees F, above 25 that temperature other heating systems must be used that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 179 1 emit no emissions.

2 At this time, fuel fire heaters must meet the 3 ULEV emission levels when operating between 68 and 86 4 degrees F. For this rulemaking, staff had proposed that 5 fuel fire heaters meet the cleanest possible standards,

6 meaning SULEV standards when operating at 40 degrees F to 7 ensure the lowest possible emissions from ZEVs and to 8 better reflect actual operating temperatures consistent 9 with the ZEV concept.

10 Prior to issuing the 45 day notice, staff 11 provided industry with a revised fuel fire heater proposed 12 requirements and requested their comments. At that time,

13 the only comment received was a request that the proposed 14 implementation date of 2003 be delayed until 2005. This 15 change is incorporated into the final proposal.

16  o0o

17 AIR RESOURCES ENGINEER CARTER: Subsequent to the 18 45 day notice, however, industry informed staff that it 19 was neither technologically nor economically feasible to 20 meet the new requirements in that time frame. Since staff 21 had relied on industry's initial positive assessment, we 22 had not performed tests of our own.

23 Consequently, staff is proposing to drop this 24 proposal until we can perform additional tests and work 25 with suppliers to evaluate further emission reductions PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 180 1 from these devices. Since these devices may be used in 2 other vehicles in the future, such as hybrids, fuel cells 3 and possibly very efficient diesels that will have little 4 waste heat but cabin heating, staff will revisit the 5 proposal at a later date.

6 Staff has coordinated with the northeast states 7 in this matter, since the climate would require the use of 8 fuel fire heaters more than in California. They concurred 9 that this issue should be dropped for the time being until 10 further studies are performed in order to facilitate a 11 smooth launch of ZEVs in their part of the country.

12  o0o

13 AIR RESOURCES ENGINEER CARTER: The second 15 day 14 change being proposed today is to modify the nonmethane 15 organic gas fleet average requirement for independent 16 low volume manufacturers. Independent low volume 17 manufacturers produce between 4,500 and 10,000 vehicles 18 per year for California sales. A manufacturer in this 19 category will generally produce only a limited number of 20 test groups.

21 Therefore, it would be difficult to meet a 22 continually changing fleet average requirement. The 23 proposed 15 day modifications are intended to ease the 24 certification burden on these manufacturers. The proposed 25 nonmethane organic gas fleet average requirements for PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 181 1 independent low volume manufacturers would be more 2 stringent than that required for small volume  for a 3 small volume manufacturer, but it would be less stringent 4 than that applicable to a large volume manufacturer.

5 Providing special consideration for independent 6 low volume manufacturers is consistent with the policy the 7 Board demonstrated were the ZEV regulations.

8  o0o

9 AIR RESOURCES ENGINEER CARTER: To summarize 10 staff's proposal will help ensure California continues to 11 receive the cleanest vehicles available. It will help 12 facilitate the certification of clean vehicles in 13 California, and it will help eliminate unnecessary costs 14 to vehicle manufacturers.

15 For those reasons staff recommends the Board 16 adopt this proposal including the proposed 15 day changes.

17 CHAIRPERSON LLOYD: Thank you very much, Sara.

18 Madam Ombudsman, will you describe the public 19 participation the occurred while this time item was being 20 brought before the Board and express any comments or 21 concerns you may have to the Board at this time.

22 OMBUDSMAN TSCHOGL: Thank you. Mr. Chairman, and 23 Members of the Board, staff began their outreach process 24 in February of this year by sending out notification of 25 this proposal. The notification went to the affected PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 182 1 industries, the environmental community and to 2 governmental organizations.

3 Since this Regulation is largely amendments,

4 which align California regulations with those of the 5 federal government, staff did not schedule a formal 6 workshop. Staff did announce that a workshop would be 7 held if any of the constituents felt it was necessary. No 8 one indicated a workshop was necessary, so none was held.

9 In an effort to provide as much opportunity for 10 interested parties to comment, staff made themselves 11 available in person, over the phone and through Email.

12 They received many comments, many of which helped shape 13 the document before you now.

14 Finally, on September 28th, staff posted the 15 proposal and announced today's hearing. Staff sent the 16 announcement to over 400 people via the U. S. Postal 17 Service and Email.

18 Thank you.

19 CHAIRPERSON LLOYD: Thank you.

20 Any board members have any questions at this 21 time?

22 Mr. McKinnon.

23 BOARD MEMBER McKINNON: Yeah, I have no problem 24 with the proposal. There's just one, kind of, little 25 strand that was out there and that's the fuel heater PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 183 1 issue. And I guess in any event that some day that's 2 going to come back at us as something that we're going to 3 need to deal with.

4 I have a recollection that CALSTART and some 5 others were working on seats that heated the person rather 6 than heating the air. And I think when I talked to staff 7 about it earlier, the major issue left out there was like 8 defroster heat and that kind of thing.

9 And I guess I'm wondering if maybe we couldn't 10 kind of get out ahead of that and figure out where all of 11 that's at, and whether or not we need to support research 12 or some initiative in that area.

13 CHAIRPERSON LLOYD: I remember the same thing. I 14 wondered also what happened there. Tom, do you know what 15 happened?

16 DEPUTY EXECUTIVE OFFICER CACKETTE: I don't 17 believe that we've done any focus research on those 18 technologies, but those are both, you know, used on 19 actually some EVs now like a window, a front window type 20 defogger, for example.

21 So that's something we can certainly look at, but 22 just a bit of the history that may not have come through.

23 The reason we put this requirement in here was because the 24 northeast states asked for it, because we didn't think we 25 didn't want any fuel fire heaters because most of the time PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 184 1 it rarely gets below 40 degrees, but they do.

2 And our motivation to change the standard was, in 3 fact, solely that these vehicles ought to have the 4 cleanest fuel fire heater. We adopted a SULEV standard.

5 It used to be ULEV was the cleanest, so we thought let's 6 make it SULEV. It turned out that those who are pursuing 7 the heaters ran into some problems being able to get them 8 down to the SULEV level.

9 And so we talked to the northeast and asked, you 10 know what, do you want us to make the change or not or 11 back off? And they basically said, you know, since 12 they're just trying to get the ZEV program going in their 13 states, they would appreciate this being removed as an 14 issue. So that's kind of like why we did it in this, sort 15 of, clumsy way here today.

16 But I think, you know, that's a good point. We 17 can try to take a look at whether there are some 18 alternative technologies. I don't think we'd want to 19 spend a lot of our own money on it, because it really 20 doesn't affect us very much. Maybe, we can consult with 21 the northeast states and see what their degree of interest 22 is.

23 BOARD MEMBER McKINNON: Okay, thank you.

24 CHAIRPERSON LLOYD: Thank you.

25 Mr. Calhoun.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 185 1 BOARD MEMBER CALHOUN: This particular question 2 pertains to the particulate standards, of the particulate 3 emissions from direct injection gasoline power vehicles 4 such that it would warrant establishing emission 5 standards?

6 MOBILE SOURCE CONTROL DIVISION CHIEF CROSS: They 7 have the potential to be. And so I think, you know, it's 8 going to depend on how small the fuel droplets are and 9 what the combustion system in the engine is, but they have 10 the potential to be that more so than the current port 11 injected premixed engines, so it's a preventative.

12 BOARD MEMBER CALHOUN: Getting ahead of the game.

13 Thank you.

14 CHAIRPERSON LLOYD: Thank you. I'd like to now 15 call the first two witnesses for this item signed up to 16 speak are Greg Dana from the Alliance of Automobile 17 Manufacturers and Pete Hardigan from Ford.

18 MR. DANA: Good afternoon. My name is Greg Dana,

19 and I'm vice president of Environmental Affairs at the 20 Alliance of Automotive Manufacturers.

21 And Dr. Burke isn't here so I can't tell him who 22 my members are and how many there are. But we represent 23 13 manufacturers and I can name them for you if you'd 24 like, and represent about 90 percent of the sales here in 25 the United States.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 186 1 Now, I'm not here to complain about any of the 2 changes you've made. In fact, I'd like to thank the staff 3 and the Board for considering some of the revisions 4 they've made to align the California program more closer 5 with the federal program, because we're facing a lot of 6 requirements in the next few years, and anything we can do 7 to align the two programs to make things slightly less 8 costly and slightly less difficult to do is always 9 helpful, so we appreciate that activity.

10 The second point I wanted to raise today

11 you'll see my testimony. Unfortunately, it looks like 12 nobody got the letter we sent to the Board, or the staff 13 certainly hasn't seen it, but I would like to point out 14 that we really did send the Board a letter on October 26th 15 about this, and apparently it got lost somewhere.

16 Really, it's an issue of, again, further 17 streamlining or further making federal and California 18 consistent.

19 CHAIRPERSON LLOYD: In these days, we've got 20 heightened security based on where the letters were 21 received.

22 ( Laughter.)

23 MR. DANA: But what this letter said was 24 basically that under the current federal and California 25 rules, we phase in both Tier 2 and LEV II at 25, 50, 75 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 187 1 100 percent over four years. The federal evap emissions 2 also phase in at that same schedule.

3 The only one that's odd is the California 4 evaporative emissions phase in at 40, 80 and 100 percent,

5 which is a different schedule.

6 And what we're starting to look now at 2004 and 5 7 model years in terms of what we're going to do. And as we 8 look at that, we see that slightly odder phase in for 9 evaporative emissions here in California is causing us 10 some problems in terms of trying to get all our models 11 lined up for, you know, over three year design cycles, and 12 trying to do it in the least amount of hassle and expense.

13 And having to deal with this slightly different 14 phase in will, in fact, be a lot more costly for us as 15 manufacturers. And we'd like to see if the Board would 16 consider changing that phase in to be the same as the 17 federal phase in, which is 25, 50, 75 and 100.

18 CHAIRPERSON LLOYD: Do I interpret your request 19 and the outcome here was that you are most successful at 20 the federal level in getting a more relaxed phase in than 21 you were in California?

22 ( Laughter.)

23 MR. DANA: I can't remember what we talked about 24 at the federal level and California, to be honest with 25 you, Dr. Lloyd.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 188 1 That's the way the federal rule came out and I 2 don't remember the details of how that was debated or 3 discussed.

4 CHAIRPERSON LLOYD: Which came first?

5 MR. DANA: You guys were first.

6 CHAIRPERSON LLOYD: But apparently this is not to 7 do with today's item?

8 MR. DANA: No. You know, again we were concerned 9 that we're looking very closely now at the model year when 10 this takes place. And we'd like to somehow to get it 11 before the Board somehow to get you thinking about it, of 12 what's really an important issue for us in terms of trying 13 to phase in all the changes to all the models over the 14 years.

15 CHAIRPERSON LLOYD: I see what you're saying,

16 Greg. It seems tough to say now we've got to slow down 17 because the feds have slowed down. And my original 18 comment was that you were clearly more successful at the 19 federal level in slowing things down than you were in 20 California where our need is greatest.

21 MR. DANA: Well, Tom suggested outside that we 22 might want to move the federal phase up to the same as 23 California's.

24 CHAIRPERSON LLOYD: That's right. That's 25 exactly  I think we would support that, so if we can go PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 189 1 with you to the feds and actually suggest that, we'd be 2 very happy.

3 MR. DANA: But understand, too, that the exhaust 4 and evaporative have been interactions, so having even 5 exhaust emission standards phasing differently evap also 6 causes us some concerns.

7 And, again, we just would like to see if the 8 Board would be willing to consider this change, because it 9 does relax some of the burden. If you had seen our 10 letter, we did actually do an analysis looking at the air 11 quality impacts, and there is a slight negative impact on 12 ROG emissions on how to cover emissions, and that analysis 13 was attached to the letter to the Board, which I'm not 14 sure you saw.

15 CHAIRPERSON LLOYD: I'm open to suggestion from 16 my colleagues. One of the things I would like to suggest,

17 Greg, that since this wasn't on the agenda here for staff 18 to consider your letter, we get a chance to do that and 19 hear back from staff. That would seem to be more

20 BOARD MEMBER RIORDAN: Mr. Chairman, my question 21 was going to be to the speaker. Have you brought this to 22 the staff prior to this moment or through your letter? I 23 mean, have you had an opportunity to sit down and talk to 24 them about it?

25 MR. DANA: Well, we talked to them just briefly a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 190 1 little bit ago, but apparently they had never been aware 2 of this letter either and that's what started me wondering 3 if you folks ever saw the letter in the first place. So 4 we need to get back and do that and I'll be happy to leave 5 this copy with the clerk here so you can all get a copy of 6 it.

7 BOARD MEMBER RIORDAN: Because I think, Mr.

8 Chairman, it sort of comes up a little bit unexpectedly to 9 some of us. And I think the staff needs an opportunity to 10 look at it, and maybe have some dialogue with you.

11 MR. DANA: Well, we assumed that the letter I 12 sent on October 26th would have been seen by the Board and 13 the staff and it wouldn't have been a surprise, but 14 obviously that didn't happen.

15 CHAIRPERSON LLOYD: Mr. Calhoun, and then Ms.

16 D'Adamo.

17 BOARD MEMBER CALHOUN: I guess I can understand 18 why they would want to harmonize the evap with the 19 introduction of the other model. It seems to me it would 20 really make sense, because the evap system isn't 21 considered independent of the other parts of the overall 22 emissions control system. While I have not discussed this 23 with the staff, I don't think they would seriously object 24 to it, but that's me talking.

25 But that's not an issue today, of what it's PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 191 1 something that will have to come back at a later date.

2 CHAIRPERSON LLOYD: Yes, Ms. D'Adamo.

3 BOARD MEMBER D'ADAMO: Well, I don't have any 4 objection to a dialogue with staff, but I would just say 5 that flip slide would also hold true if your viewpoint is 6 that the federal standard is making it more difficult for 7 you to comply with the state standard. I would propose to 8 you that you look at it a little differently, that the 9 state standard is going to make a lot more ease for you to 10 comply with the federal standard.

11 If you can meet the state standard of course you 12 can meet the federal standard, correct?

13 MR. DANA: It's the fact that we have to run all 14 the different models at various time frames and looking at 15 the phase ins we have. There's an interaction between 16 evaporative emission standards and jump up emission 17 standards, so that the unique evaporative phase in has 18 added substantial cost and complexity to our phase in of 19 all the vehicles. That's the problem that we're going to 20 spend additional costs and additional manpower because of 21 that different phase in, and an additional burden on us 22 trying to get in compliance with the regulations.

23 CHAIRPERSON LLOYD: One thing I would say,

24 though, we are at a disadvantage Greg, not having that 25 letter. I don't think we're being able to give due PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 192 1 justice to your viewpoint. I'm also concerned that I'm 2 going to lose a quorum at 3: 00 o'clock. And so we have 3 this item and another regulatory item. So if you still 4 want to ask a question, Mr. McKinnon.

5 MR. DANA: Well, I apologize.

6 BOARD MEMBER McKINNON: I'll just make a short 7 and sweet statement. It seems that hearing after hearing 8 recently what we hear is that there is a lower federal 9 standard that we need to go meet. And over time we're 10 going to have a difficult time distinguishing when that's 11 really the case or when that's really the change in let's 12 just say the political orientation of the state and 13 federal government.

14 And I mean no offense to you or to this 15 particular issue, but we're hearing that now sort of over 16 and over again. And we're trying to clean up air to meet 17 federal standards.

18 So, anyway thanks.

19 CHAIRPERSON LLOYD: Thank you very much.

20 Thank you, Greg.

21 MR. DANA: Well, Dr. Lloyd, I apologize you 22 didn't get the letter. I'll leave it with the Clerk and 23 make sure that the copies get to you and the staff and 24 talk some more about it.

25 CHAIRPERSON LLOYD: Ms. Walsh.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 193 1 GENERAL COUNSEL WALSH: And Chairman Lloyd, if I 2 could just clarify for the  of what is staff's position 3 that while this letter may have gone astray and we will 4 need to take a look at the issue, that today the concern 5 is that the requests contained in the letter are really 6 outside the scope of the notice for the matter that you're 7 considering today.

8 CHAIRPERSON LLOYD: Thank you.

9 Peter Hardigan of Ford.

10 MR. HARDIGAN: I'm Pete Hardigan. I work at Ford 11 Motor Company. I'm also going to take another run at you 12 guys on this federal California evap phase in issue.

13 If you could put up the chart.

14  o0o

15 MR. HARDIGAN: Before I start, I want to commend 16 staff on the changes they've already made. They worked 17 with manufacturers to resolve issues, and most importantly 18 these changes didn't impact air quality in a negative 19 manner.

20 Along those same lines, the phase in for evap in 21 California, as you know or as Greg pointed out, is a three 22 year phase in. Federally, the evap and tailpipe is 23 four year phase in. In California the exhaust phase in is 24 over four years.

25 What that does it kind of stands out, and it PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 194 1 results in higher resource utilization, higher costs 2 because what happens, for example, in 2005  and if you'd 3 go to the next chart.