review of concepts and solutions to provide zero-emission...

Review of Concepts and Solutions to Provide Zero-Emission Container Movement Systems (ZECMS) to the Ports of Long

Beach and Los Angeles

Keston Institute for Public Finance and Infrastructure Policy

University of Southern California 650 Childs Way

Los Angeles, CA 90089

July 2010

malvarado

Typewritten Text

Attachment 1

The work described in this report was performed pursuant to a contract between the City of Long Beach, California and the University of Southern California on behalf of the Keston Institute for Public Finance and Infrastructure Policy.

For more information contact:

Richard G. Little, Director

Keston Institute for Public Finance and Infrastructure Policy

University of Southern California 650 Childs Way

Los Angeles, CA 90089 [email protected]

1

Background On June 3, 2009, the Port of Long Beach (POLB) in conjunction with the Port of Los Angeles and the Alameda Corridor Transportation Authority issued a Request for Concepts and Solutions (RFCS) for a public-private partnership to design, build, finance, operate, and maintain/manage a Zero Emission Container Movement System (ZECMS) that would link the San Pedro Bay Ports and near-dock intermodal facilities. The stated purpose of the RFCS was to:

(a) determine the viability of available ZECMS technologies submitted by each respondent to the RFCS (Respondent) and the feasibility of employing that technology for completion of the Project;

(b) evaluate the capabilities of each Respondent’s management teams to provide and present detailed design criteria and construction capability for a possible future RFQ/RFP for the Design, Build, Finance, Operate, and Maintain (DBFOM) of a ZECMS (the Project);

(c) assess the Respondent's current financial plan for funding the Project at no net cost to the Ports, including operating costs for a proposed long‐term leasehold initiative for the Project and Respondent management teams.1

POLB entered into an agreement with the USC Keston Institute for Public

Finance and Infrastructure Policy to assemble an independent panel of experts to review and comment on submissions received in response to the RFCS. The panel’s task was to review each of the Submittals for the purpose of determining the responsiveness of each such Submittal to the specific terms, requirements, and criteria prescribed in the RFCS. Brief biographical sketches of the panel members may be found in Appendix A.

The RFCS directed Respondents to address their responses to four key elements: 1) technology application strategy; 2) financial feasibility; 3) business plan; and 4) system benefits. The panel was provided with copies of the documents submitted in response to the RFCS in advance and met on February 1-2, 2010 in Long Beach, California to collectively review and discuss the submissions and determine their responsiveness to the RFCS. Subsequent to this meeting, respondents were requested to submit written answers to a series of questions developed after review of the initial responses to the Request for Concepts and Solutions. These questions, and the responses provided are found in Appendix B and Appendix C, respectively. Members of the panel and representatives of the Ports of Long Beach and Los Angeles and the Alameda Corridor Transportation Authority conducted individual interviews with each

1 Zero Emission Container Movement System: Request for Concepts and Solutions. June 3, 2009. The Port of Long Beach.

2

Respondent on May 24, 2010. This document transmits the results of this combined review and evaluation effort. Evaluation and Findings Seven submittals were received in response to the RFCS and evaluated as directed by the Port of Long Beach in a letter dated January 25, 2010. The seven Respondents were:

• American Maglev Technology of Florida • Bombardier • Flight Rail Corporation • Freight Shuttle Partners • Innovative Transportation Systems Corporation • LEVX California Freight Systems • Tetra Tech

The panel reviews of the initial responses to the Request for Concepts and Solutions (RFCS) are summarized in the following tables. Overall, the panel found the submissions to vary greatly in emphasis and level of detail and none of the submissions were deemed “fully compliant” with the RFCS. However, taken together, the panel believes that the submissions illustrate that the concept of a ZECMS is well within the realm of technological feasibility and that potentially viable technologies either already exist or could believably be available within a relatively short timeframe. In other words, a ZECMS is, or could be shortly, technically feasible. However, technical feasibility is not the only criterion in deciding whether a technology is sufficiently mature to be deployed in a reliable and financially sustainable manner. For example, NASA and DoD among other Federal agencies charged with the procurement of advanced technologies make use of metrics known as Technological Readiness Levels (TRLs) to assess the maturity of a particular technology. The TRLs used by NASA for integrated technology planning are summarized below and presented in more detail in Appendix D. Technology Readiness Levels Summary

TRL 1 Basic principles observed and reported TRL 2 Technology concept and/or application formulated TRL 3 Analytical and experimental critical function and/or characteristic

proof-of-concept TRL 4 Component and/or breadboard validation in laboratory environment

3

TRL 5 Component and/or breadboard validation in relevant environment TRL 6 System/subsystem model or prototype demonstration in a relevant

environment (ground or space) TRL 7 System prototype demonstration in a space environment TRL 8 Actual system completed and “flight qualified” through test and

demonstration (ground or space) TRL 9 Actual system “flight proven” through successful mission operations

During its review, the panel noted that although most of the fixed-guideway propulsion systems described had achieved the equivalent of TRL 5 or, more rarely, TRL 6, none had proceeded to the equivalent of TRL 8 in an application with any similarity to that proposed in the ZECMS. As a result, the panel was left with many unanswered questions regarding the robustness, durability, and reliability of any of the six guideway systems. The panel believes it is one thing to propel a test vehicle along a well-maintained test track under carefully controlled conditions and quite another to haul heavy freight containers on a near continuous basis in the operating realities of a busy port. For example, several of the submissions that would employ levitation technology stated that similar systems in lighter duty, passenger applications have operated for extended periods with no appreciable loss of function or operational capability. However, the panel does not believe that successful operation in a light duty application can be construed as a guarantee of success in a heavy industrial application such as the ZECMS. This concern remains despite the additional information provided in the written responses to the supplementary questions and the oral Question and Answer sessions during the individual interviews. As a result, the panel believes that prior to the selection and deployment of any guideway system, additional testing needs to be carried out in an environment that mimics, to the extent possible, actual container handling and transfer operations, i.e., achieve the equivalent of TRL 8. The regime for such testing must be acceptable to the POLB, POLA, and ACTA.

Although not strictly a “zero emission” technology in all operational modes, the panel believes that the hybrid truck has achieved the equivalent of TRL 8. Under the assumption that hybrid trucks would be operating in the electric mode in the port environs, this technology would be viewed as compliant with the goal or removing combustion emissions from port operations. Another area of concern that emerged during the panel’s review of the initial submissions had to do with market and financial risks. The RFCS was quite clear that a ZECMS would be in direct competition with the existing system of truck drayage, so that it had to match or improve the total economic value it offered

4

compared to the existing system—the Ports would not provide any subsidy nor would they compel port users to use the ZECMS. In light of the capital intensive nature of fixed guideway systems and the best case assumptions regarding growth in container volume, market share, capital costs, and system availability used in many of the proposers’ analyses, the panel believes that, absent other drivers (e.g., environmental regulations or a subsidy provided by the Ports or others), a ZECMS will have difficulty competing economically with conventional truck drayage, particularly given the rapid advances being made in hybrid-electric vehicles and their inherent flexibility and scalability. As a result, the panel is concerned that commercial financing assumed by some of the Respondents may not prove to be readily available at terms and tenor that would enable a financially sustainable technology deployment.

Conclusions and Recommendations The panel believes that the Ports of Long Beach and Los Angeles and the Alameda Corridor Transportation Authority have set a laudable goal of improving air quality by minimizing combustion emissions resulting from port operations. The effort to identify promising technologies and determine their readiness for commercial deployment through the RFCS reflects that commitment. As a result of its review of the seven submissions initially received in response to the RFCS and information provided subsequently for the individual interviews, the panel does not believe that any of the systems proposed are sufficiently mature to commit valuable port and other public rights-of-way for a full-scale operational deployment at this time. In addition to the previously noted technology risks, the panel also believes that none of the submissions adequately address the risks of insufficient market demand and the possibility that the project cannot be brought to successful commercial and financial close. On this basis, the panel believes that the process could be fairly terminated at this time. However, in light of the commitment of the ports and ACTA to minimize combustion emissions from port operations and the potentially large environmental and public health benefits that could accrue from a successful ZECMS, the panel would suggest that responders to the RFCS be encouraged to prove categorically the reliability and robustness of their proposed system through a “live fire” pilot demonstration under actual operating conditions that would be acceptable to the Ports and ACTA. The panel believes that until the technology risk can be reduced to a level acceptable to the Ports and ACTA, the question of market and financial risk, while critical, may be premature. Only after the robustness and reliability of proposed systems (along with associated operations and maintenance costs) have been demonstrated, will the Ports and ACTA be in a position to assess the technology and financial risks and determine if they are acceptably balanced by the potential benefits. In any event, prior to the procurement process proceeding to a next level, the

5

panel believes that the overarching goal of the project as stated in the RFCS bears repeating here: “Moving containers between marine terminals and near‐dock intermodal facilities by an alternative mode of transport that generates zero emissions at no cost to the Ports and ACTA.” The panel views compliance with this goal as a fundamental decision gate in how and whether the process should proceed further and at this point the panel does not believe that the information provided by any of the Respondents in response to the RFCS or in the subsequent individual interviews has demonstrated that they can meet this goal.

6

Respondent: American Maglev Technology of Florida

Technology Application Strategy

Financial Feasibility Business Plan System Benefits

This submission proposed the use of magnetic levitation technology along an elevated, fixed guideway system. A full-scale prototype has been developed and is operating on a test rack in Georgia. The system has not yet been tested under actual container transfer operating conditions.

The submission presents a detailed strategy for technology deployment including development costs, estimates for equipment, operations and maintenance, and other hard and soft costs.

The submission contains a detailed financial analysis that responds to the seven bulleted points contained in the RFCS. It is in the form requested and provides sufficient level of detail to support the assumptions made regarding timing, profitability, rate structure, and overall financial performance. However, some of the information requested in the RFCS such as financial commitments are typically not available at this stage in the project development process and any assertions to the effect that financing will be available at the rates and tenor assumed when the project is ready to proceed, should be considered speculative.

The submission includes a business plan that contains the information requested in the RFCS. P3 procurement structures, though alluded to, are not well described.

The submission provides calculations to demonstrate compliance with this section of the RFCS. However, the assumptions underlying the calculations are not provided in a form that the analysis can be replicated independently. There was also a commitment to supporting the system on renewable electricity, but no details were provided.

7

Respondent: Bombardier



This submission proposed the use of magnetic levitation technology on a mostly surface rail system (some elevated guideway is anticipated). A 3-ton proof of concept demonstrator has been built and a full capacity prototype is proposed. Consequently, the system has not yet been tested under actual container transfer operating conditions. The submission presents a detailed description of the technology but does not contain most of the information requested in the RFCS regarding an application strategy so these aspects of the submission could not be reviewed.

The submission contains a rudimentary financial analysis that does not respond to the seven bulleted points in the RFCS with the level of detail requested.

The business plan included in the submission does not contain the information requested in the RFCS. A P3 procurement structures is not described nor are the organizational relationships identified.

The submission does not address the questions regarding environmental enhancement raised in the RFCS. It does propose a system that will carry the trucks thus potentially avoiding an extra lift. It also claims to be able to share roadway with conventional rail.

8

Respondent: Flight Rail Corporation



This submission proposed the use of a vacuum propulsion technology along an elevated, fixed guideway system. A 1/6-scale prototype has been built and is in operation. Consequently, the system has not yet been tested under actual container transfer operating conditions.

A technology application strategy was not provided.

A financial analysis was not provided.

A business plan was not provided.

The submission does not address the questions regarding environmental enhancement raised in the RFCS.

9

Respondent: Freight Shuttle Partners



This submission proposed the use of linear induction propulsion technology with steel wheels that runs on an elevated, fixed guideway system. A prototype has not been developed.

The submission includes a strategy for deployment of the technology but the individual elements are scattered between the main body of the proposal and the Appendix and are difficult to follow.

The submission contains a detailed financial analysis that responds to the seven bulleted points contained in the RFCS. It is in the form requested and provides sufficient level of detail to support the assumptions made regarding timing, profitability, rate structure, and overall financial performance. However, some of the information requested in the RFCS such as financial commitments are typically not available at this stage in the project development process and any assertions to the effect that financing will be available at the rates and tenor assumed when the project is ready to proceed, should be considered speculative.

The submission includes a business plan that contains the information requested in the RFCS.

The submission includes a rudimentary response to the questions regarding environmental enhancement raised in the RFCS. Calculations of pollutants avoided and electrical energy requirements are included but are lacking documentation and assumptions. The proposed system attempts to address the problem of increasing the number of lifts that are inherent in some of the other proposals.

10

Respondent: Innovative Transportation Systems Corporation



This submission makes use of linear motor power conversion technologies and standard railroad rolling stock running along standard railroad tracks. An operational prototype is not available. However, General Atomics, one of the team members, has operated test vehicles that utilize elements of the proposed technology at a facility in San Diego.

The submission includes a detailed description of the technology application but does not include several of the elements requested in the RFCS.


A business plan was not provided.

The submission does not address the questions regarding environmental enhancement raised in the RFCS. This system would likely be more resilient following an earthquake or other similar event and could be designed to reduce the number of lifts compared to other proposals.

11

Respondent: LEVX California Freight Systems



This submission makes use of a levitation technology employing permanent magnets along a fixed guideway system.

The technology application strategy contains most of the information requested in the RFCS but at a rather coarse level of detail.

Citing the proprietary nature of its business plans, this submission declined to submit a financial analysis in the form requested in the RFCS.

A business plan in the form requested was not provided.

Calculations are provided on estimated emission reductions and energy savings but detailed assumptions and documentation are not provided. The system would reduce energy needs to transport cargo.

12

Respondent: Tetra Tech



This submission proposed the use of hybrid diesel-electric trucks utilizing existing streets and highways in addition to newly acquired right of way. Full-scale demonstration prototypes are in operation

Elements of a strategy for deployment of the technology are included but all information as requested in the RFCS was not provided.


A business plan in the form requested was not provided.

The submission contains estimates and assumptions regarding criteria pollutants but not energy savings. This system would most closely mirror the present system in use at the port and is potentially more flexible than some of the other proposed systems and thus may involve the least risk.

13

Appendix A

Expert Advisory Panel Keston Institute for Public Finance and Infrastructure Policy

Port of Long Beach RFP Development for a ZECMS

Allan V. Burman (Performance-based Contracting) is President of Jefferson Solutions (Solutions), a division of the Jefferson Consulting Group, LLC. Under his leadership, Solutions has provided change management services and/or acquisition reform training to many Federal departments and agencies and other public service entities. He also has advised firms, Congressional committees, and Federal and state agencies on management and acquisition reform matters. Prior to joining The Jefferson Group in 1994, Dr. Burman had a lengthy career in the Federal government, serving in policy positions in the White House’s Office of Management and Budget (OMB) and in the Office of the Secretary of Defense. As the former Administrator for Federal Procurement Policy, he had the longest tenure of any Administrator, serving in the Executive Office of the President under Presidents Reagan, Bush, and Clinton. He has testified before Congress over forty times on acquisition and other matters. In this Senate-confirmed, presidentially appointed position, Dr. Burman authored the 1991 policy letter that established “performance-based contracting” as the favored approach for contract reform. He also authored the 1992 policy letter that encouraged agencies to make greater use of past performance. Both of these documents reinforce the shift in Federal management practices from an emphasis on procedure to a focus on outcomes. George R. Fetty (Rail Operations) worked in the railroad industry for more than 31 years, first at Southern Pacific Railroad and later, Union Pacific before retiring at the end of 1999. In 2000, George established a rail oriented transportation consulting business. His clients have been both private and public sector entities. He has been working for BNSF railway for several years on the Southern California International Gateway (SCIG) project. SCIG is a planned near-dock intermodal facility which will be situated immediately south of ICTF. Other clients have included the Florida East Coast Railway, Union Pacific Railroad, EOG Resources, the Port of San Francisco, ACTA, SCAG, the Riverside Transportation Commission, and various other private and public entities. While working in the rail industry, George held various operational management positions including Division Superintendent at Los Angeles, Western Region Assistant General Manager and General Manager. His later operating career included the operational management of 7 western divisions. Toward the end of his career, George led the railroad operating team which negotiated the Alameda Corridor Agreement. Later, he negotiated the placement of a short line railroad, Pacific Harbor Line, in the San Pedro Bay Ports. Petros Ioannou (Advanced Transportation Technologies) is a Professor in the Department of Electrical Engineering-Systems, Director of the Center of Advanced Transportation Technologies and Associate Director for Research of the University

14

Transportation Center METRANS at the University of Southern California in Los Angeles, California. He also holds a courtesy appointment with the Department of Aerospace and Mechanical Engineering. His research interests are in the areas of adaptive control, neural networks, nonlinear systems, vehicle dynamics and control, intelligent transportation systems and marine transportation. In 2009 he received the IEEE Intelligent Transportation System Society Outstanding Application Award. He also received the 2009 IET Achievement Medal in control systems by the Institute of Engineering and Technology. He served as the Chairman of the IFAC Technical Committee on Transportation Systems from 2005-2008 and he is a member of the Board of Governors of the IEEE Intelligent Transportation Society. He was one of the founders of the University Transportation Center, METRANS, at the University of Southern California and California State University Long Beach. He is a Fellow of IEEE, Fellow of International Federation of Automatic Control (IFAC) and Fellow of Institution of Engineering and Technology (IET). He is the author/co-author of 8 books and over 200 research papers in the area of controls and intelligent transportation systems. His research has been funded by the National Science Foundation, Ford Motor Company, General Motors, AT&T, Lockheed, NASA, Air force, California Department of Transportation, Federal Highway Administration, and research centers such as METRANS, CCDoTT, CREATE/Department of Homeland Security. James M. Lents (Environmental Regulation) is President of the International Sustainable Systems Research Center and former Director of UCR's Center for Sustainable Suburban Development. He has served as Executive Officer of the South Coast Air Quality Management District, Director of the Colorado Air Pollution Control Division, and Technical Director of the Chattanooga-Hamilton County Air Pollution Control Bureau. He was significantly involved in the development of the 1990 U.S. Clean Air Act and the 1988 California Clean Air Act, and has served on four national commissions reviewing diesel standards, alternative fuels, automobile global warming emissions, air quality management processes and the recent National Academy of Science review of the U.S. air quality management system. Dr. Lents was involved in environmental and energy research at UCR for eight years. His research portfolio included air quality management policy, the impact of electricity generation policy, and impacts on micro, macro and global environmental systems. Sasha N. Page (Finance and Economics) is Vice President and Transportation Industry and Financial Advisory Services Practice Leader at Infrastructure Management Group, Inc. Mr. Page has almost two decades of experience in finance, performance measurement, and project development in the transportation and utility infrastructure industries, specializing in surface transportation, airports, seaports, water and sewer systems, and other government facilities and real estate. Mr. Page has managed projects throughout the U.S., as well as in Europe, Latin America, and the Middle East. He has advised municipalities and toll authorities on financing highway and transit projects with traditional and innovative finance sources, counseled airport authorities on funding expansions with a combination of bonds and grant programs, and helped government organizations to implement performance measurement programs. He also advises governments on infrastructure management and strategy issues and on the

15

regulation of public-private partnerships. At IMG, Mr. Page leads the firm’s finance group. He has additionally served as adjunct professor at George Mason University in infrastructure finance. Previous to joining IMG, Mr. Page was Vice President at two international investment banks in their project and municipal finance departments. Wade Watson (Port Planning and Operations) is Principal/Project Manager at KPFF-Seattle. He has 38 years of experience managing, planning and designing major engineering projects primarily for port and waterfront facilities. Prior to joining KPFF in 1987, Wade was the Chief Facilities Engineer at the Port of Seattle and responsible for planning and implementation of a substantial construction program. Wade is a Principal and Division Manager for Special Projects at KPFF Consulting Engineers. Some of his most notable accomplishments include serving as Project Manager for the conversion of the former Long Beach Naval Shipyard into the Pier T Container Terminal at the Port of Long Beach, California and the redevelopment of container Terminal 5 for the Port of Seattle. Wade is well-respected throughout the port industry for his understanding of port operations and facilities and his ability to efficiently craft development scenarios that meet all project goals, and produce pragmatic results. He holds a BS in Civil Engineering from North Dakota State University and is a Registered Civil Engineer in California, Washington, and Hawaii. He is a member of the American Society of Civil Engineers and an Honorary Member of the ASCE National Ports & Harbors Committee.

16

Appendix B

Zero Emission Container Mover System (ZECMS) Request for Concepts and Solutions (RFCS)

Supplemental Questions

1. In light of the market and technology risks, list the necessary assumptions you have made for debt and equity financing from planning and design, construction and operation over the lifetime of your proposed system.

2. What level of technological development and full‐scale testing do your financiers

require before committing to capitalize the entire project, including initial funding or further proof of reliability/serviceability/durability under specified operating conditions?

3. Describe the actual status and level of development of your system, and how

much more time and your own resources will be needed to start final design of the technology elements, not including the civil works elements (e.g., structures, utility system etc.)? For your system, do you recommend a limited‐scale proof of concept first, and if so, who should pay for that?

4. How do you intend to attain and maintain the somewhat optimistic projected

market share of near‐dock drayage, and to compete with trucking?

5. Which of the four RFCS volume scenarios represents your viability threshold and what is your “Plan B” if those volumes or your projected market share do not materialize?

6. In light of the ports' stated position not to provide operating subsidies, how would

you propose to address the market and financial risks that could lead to shortfalls in operating revenue during the project's lifetime?

7. If your proposed system does not provide for container movement from each

marine terminal to the consolidated terminal stations, provide a description on how you would account for that movement and the associated costs.

17

Appendix C

Zero Emission Container Mover System (ZECMS) Responses to Supplemental Questions

May 20, 2010

Eric C. Shen, P.E., PTPDirector of Transportation PlanningPort of Long Beach925 Harbor PlazaLong Beach, CA 90802

Dear Mr. Shen,

It is a great pleasure to submit this response to the most recent round of questions for a Zero Emission Container Movement System for the Port of Long Beach in conjunction with the Port of Los Angeles and the Alameda Corridor Transportation Authority. Within these questions is the central question: “Are you ready?” On behalf of our Advisory Board and the 118 US companies that make up the Environmental Mitigation and Mobility Initiative (“EMMI”) - the new, high tech, California-based entity created in order to build, operate and own a zero emission container mover system (“ZECMS”) among the Ports - the answer is a resounding YES!

The initial funding for EMMI will be led by team member Grupo ACS (BMAD: ACS), who has already extensively evaluated the proposed technology for over two years. American Maglev Technology and ACS have recently signed a 10-year exclusive global partnership agreement that designates ACS as the leader in securing project finance for each transportation system installed by the two firms over the next decade utilizing AMT’s technology. The two firms are currently finalizing negotiations for projects in Mexico City and Seville, Spain totaling $500 million with construction beginning this year. ACS offers guarantees to the customer on system durability, serviceability, and reliability. EMMI is an important reference project in which both firms are already committed to participating and ACS is committed to securing the total capital funding of $128.1 million.

The key elements of the EMMI proposal include:• EMMI relieves congestion by transporting goods using emission free technology and complements and

leverages the Ports’ current clean air and electrification initiatives. • The system is totally grade separated and will allow the Ports to optimize the use of scarce land within the

ports. It will not clog port roads and rails but instead will safely relieve the traffic bottlenecks.• The technology will use 70% less electricity than conventional modes, saving energy and reducing CO2.• EMMI is ready to proceed now with “not one penny” of public funds and create a sustainable business. • The Project is a viable business solution under all operating scenarios set forth in the RFCS announcement.

This is a business proposition, and EMMI takes all market risks. We understand the current conditions and future demand projections, and EMMI can and will thrive under these projected cargo volume levels.

• EMMI will enter into a lease including full payment for Port land and right of way costs.• The technology we have proposed is service-proven to carry a fully loaded container. It is guaranteed to be

durable and reliable.• EMMI provides a “demolition bond” to remove the system at the Port’s reasonable request.• We have put over three years’ work into this effort through the unsolicited proposal in 2007, inclusion in the

Regional Transportation Plan (“RTP”), many meetings with environmental and community leaders as well as close coordination with economic, civic, and governmental leaders throughout the region.

• EMMI is made up of large and small companies from the southern California region and across the United States. Implementing this shovel-ready project will generate new jobs and a new high-tech industry, which are desperately needed in Southern California.

• Most importantly, EMMI deeply understands the operations and requirements of the Ports and the reliance on diesel trucks to meet the current demands of the shippers. EMMI is ready to implement a sustainable business that will balance the environmental and business interests of the Ports while create a goods movement system that will be the envy of the world.

We have a well funded project using durable and service proven technology. We humbly request to lease negotiations very soon and move forward with this important project now. Thank you for your efforts to move this project toward groundbreaking, and we look forward to making the project a great success!

Very truly yours,

Tony J. MorrisPresident & CEO, AMT, Inc.

c/o AMT, Inc. 4801 Burrow Trail Powder Springs, GA 30127 www.american-maglev.com Tel 1.404.386.4036 Fax 1.770.425.526418

http://www.american-maglev.com

http://www.american-maglev.com


The “technology risk” is the sole responsibility of EMMI and its partners and contractors. We have invested millions of dollars of private funding in order to perfect the technology, eliminate or otherwise minimize any technology risk, and make the technology durable and service proven.

EMMI financing partners will be led by team member Grupo ACS (BMAD: ACS). As the largest civil works company currently operating in the United States, the Ports can find comfort in the ability of Grupo ACS to secure project finance and guarantee the availability of the system and the technology.

EMMI is a $128 million capital investment in the future of the Ports, and it will be financed with $50 million in equity for the Initial Phase followed by $78 million in debt for the Completion Phase. This capital budget includes the remaining final design work and initial operations in addition to all construction and testing activities.

Operating costs in 2012 (assuming that the Ports will move forward in a timely manner) total $16.3 million. As indicated in the RFCS, this translates to a very low and easily attainable break-even number of daily container conveyance (442 roundtrips). EMMI does not anticipate requiring any additional funding for operations after the construction is complete, even after examining market forecasts and “worst case” market risks.

2. What level of technological development and full scale testing do your financiers require before committing to capitalize the entire project, including initial funding or further proof of reliability/serviceability/durability under specified operating conditions?

The initial funding for EMMI will be led by team member Grupo ACS (BMAD: ACS), who has already extensively evaluated the proposed technology in conjunction with the Madrid Technical Institute. As a direct result of this cooperation, American Maglev Technology and ACS signed a 10-year exclusive global partnership agreement in 2010. The partnership designates AMT as the technology provider and ACS as the leader in securing project finance for each passenger and/or container movement system installed by the two firms over the next decade. As indicated in the legal agreement, ACS will also offer guarantees to the customer on system serviceability and reliability. The two firms are currently finalizing negotiations for projects in Mexico City and Seville, Spain totaling $500 million with construction beginning this year, and EMMI is also listed in this legal document as a project in which both firms are already committed to participating.

Technological development and full-scale testing for EMMI’s maglev technology is complete. The full-scale testing that spanned three years from 2006-2009 in Powder Springs, GA included a stringent set of tests examining the reliability of the technology at maximum pay loads. Various Port officials and AQMD representatives visited the test facility during this period and witnessed a segment of AMT’s testing activities. We are ready to proceed.

The technology is ready for deployment and backed by a resourceful team that will ensure a reliable system. In order to secure durability, EMMI has incorporated generous allowances and contingencies in the operating budget will ensure viability even at very low levels of demand and fund continuous improvement efforts.

!

Supplemental Questions from The Port of Long Beach and EMMI ResponsesMay 2010

19

3. Describe the actual status and level of development of your system, and how much more time and your own resources will be needed to start final design of the technology elements, not including the civil works elements (e.g., structures, utility system etc.)? For your system, do you recommend a limited scale proof of concept first, and if so, who should pay for that?

The status and level of development of the proposed technology can be seen in the picture above, which was the cover page to EMMI’s response to the RFCS. The technology has been built at full-scale and proven operational and reliable over the past 4 years at AMT’s test facility. EMMI is ready for deployment, having paid for all its development activities with private funds. We will not ask for “one penny” of public funds from the Ports.

There is no need for a limited-scale system, since the proof-of-concept has been operational for four years. System development will, however, follow a phased strategy, and EMMI expects to build the first 2.75 miles of the system from ICTF to Loading Point #4 along the Dominguez Waterway as an Initial Phase. This Initial Phase, along with the remainder of the project development activities, will be 100% privately financed and secured with the leadership of Grupo ACS as discussed in the previous question. This Phase will showcase the commercial viability of the technology and ensure the efficiency of EMMI’s purpose-designed and purpose-built technology for loading and offloading processes. The final design of this loading/offloading technology is described in full detail in EMMI’s response to the RFCS. All technology components in the system are ready for commercial deployment, and no additional research and development will be necessary to begin construction for EMMI.

EMMI is highly confident that prepared to move to a system wide deployment based upon the future decisions of the public sector.

4. How do you intend to attain and maintain the somewhat optimistic projected market share of near dock drayage, and to compete with trucking?

Competitiveness in logistics is about money and time. As a driverless and energy-efficient system, EMMI will be able to operate at a dramatically lower cost than current drayage trucks. Thus, EMMI can offer pricing per TEU and per container that is cost-effective compared to near-dock drayage. Future pricing estimates show an increasing differential between drayage truck and EMMI rates, with EMMI becoming the clear economic choice in the long-term. EMMI pricing for 2009 is displayed in the table below and includes any costs associated with lifts or last-mile movement.

!


20

EMMI’s grade-separated track transports containers directly from the Ports to the ICTF with no risk of traffic congestion, and the automated operations negate the risk of person-related delays. EMMI will move containers significantly quicker than drayage trucks, and will continue to be the timelier choice as the Port grows and requires additional capacity for container movement.

In light of the economic downturn and the reduction in cargo volumes, EMMI has recently reconfirmed the economic models, drayage rates, and market opportunities. We remain convinced and highly confident that the economies of the EMMI system will beat truck charges by 15-20% and dominate the market. EMMI understands the goods movement market conditions in southern California, and we understand that as a business venture there are business risks, but these risks are the sole responsibility of EMMI and its shareholders.

There are numerous opportunities for partnerships with public and private sector entities that will be investigated to obtain greater market shares. EMMI has already engaged in preliminary discussions with terminal operators regarding operating agreements and guaranteed annual volumes. The powerful role of environmentalist groups concerned with Port activities can also be leveraged to lobby for a larger percentage of containers to be carried with EMMI’s zero emission technology.

EMMI has done its homework on goods movement in the region. We understand the business risks, and we have marshaled the necessary technological, financial, and human resources in order to overcome these risks. We are highly confident about the success of EMMI.


EMMI is a private-sector initiative. Private-sector initiatives are funded by investors who expect a certain amount of return on investment, and they depend on a certain level of demand to generate those returns. This is a business, and the EMMI investors are both accredited and sophisticated with a deep understanding of the business risks. After deeply evaluating the current business model built around diesel trucks, the benefits and risks of new zero emission goods movement technologies (EMMI and all the other paper technologies that have been envisioned), and the attendant revenue projections, it has become clear to EMMI that the ZECMS can be a profit-generating project in which the rewards far outweigh the business risks. It can be a big winner for California- financially, environmentally and logistically.

The level of commerce will certainly fluctuate over the life of the project, and subsequently revenues will also endure cyclical financial results over time. However, if EMMI could not be operationally viable at “worst case” or operating scenario A, the RFCS would not have been submitted by our team. The system is profitable with no modifications to the ICTF or the introduction of the SCIG, and will adequately grow to accommodate both enhancements to capacity as necessary.

In order to avoid operational shortfalls in the event that even “worst case” market shares are not realized, EMMI has engaged in preliminary discussions with terminal operators regarding operating agreements and guaranteed annual volumes. Furthermore, EMMI has refined the energy consumption estimates for the system and will implement solar panels along the track that will further lower the cost of operation and therefore increase profit margins and allow the system to be financially viable with even lower market shares than originally projected.

While EMMI remains confident that the “doomsday scenarios” for port volumes will not occur, in the end it is EMMI that takes sole responsibility for ALL the business risks associated with this project.


21

6. In light of the ports' stated position not to provide operating subsidies, how would you propose to address the market and financial risks that could lead to shortfalls in operating revenue during the project's lifetime?

The EMMI financial model has been developed in close coordination with JP Morgan, Grupo ACS and the various stakeholders of the project. We have provided a higher level of equity funding for the initial portion of the project (including 100% equity funding for the Initial Phase) so that shortfalls in demand will not result in any possibility of credit default. Our investors are aware that the volume of international trade is governed by many independent macroeconomic factors, and the returns resulting from this project will vary based on global economic conditions. This financing strategy provides a conservative funding base that will ensure that variations in container volumes do not result in financial stress to EMMI.

Once again, EMMI has engaged in preliminary discussions with terminal operators regarding operating agreements and guaranteed annual volumes. These discussions have been very favorable thus far. However, EMMI has been stunted by the lack of information that affects potential operating agreements, specifically time-sensitive information regarding when the System will become operational to ensure that the most current drayage information and fuel prices are used for price negotiations. Unfortunately EMMI will be unable to secure any partnerships until there is action by the Ports to move forward.

7. If your proposed system does not provide for container movement from each marine terminal to the consolidated terminal stations, provide a description on how you would account for that movement and the associated costs.

Comprehensive service to the marine terminals represents a significant effort of our team and is explained in detail in EMMI’s response to the RFCS. EMMI will move containers exactly as outlined in the RFCS. All costs associated with providing these connections has been accounted for in the financial statements provided in EMMI’s response to the RFCS.


22

Bombardier’s responses to the supplemental questions issued by Eric C. Shen


Bombardier Answer:

A. Product Development

We hope to bring our MAGLEV to fruition for the ZECMS and in response to the publication of the concept document also for other projects. We will allocate a product development budget from own resources; see www.bombardier.com for details of our financial strength. MAGLEV is a key technology subsidized by German federal funds. Similar to the Transrapid and M-Bahn we expect to obtain subsidies for the Bombardier MAGLEV development which has promising features suited to overcome deficiencies of previous MAGLEV configurations; for details see the response to the next question.

B. ZECMS Planning, Construction and Operation

As outlined in our concept document chapter 8.5, if taking part in a request for proposals, Bombardier intends to lead the formation of a public-private-partnership company which will purchase the ZECMS from Bombardier as general contractor and operate it. Assuming suitable market conditions, this P3 company will have adequate equity and will obtain a debt financing for the ZECMS construction. Project assets and assignment of the P3 company contractual rights will be used as security for the bank loan during the pay back term. As shown in the concept document table 6, assuming scenarios 3 or 4 hold, no subsidies are necessary and the bank loan payback term ends after 16 years. Given that the technical concept is sound and uses components proven in commercial operation, we anticipate a low technical risk and plan to underline this by taking a share in the P3. There is a risk that the port’s overall near dock transport volume will grow less than indicated. The associated risk for the investors needs to be mitigated e. g. by a commitment of the P3’s public partner related to compensations if the overall near dock transport volume is below expectation, e.g. a minimum revenue guarantee. Such a commitment would be justified because the ZECMS reduces the socially and environmentally undesired conventional drayage and creates insured and safe employment. The Bombardier ZECMS also eases the widespread introduction of electric UTRs and trucks as it allows recharging the batteries during the MAGLEV ride avoiding unproductive breaks and expensive recharging infrastructure. This solution bears less technical risks, energy consumption and operating cost than alternative concepts, e. g. powering electric trucks during the journey with a catenary. The hen and egg problem is also avoided as the road vehicles to be transported in the MAGLEV cabins do not need to be altered. A standardized interface to inductively recharge electric road vehicles at standstill is currently being developed by the automobile industry.

23

2. What level of technological development and full scale testing do your financiers require before committing to capitalize the entire project, including initial funding or further proof of reliability/serviceability/durability under specified operating conditions?

Bombardier Answer:

As mentioned in our concept document, funding commitments to this project will be sought if Bombardier participates in a request for proposals. We emphasize that our proposal at this time is conceptual and non-binding and no attempt has been made as of yet to organize financing for the project. Our expectation is outlined below.

The product will be developed according to the high Bombardier standards. This entails full scale testing with a proof of reliability, serviceability and durability under similar operating conditions as in the targeted commercial applications. Existing examples of this are the test tracks at the Bombardier sites in Pittsburgh PA and Kingston, Ontario.

Bombardier intends to agree a development plan with milestones and mutually acceptable termination clauses with the potential ZECMS investors. A major milestone will be achieved once the Bombardier MAGLEV travels reliably on the test facility. Passing this milestone is a prerequisite for building the ZECMS. Thus investment in the ZECMS starts once the technical risk is mitigated.

3. Describe the actual status and level of development of your system, and how much more time and your own resources will be needed to start final design of the technology elements, not including the civil works elements (e.g., structures, utility system etc.)? For your system, do you recommend a limited scale proof of concept first, and if so, who should pay for that?

Bombardier Answer:

As mentioned in our concept document, a 3-ton demonstrator was built and calculations for the ZECMS adaptation were done. With this proof of concept and the theoretical background done, the next step would be a full size prototype as outlined in the previous response. Duration from kick-off to reliable demonstration of all functions provided for the ZECMS is anticipated to be maximum 4 years with staff ramping up to about 100 employees and externals combined. See the previous response for the question’s financial aspect.

24

rglittle

Text Box

4. How do you intend to attain and maintain the somewhat optimistic projected market share of near dock drayage, and to compete with trucking?

Bombardier Answer:

As shown in our concept document, Appendix 2, Table 1, we predict a modal share of 30% at the beginning rising to 75% after 17 years. This may be viewed as conservative given that the ZECMS will offer a faster and more dependable service at a lower price than conventional drayage. The containers will be picked up and delivered by trucks, thus the interface to the storage or loading and unloading areas is the same as conventional drayage. Although probable, we did not consider potential further restrictions or cost increases for conventional drayage owing to the expected environmental legislation.


Bombardier Answer:

As mentioned in our concept document, only scenarios 3 and 4 allow development, planning, construction and operation of the ZECMS free from subsidies. We will aim at attenuating the investor’s risk exposure if the revenues are below expectation owing to a lower overall near-dock transport volume than predicted or owing to an increase of the ZECMS expenses caused by new legislation or similar. This could be achieved for example by negotiating a compensation by the P3’s public partner; see also response 1 above. If the revenues are below expectation owing to a lower modal split caused by ZECMS-inherent deficiencies like poor reliability or mismanagement, this has to be borne by the P3. See the following answer with respect to mitigating the commercial risk by extending the line.

6. In light of the ports' stated position not to provide operating subsidies, how would you propose to address the market and financial risks that could lead to shortfalls in operating revenue during the project's lifetime?

Bombardier Answer:

See our answers 1, 4 and 5 above. Furthermore, we will aim at negotiating the prerequisites for an extension of the line northwards; see chapter 10 of the concept document. A longer line along a Freeway open for port and non-port users will further enhance the business case by providing a more diversified source of revenue. The cost per mile will be lower than for the ZECMS owing to a lower percentage of elevated track. The competitive average fare per mile will be low for Freeway users but the cost for the transport of road vehicles along one or several Freeways will be very low, among others because revenue per mile will be high owing to the expected modal

25

share of the heavily trafficked Freeways. A line extension uncouples the system from the port transport volume given that the overall road vehicle traffic volume will keep on growing even if the port’s container volume does not meet the expectation. Thus the extension of the line is a means to mitigate ZECMS operating revenue shortfalls.


Bombardier Answer:

This is not applicable as the Bombardier concept consists of trucks loading and unloading the containers and being transported in a MAGLEV cabin on their journey’s central leg. The trucks access any terminal. The business case shown in our concept document includes the purchase and operation of electric UTRs with yard chassis.

26

Zero EmissionContainer Mover System

Response to Supplemental Questions

Submitted By

FLIGHT RAIL CORP. 250 Henry Station Road

Ukiah, CA 95482

May 20, 2010 27

FLIGHT RAIL CORP.RESPONSE TO ZECMS/RFCS SUPPLEMENTAL QUESTIONS

QUESTION 1. In light of the market and technology risks, list the necessary assumptions you have made for debt and equity financing from planning and design, construction and operation over the lifetime of your proposed system.

COMMENTS

1.1 Flight Rail Corp. does not have the financial leverage to enable the financing of the ZECMS system.

We have been looking for a major equipment manufacturer to show interest in our technology and

perhaps buy in.

1.2 The magnitude of the ZECMS system will require a consortium of a large engineering company,

manufacturing capability, and the participation of financial institutions to finance the overall system.

1.3 Flight Rail Corp. has made significant advances in technology testing since submitting our incomplete

proposal related to ZECMS Request for Concepts and Solutions.

1.4. We think the market risks are perhaps prohibitive when looking at competing with other forms of

transportation and the assistance they may receive from federal, state, or local funds AND also

including use of public infrastructure for transport.

1.5 What happens if the development of other West Coast ports plus the alterations to the Panama Canal

have a serious effect to volume at the Ports of Long Beach and Los Angeles? It is understood that the

subject ports have a distinct advantage as related to existing infrastructure, weather, and rail

connections. However, more relaxed conditions at other destinations could cause some dilution of the

projected container business.

28


QUESTION 2. What level of technological development and full-scale testing do your financiers require before committing to capitalize the entire project, including initial funding or further proof of reliability/serviceability/durabilityunder specified operating conditions?

COMMENTS

2.1 At this time we have no financiers. The following comments are related to further proof of reliability.

2.2 Our 1/6 scale three-car outdoor test unit has been operational since August 2009. We had a few

setbacks primarily related to material selections and controls. However, our learning curve has been

very steep and the results have been very good. Our major material problems related to trying to save

money on the 1/6 scale unit (poor judgment).

2.3 We are ready to build and install a full-scale prototype. Designs are well along for several components.

We are looking for funds but have struck out with the Department of Transportation. They are only

interested in conventional standard-gauge, steel-wheel-on-rail technology and Congressionally-

mandated maglev projects. We are actively seeking other funding sources.

29


QUESTION 3. Describe the actual status and level of development of your system, and how much more time and your own resources will be needed to start final design of the technology elements, not including civil works elements (e.g. structures, utility system etc.) For your system, do you recommend a limited-scale proof of concept first, and if so, who should pay for that?

3.1 Started testing pilot scale on 700' outdoor test guideway in August, 2009. All prior testing was done on an indoor 1/6 scale guideway. 3.2 Upgraded in-tube magnetic trucks and expansion joints in September 2009. 3.3 Took video of test track on October 15, 2009. This video was submitted with the RFCS. 3.4 Designed and built 1/6 scale framing for scale 80-passenger cars and related cockpits with manual and remote control operation (three-car unit) in January 2010. 3.5 Studied thrust requirement for three-car and two-car units through 2009 and to date in 2010. We have studied the rolling resistance of the unit (two-car and three-car) and power requirements on level and 6% grade. Thrust measurement is enabled by use of 80-inch water manometers located at mid-section and the end of the 700' test track. We will try to modify the Davis formula for Flight Rail's VAC TRAC system. To date we feel thrust requirements are very satisfactory. 3.6 Studied the effect of push pull thrust which should enable load capabilities to 1,250,000 lbs. on 10% grades. 3.7 Tested (new) atmospheric braking for steep grades. Results were very encouraging, and we are redesigning thrust valves to better accommodate atmospheric braking procedures. This is also very important for high speed passenger and light weight freight units. 3.8 Determined effectiveness of variable speed vacuum/pressure system at slow and fast speeds both in push and pull applications. 3.9 Presently preparing 1/6 scale unit for a three-minute voice over video aimed at high speed rail but applicable to low and moderate speed systems. 3.10 Demonstrated the effect of stored energy in the power tube enabling rapid acceleration from stopped position with moderately low-powered thrust turbine. Rapid acceleration without high peak energy requirements is an important aspect of the VAC TRAC system. 3.11 Operated in wet and below freezing weather with rain. The 45° wheels require skirts to eliminate horizontal water spray. A high level of condensate in the power tube has not caused any problems with operations. The pilot scale unit has been very effective to enable studying the attributes of the system that differ from other technologies. 3.12 At present we are approximately 65% complete with hardware to install an additional length of guideway which will include a 10% grade. 3.13 The limited-scale proof of concept is operable on Flight Rail Corp. property in Ukiah, California. Testing will continue on the pilot scale unit to enable development and final design of a full-scale prototype. Our 1/6 scale test guideway does not yet include the minimum curves discussed in our response document. 3.14 Prototype design and construction could proceed immediately. 3.15 All research and development for the VAC TRAC transportation system has been solely financed by Flight Rail Corp. No corporate, private, or government money has been received to date.

30


QUESTION 4. How do you intend to attain and maintain the somewhat optimistic projected market share of near-dock drayage, and to compete with trucking?

COMMENTS

4.1 The only way to maintain an optimistic market is if the carbon footprint goes all the way back to the

producer of electricity. The weighing of power consumption per TEU ton moved would need to be

considered along with the type of fuel if other than electricity is used.

4.2 If there is no standard for emissions for competing modes of intra-port transportation, it may be difficult

for any ZECMS entity to survive a two-standard system.

4.3 VAC TRAC should have a comparatively low power consumption per TEU mile.

31


QUESTION 5. Which of the four RFCS volume scenarios represents your viability threshold and what is your "Plan B" if those volumes or your projected market share do not materialize?

COMMENTS

5.1 The number of VAC TRAC container moving units in service would have to be modified to meet

demand initially so that scenario 1 would be the viability scenario. However, expansion of the guideway

would only be initiated if modified ICTF and proposed SCIG facilities became realities.

5.2 The primary infrastructure plan including elevated guideway and switching to ICTF, maintenance

facility, and seven-station accessibility would be enabled initially.

5.3 We cannot estimate what limit of unit hauls would be available to ZECMS. This is a complex problem

as it relates to the rapid development that could take place with the adaptation of trucks powered with

brushless rare earth electric motors. Flight Rail Corp. has no Plan B at this time.

5.4 Once a maintenance and storage facility area is chosen, any one station in the ports could be used to

demonstrate the system -- most likely the one with the highest TEU count.

32


QUESTION 6. In light of the ports' stated position not to provide operating subsidies, how would you propose to address the market and financial risks that could lead to shortfalls in operating revenue during the project's lifetime?

COMMENTS

6.1 The civil engineering requirements are the major cost portion of the elevated system. If these guideway

structures would be owned by the ports, they could lease the structures to the operators of the chosen

method of transporting containers on a toll basis related to TEU's moved. Considering the load

requirements of the structures, they could be modified to serve other needs in the event that conditions

would eliminate the viability of any ZECMS-selected technology.

6.2 With no guarantee on requirements for competing systems to meet the same standards as the ZECMS

system, it is difficult to imagine what entity would make the complete investment required.

33


QUESTION 7. If your proposed system does not provide for container movement from each marine terminal to the consolidated terminal stations, provide a description on how you would account for that movement and the associated costs.

COMMENTS

7.1 The VAC TRAC system could reach all seven port locations with a minimum curve of 21°

(274.4' radius) which allows car module lengths to 80 feet. If car lengths are considered to be sixty feet

or less, a curve of 29° (199.7' radius) would be enabled.

7.2 In Flight Rail's reply to the RFCS, we provided a schematic for a track layout which would

certainly require many modifications related to interference with the existing infrastructure. The port's

infrastructure was not clearly shown on the maps we had to use. Elimination of the elevated crossing of

the Cerritos Channel would simplify the operation and reduce the cost of the ZECMS facility, especially

as related to port stations one, five, and six.

34

Response to Supplemental Questions issued by the Port of Long Beach

Response date: May 20, 2010

35

Freight Shuttle Partners Response to Supplemental Questions

Page 2 of 6 5/20/10

Question 1:

In light of the market and technology risks, list the necessary assumptions you

have made for debt and equity financing from planning and design, construction and

operation over the lifetime of your proposed system.

FSP Response:

Though the project will likely be funded with a variety of equity and debt

instruments, in our response to the RFCS we used the simplifying assumption that 30%

of the project development costs will be funded with one type of equity and 70% with

one type of debt. We took this approach in order to convey that the Freight Shuttle

System is financially viable under all demand scenarios provided, even with significant

levels of debt service. In our internal due diligence efforts, we have modeled a wide

variety of financial scenarios, including both the impact of financing the project with all

equity and with highly structured project financing, including various levels of mezzanine

debt.

It is anticipated that upfront design and planning costs will be funded with equity.

Although we are confident that debt can be obtained for construction, in recent

conversations with our financing sources and investment banks, we have also begun

considering the possibility of funding all of the construction costs with equity and

recapitalizing the project once it is stabilized. We believe that the attractive long-term

demand projections, high-barriers to entry, and stable economics create the opportunity

for a variety of potential financing structures. If FSP decides to use debt in its capital

structure, it will only do so at levels that can be readily serviced at the most conservative

volume projections.

36


Page 3 of 6 5/20/10

Question 2:

What level of technological development and full-scale testing do your financiers

require before committing to capitalize the entire project, including initial funding or

further proof of reliability / serviceability / durability under specified operating

conditions?

FSP Response:

Our financiers don’t require any additional technological development. Freight

Shuttle Partners is, however, moving forward with construction of a demonstration

system.

Question 3:

Describe the actual status and level of development of your system, and how

much more time and your own resources will be needed to start final design of the

technology elements, not including the civil works elements (e.g., structures, utility

system etc.). For your system, do you recommend a limited-scale proof of concept first,

and if so, who should pay for that?

FSP Response:

Preliminary design of the Freight Shuttle System – all systems, sub-systems, and

interfaces – has been completed. The development team has been selected and is

prepared to commence final design activities immediately.

A demonstration system is planned and imminent. Four primary firms, in

addition to FSP, will be involved in the demonstration system, the costs of which will be

fully born by FSP.

37


Page 4 of 6 5/20/10

Question 4:

How do you intend to attain and maintain the somewhat optimistic projected

market share of near-dock drayage, and to compete with trucking?

FSP Response:

Freight Shuttle Partners will capture market share by employing a project specific,

fully dedicated marketing staff that will target all key decision makers within the freight

transportation supply chain. The Freight Shuttle System will offer customers a superior

service to dray trucking, including improved predictability, safety and security, while also

providing significant environmental benefits.

Question 5:

Which of the four RFCS volume scenarios represents your viability threshold and

what is your “Plan B” if those volumes or your projected market share do not

materialize?

FSP Response:

FSP determined that a Freight Shuttle System could support private sector

investment under any of the scenarios provided. As described in our response to the

RFCS, the main adjustment that FSP would need to make in order to accommodate the

lower volumes provided for in the non-SCIG scenarios is a more limited guideway

structure and fewer collection points (identified as “FS Build-out Scenario I” in the

response), which would dramatically lower the total project cost.

The Freight Shuttle Partners team includes individuals with substantial experience

in large complex real estate development projects. As in all projects that the principals

have developed, the budget will include an adequate level of reserves to absorb any

38


Page 5 of 6 5/20/10

realistic shortfall in projected operating revenue. If the project is financed with all equity

then the system would only need to capture a small fraction of the volumes provided in

the RFCS. If FSP decides to use debt in its capital structure, which is likely, it will only

do so at levels that can be readily serviced at the most conservative volume projections.

The project debt will also include adequate payment flexibility, particularly in the early

years of operations during the ramp-up to stabilization. This flexibility can be achieved

through a number of different structures.

In the case where Freight Shuttle Partners is unable to achieve pricing and / or

volumes sufficient to pay for its cost of operations and financing, the company would

either raise additional equity or adapt the system to an alternative use. FSP is confident

that its financial partners will have the wherewithal to withstand any short-term market

disruptions or lower than expected revenues.

Question 6:

In light of the ports’ stated position not to provide operating subsidies how would

you propose to address the market and financial risks that could lead to shortfalls in

operating revenue during the project’s lifetime?

FSP Response:

FSP would address the financial risks of the project as described in the answer to

question 5. One example of how FSP would address market risk is by working to secure

contracts and volume commitments from customers (on attractive terms for customers)

prior to construction.

39


Page 6 of 6 5/20/10

Question 7:

If your proposed system does not provide for container movement from each

marine terminal to the consolidated terminal stations, provide a description on how you

would account for that movement and the associated costs.

FSP Response:

Containers will be moved between marine terminals and Freight Shuttle transfer

facilities by hostler or dray truck. FSP will work with the local labor groups and terminal

leaseholders to reach a mutually beneficial agreement to dray containers from the

terminals to the Freight Shuttle collection points.

40

1

Innovative Transportation Systems Corporation Zero Emissions Container Mover System (ZECMS)

Responses to Supplemental Questions


Funding Assumptions Financial risks vary with each phase of the project. Initial stages such as preliminary design and demonstrator development are considered by the investment community as highly speculative and basically un-financeable. Thus the team will be relying on grants and in-kind contributions for the early stages. Once all approvals and permits are in place the business community would consider the financial risk to have been substantially reduced. Interim phases of development can be provided by Government backed short term loans and some private/affiliated infrastructure funding organizations such as the Meridiam Group funded by Team member AECOM. Market Risks:Market risks which include a drop in container traffic due to decreased demand, natural disasters, and diversion of traffic to other ports or any other source of diminished container traffic could impact the economic viability of the project. Some of these risks will be accounted for in the financing structure wherein a debt coverage ratio will be required by the lender. A debt coverage ratio of 1.25 for example will result in a 25% cushion insuring that in the event the income from the project is diminished by 25% the income will still be sufficient to cover the debt payment. Commercial financing such as the financing being provided by Team member Macquarie (or any private financing for that matter) will be predicated on certain assurances that the traffic that does exist between the terminals and the ICTF will utilize the system. ITCS is aware that the Port will not accept liability for any guarantees of certain levels of traffic; however, the system financing will require either incentives or mandates similar to those that were required in support of the Alameda Corridor project. Thus the Team is requesting that the Port explore implementing rules that would require the use of the system while giving the Port approval authority over necessary pricing to insure the project’s economic viability. It is the Team’s belief that the system will be competitive financially with current drayage but without the associated pollution, provided the traffic is high enough to insure its successful operation.

Technology Risks: The Team does not see any technology risks. All key technology elements for our proposed MagneRail system have already been independently demonstrated. Any risks of integrating of these technologies into a full-scale MagneRail proof-of-concept are minimal.

41

2

2. What level of technological development and full-scale testing do your financiers require before committing to capitalize the entire project, including initial funding or further proof of reliability/serviceability/durability under specified operating conditions?

ITSC’s financial partners will require the successful completion of full scale testing of the demonstrator and receipt of all permits and approvals to construct and operate the project. The technology risks have all been minimized or eliminated in years of testing that has resulted in the long stator linear motor being the most reliable public transportation system in the world as operated on the Transrapid Maglev system in Shanghai China.

3. Describe the actual status and level of development of your system, and how much more time and your own resources will be needed to start final design of the technology elements, not including the civil works elements (e.g., structures, utility system etc.)? For your system, do you recommend a limited-scale proof of concept first, and if so, who should pay for that?

The MagneRail concept is based on well-established, sound scientific principles and state-of-the-art technology elements already built and tested by General Atomics. All key technology elements for our proposed MagneRail system have already been independently demonstrated. Specifically, these include electromagnetic propulsion, speed and location detection, and safety-certified train protection system. All of these items have already been successfully tested in an urban maglev configuration on the General Atomics test track located in San Diego, CA. Testing of additional features is currently in progress. An example is the implementation of block switching for the linear synchronous motor (LSM), which will improve operational efficiency by reducing electricity consumption as well as enhancing operational safety. This work is fully funded through a combination of Federal Transit Administration (FTA) funding and General Atomics (GA) discretionary funding and is scheduled to be completed this year.

The next step is to configure these key technology elements as an integrated MagneRail system to demonstrate proof of concept. This will consist of fabricating two tow vehicles (bogies) and up to 1,000 feet long MagneRail test track. The tow vehicles are standard railcar bogies fitted with a fifth wheel or train car couplers and a set of permanent magnets. The LSM modules will be prefabricated in a factory, shipped to the test track site, mounted between standard railroad tracks, and electrically connected to provide propulsion power. Testing and operation of these integrated components will provide full-scale proof of concept of the MagneRail system including the movement of fully loaded cargo containers.

Funding for proof of concept is being actively sought from a variety of sources including AECOM, California Air Resources Board (CARB), California Energy Commission (CEC), Federal DOT, General Atomics, Innovative Transportation Systems Corp. (ITSC), Port of Los Angeles, and South Coast Air Quality Management District (SCAQMD) as follows:

42

3

MagneRail Proof of Concept Potential Funding Sources

Source Amount

AECOM $150,000 General Atomics (GA) $300,000 Innovative Transportation Systems Corp. (ITSC) $150,000 Sub-Total = $600,000

Possible Local Agency (i.e. Port LA TAP; CARB) -- 50% match $600,000 Sub-Total = $1,200,000

South Coast AQMD $5,000,000 Sub-Total = $6,200,000

California Energy Commission (CEC) -- 50% match $6,200,000

Total = $12,400,000

The team is currently working with the community of San Pedro to develop the demonstrator on railroad tracks connecting to the San Pedro Red Line Trolley for possible future use to extend the Red Line Trolley into downtown San Pedro. It will be possible to test the ZECMS on the Red Line Trolley demonstrator.

4. How do you intend to attain and maintain the somewhat optimistic projected market share of near-dock drayage, and to compete with trucking?

ITSC intends to: Promote itself as the best solution for draying containers to near-dock facilities. Design a highly efficient and cost effective alternative to truck drayage. Offer competitive rates. Position itself as a drayage service that complements the trucking industry.

ITSC believes that when the trucking industry understands that its ZECMS system will rely on trucking from marine terminals to its ZECMS consolidated loading facility, the overall trucking system will become more efficient and drivers will spend less time driving between marine terminals and ITSC’s ZECMS consolidated loading facility. Because of the ZECMS automated system, containers delivered by truckers will immediately be placed on the system and the trucker will also immediately pull an incoming container to be delivered to a marine terminal. ITSC will be able to manage efficiency by contracting the service of several truck drayage companies for the shipping lines, terminal operators and railroads and managing deliveries between marine terminals and the ZECMS consolidated loading terminal. Truckers will never have to wait for a matching (matched with a contracted shipping line or marine terminal) as ITSC will essentially act as the master trucker for all containers moving to and from and on the ZECMS. A trucker should be able to make two to three round trips between marine terminals and ITSC’s ZECMS consolidated loading facility as compared to one round trip between a

43

4

marine terminal and the ICTF and/or BNSF near-dock facilities over the same time period. As drayage costs are based on delivery times (drivers’ hourly wage scale) and fuel costs, the reduction in delivery times and fuel costs for draying between marine terminals and ITSC’s consolidated loading facility should also reflect lower drayage costs. Exact costs will depend on exact location of the ZECMS facility.

Additionally, the marine terminals should designate certain terminal gate lanes as “fast lanes” as a way to provide incentives for shipping lines and railroads to use the ZECMS. In some cases where the ZECMS might be located on the other end of a marine terminal (from its main gate), the terminal (with the Port’s backing) could create a simplified back gate exclusive for ZECMS drays. These actions would be a form of non-financial subsidies, but would provide incentives for shipping lines and railroads to use ITSC’s ZECMS by increasing roundtrips of container drays and keeping overall drayage trucking costs lower than draying to ICTF. Depending on location, two to three truck drays from a marine terminal to the ZECMS should cost the same as one truck dray between a marine terminal and ICTF.

5. Which of the four RFCS volume scenarios represents your viability threshold and what is your “Plan B” if those volumes or your projected market share does not materialize?

There are many unknowns that need to be discussed in more detail with marine terminal operators, shipping lines and railroads, which make picking a viability threshold premature at this time. However, a “Plan B” for any one of the volume scenarios should include the possibility of using ITSC’s system to move railcars.

It should be noted that current truck drays serve the overflow capacity of containers that can’t be loaded on trains being built on-dock. In case the volume of truck drays between marine terminals and near-dock rail terminals decreases significantly, the number of railcar moves, whether or not fully built trains or block moves, shouldn’t decrease and at best stay at current volumes subject to market fluctuations.

It is possible to size the LSM motor system in such a way to have enough power to pull one to four railcars at a time. Therefore, if containers that would go on truck drays were to decrease, the railroads could use the extra capacity on the ZECMS system to move railcars. This possibility would also be a way to manage its financial risk in the future by charging railroads a competitive fee for using the ZECMS system.

According to the report entitled: San Pedro Bay Ports – Rail Study Update (Parsons, December 2006), one of Parson’s recommendations (XI Conclusions – Subsection - Non-traditional Rail Concepts) calls for an Inland Block-Swap. The following is an excerpt from the Ports’ Rail Study.

“Non-traditional rail concepts involve uses of trains that are not currently employed. …Inland Block-Swap: The concept of an inland rail yard to sort trains can provide several rail operating improvements that coincide with the recommendations of this Study. Features of this concept and associated benefits are described as follows:…

o Provide the ability to build multi-destination trains by blocks at each on-dock rail yard. Trains can then be block-swapped at the inland yard to create single

44

5

destination trains. This will increase the potential volume of on-dock cargo by alleviating the challenges with building long destination trains.

o Provide the ability to block-swap westbound trains at the inland yard to create Port-terminal specific trains. This will reduce inter-terminal switching movements at the Port.”

Because ITSC’s ZECMS technology can be integrated into existing conventional railroad tracks, it provides a high degree of flexibility that will allow it to be used for railcars in the event the projected container volumes for truck drayage does not materialize.

6. In light of the ports’ stated position not to provide operating subsidies, how would you propose to address the market and financial risks that could lead to shortfalls in operating revenue during the project’s lifetime?

ITSC intends into entering into contracts (for use of its ZECMS) with shipping lines, terminal operators and/or railroads (similar to how truck drayage companies enter into contracts with them now). Macquarie’s private financing is predicated on the Ports ability to provide certain “use” assurances discussed hereinabove, similar to those that support the financing of the Alameda Corridor Project.

The ZECMS system could be used to move railcars and could eventually prove to be a better system for moving unit block railcars in and out of marine terminals.

Additionally, in the event of a shortfall of containers (to be drayed from marine terminal to ICTF or proposed SCIG) it is possible to convert the ZECMS infrastructure for use as an inductive charging system for electric trucks on the go.

The electric trucks will be equipped with batteries that can be inductively charged while driving on the ZECMS. Permanent magnets will also be placed underneath the trucks that will follow the electromagnetic force generated by the linear motors. Basically, the exact same concept is being proposed by MagneRail. ITSC can be the catalyst for the San Pedro Ports industry to develop inductively charging electric trucks. According to Ports’ statistics, millions of containers that move through the marine terminals are for local consumption and are trucked to beneficial cargo owners’ warehouses. Many of these warehouses are located within a 20 mile radius of San Pedro Ports and close enough for a truck to leave the ZECMS and make a container delivery and/or pick-up while the battery remains adequately charged. Upon returning to the Ports, the truck will drive back on the ZECMS and will recharge while moving along the ZECMS roadway. There will be no downtime for recharging.

A transponder system will be set-up in order to track and charge a trucking company a fee for charging its batteries. The fee structure will be determined in such a way to make the ZECMS competitive with the cost of fuel. ITSC is currently in research and development of an inductively charged trucking system and plans to have one operational by the time the ZECMS is up and running, making an inductively charging truck an optional feature of ITSC’s ZECMS.

45

6

The eventuality of converting the ZECMS to support most, if not all, future electric trucks also supports the Ports’ CAAP of reducing diesel and green house gas emissions to the maximum extent possible, or to at least meet CARB’s Tier 4 or possibly more stringent compliance measures in the longer-term future. All existing trucks serving the Ports will eventually require replacement within 7 to 12 years of use and ITSC’s ZECM infrastructure could become one of the preferred electric charging modes for future electric trucks. It could also serve as a catalyst by Ports when issuing future mandates on truckers to convert to electric trucks.


In support of the Ports’ future plans to employ electric trucks as part of its CAAP, ITSC intends to use electric trucks (Vision Motors and/or Balgon) to move containers between unconnected marine terminals and its consolidated ZECMS terminal stations. ITSC will contract the work to trucking firms that may own electric trucks in the future. Additionally, another way to manage and keep shorter distance drayage costs low, it may be possible for drayage trucks to pull containers in tandem (work with ports to identify roadways within and between terminals designated for tandem drays and/or exclusive back gates. The system is designed to and must integrate short haul electric trucks to create the full solution.

Even though not fully elaborated in ITSC’s response to the RFCS, ITSC is planning to offer a two tiered ZECMS fee plan. Containers that would move from a ZECMS loading facility built inside marine terminals would be charged higher ZECMS usage fees than for containers loaded at a ZECMS consolidated loading facility outside a marine terminal. This would be necessary in order to maintain market fairness among shipping lines operating in various terminals and to also recover the additional costs of constructing a ZECMS more exclusively for a marine terminal.

46

LEVX® California Freight Systems

Page 1

Zero Emission Container Mover System (ZECMS)Request for Concepts and Solutions (RFCS)

Supplemental QuestionsMay 20, 2010

1. In light of the market and technology risks, list the necessary assumptions you have made for debtand equity financing from planning and design, construction and operation over the lifetime of yourproposed system.

Terms and availability of finance is dependent in large part on favorable levels of port/rail facilitycommitment to the project and its success, the structure and terms of the proposed PPP, portcontributions (row, land, environmental, regulatory), revenue projections and ultimately tollingregulation. No grant funding was assumed for this project.While lower container transport volumes in scenarios 1 and 2 combined with the stipulated$75/70 per container fee structure generate significant pre finance profits, these funds are likelynot sufficient to fully satisfy either debt or equity investor requirements supporting theconstruction phase of the project. Fees under those scenarios would likely need to be increasedand/or volumes increased as discussed in # 4 and #5 to assure success. Financiers would likelyrequire project agreements to support the flexibility to implement those alternatives.Costs of operations, maintenance, energy, additional and replacement equipment are all includedin the calculations for 30 year EBITDA (pre finance) to provide a reasonable analysis of the cashflow requirements of ongoing operations for the lifetime of the project. These costs were assignedpriority over support for debt and equity requirements.Potential financier interest and strategies noted below are based on current active businessassociations, discussions and negotiations based on proposed project parameters. Specificpreferences and terms will be determined as more defined project information and agreementoutlines become available.

Source A Several sources for private debt supporting up to 100% of project additionallyrequiring an equity position in operating company

Source B Individuals and funds that would purchase a significant percentage of privateactivity or tax exempt bonds should those options become available

Source C Up to 100% of capital funding gaining a significant equity position providing forno construction phase debt

Source D A large pension fund investment for post construction finance, acquiring anequity position in exchange for the cash to pay down/off construction financing,for ongoing operations and/or system expansion

Source E Financier interests in self financing the entire project through a jointventure

Source F Corporate partner investments resulting in shared project ownershipSource G Federal low interest loan programs and private activity bondsSource H Multiple interests from foreign parties/corporations for debt, equity or

joint venture positions in the proposed project.

47


2. What level of technological development and full scale testing do your financiers require beforecommitting to capitalize the entire project, including initial funding or further proof ofreliability/serviceability/durability under specified operating conditions?

The California Freight Systems submission lays out our plan for completing independent/thirdparty analysis, validation and confirmation of a duplicate system to be built at our facilities in PortAngeles, Washington including engineering, construction methods, documentation, team training,system durability and energy efficiency. These activities will take place concurrent with projectstartup activities at the Ports. See pages 15 17 and 29 of the LEVX® California Freight Systemssubmission.Based on our history of technology development and the proven and time tested status ofcomponents, financiers accept the proposed engineering and safety validation process outlined inour submission and primarily require project commitment from the Ports and Rail yard(s)providing the required right of ways and other required permissions to move forward.

Page 2 48


Page 3

3. Describe the actual status and level of development of your system, and how much more time andyour own resources will be needed to start final design of the technology elements, not includingthe civil works elements (e.g., structures, utility system, etc.)?

See pages 12 14, 28, 46, 48 49, 72 73 of the LEVX® California Freight Systems submission forinformation regarding the status of proprietary technology development and schedule for designdelivery.We are ready to start the final engineering and design phase now, which includes a combination oftechnology and integral civil works elements taken together.

For your system, do you recommend a limited scale proof of concept first, and if so who should payfor that?

A limited scale proof of concept will not be required as all of our work has been completed in largescale, with proof of concept stages and preliminary testing and development activities complete.

4. How do you intend to attain and maintain the somewhat optimistic projected market share of neardock drayage, and to compete with trucking?

We believe that while current and historic international rail container volumes may be stressedand world trading patterns reviewed, cargo volumes will continue to grow in the SouthernCalifornia region. If current volumes or shipping patterns are significantly altered, there is nonethe less a stable population base in Southern California dependent on domestic intermodaldeliveries that are not currently part of the targeted container volumes. Volume projectionscould be adjusted and market targets shifted to include this domestic cargo. It may be necessaryto add, shift or expand the system to maximize domestic cargo opportunities.LEVX® California Freight Systems’ marketing team will work from inception to develop corporateand stakeholder partnerships utilizing a focused marketing program for the entire logistics chainincluding reliability, environmental, cost and time frame advantages and incentives.LEVX® California Freight Systems plans to own and operate its own small fleet of plug in electricdrayage trucks to assure the most reliable and predictable interaction possible between marineterminals and LEVX® California Freight Systems transfer stations.LEVX® California Freight Systems will work closely with rail yard operators to facilitate advancedload planning coordination; prioritizing specified container delivery to targeted zones within therail yard(s). It is expected that the resulting increased operational efficiency of both LEVX®California Freight Systems and the rail yard(s) traffic and pattern flows will allow trains to be builtmore efficiently at the near dock facilities bolstering the system’s projected market share whiledecreasing the comparable drayage cost and environmental impacts of much longer drayagemovements.

49


Page 4

5. Which of the four RFCS volume scenarios represents your viability threshold

All scenarios provided in the ZECMS RFCS combined with the supplied revenue and labor ratesgenerate profitable operations from the first project year (2012), pre tax and pre finance. Operationalrevenues further support future capital expenditures including the addition and/or replacement ofsystem equipment.

Viability, including tax and finance costs and/or equity return on investment, is attainable for allscenarios by varying project parameters as necessary. Adjustments to project construction plansprovide the most significant financial impact requiring the project to carry less capital burden forimplementation and would be applicable for sustained low throughput demands. Options for addingtraffic across the system would be considered first with the reassessment of fee structures consideredonly if and when more positive resolutions are exhausted.

Scenario Estimated Project Cost(includes $50m water crossing)

(includes 5% contingencyallowance)

StartUpYear

System CapacityUtilized

2012/2035

30 YR EBITDAPre finance

Break Even Fee@ 4.7% Finance

2012/2035

1 $505 MillionSingle corridor

2012 20% / 33% $672,682,560@ $75/70

$113/$77

2 $580 MillionSingle corridor

2012 20% / 66% $927,440,729@ $75/70

$123/$58

3 $598 MillionSingle Corridor

2012 39% / 86% $1,613,383,390@ $75/70

$80/$51

4 $671 MillionSingle Corridor

2012 39% / 100% $1,795,040,243@ $75/70

$86/$49

3 $720 MillionDual Corridor

2012 20% / 43% $1,613,383,390@ $75/70

$89/$55

4 $760 MillionDual Corridor

2012 20% / 53%(66% at max rail yard

capacities)

$1,795,040,243@ $75/70

$93/$52($49 at maximumrail yard capacities)

and what is your “Plan B” if those volumes or your projected market share do not materialize?

A significant market expansion option would include the extension of LEVX® California FreightSystems guideways to off dock truck based distribution centers in addition to scheduled rail yarddeliveries. Assuming that attempts to improve throughput to the rail yard(s) could not providesustainable volumes, expansion to a substantial secondary market should be considered.

50


Page 5

Scenario Estimated Project Cost(includes $50m water

crossing)(includes 5% contingency

allowance)

System CapacityUtilized

EBITDAPre finance

Break Even [email protected]% Finance2012/2035

4 + TruckHub

$860 MillionDual Corridor

90% 7.56 M TEU’s100% 8.4 M TEU’s

$155,000,000$189,000,000each year@ 75/70

$46$45

6. In light of the ports’ stated position not to provide operating subsidies, how would you propose toaddress the market and financial risks that could lead to shortfalls in operating revenue during theproject’s lifetime?

at

Increased business opportunities as outlined in #4 and #5 providing higher volumes of traffic over theLEVX® California Freight System would help to negate concerns for shortfalls. However,implementation and maintenance of a “rainy day fund” would also be wise alongside with theestablishment of ongoing credit tools with finance resources. Additionally, utilization of a held backequity pool could create a cash infusion to pay off/down debt or provide operating/expansion funding.

7. If your proposed system does not provide for container movement from each marine terminal tothe consolidated terminal stations, provide a description on how you would account for thmovement and the associated costs.

LEVX® provides for a fully integrated system and network. Please see pages 18, 29 31, 35 in our LEVX®California Freight Systems proposal for a full description of “door to door” container movementsacross our system including plug in electric drayage trucks operating between marine terminals andtransfer stations. Capital, operating, maintenance and replacement costs associated with the plug inelectric drayage trucks are included in our financial overview.

51

1 TETRA TECH

Zero Emission Container Mover System CONCEPTS & SOLUTIONS


52

2 TETRA TECH



1. In light of the market and technology risks, list the necessary assumptions you have made for debt and equity financ-ing from planning and design, construction and operation over the lifetime of your proposed system.

RESPONSE: Our debt and equity assump-tions are based on a phased financing model which will match the program from planning and design, to phased implementation over the lifetime of the proposed system to minimize market and technology risks.

DISCUSSION: We propose to pursue equity investors through a concession structure. The concession, or debit + equity model, will involve the ZECMS Authority entering into a long-term lease with a concessionaire who will operate the asset during the lease term. In exchange for the right to develop the asset, operate it for the concession term, and collect tolls, the conces-sionaire will provide equity funding. Accurate assumptions are critical in developing a model so that financiers will be willing to commit the required capital. We presented the capital costs required for planning, design, construc-tion, and operation over the lifetime of the projects. (See our proposal Exhibit 6.3 assuming a 20-year concession). As

summarized in Exhibit 1A, our capital cost assumptions account for the total debt, based on our approach to incre-mentally build out the system. Exhibit 1B provides the cash flow diagram of the debt equity requirements over the build out of this system. Our assumptions are categorized into four specific phases of operation that are listed below:

Phase 1 - Pilot Study. Limited invest-ment, proof of concept. The Pilot study is discussed in more detail in Question 2.

Phase 2 - Phased Build-Up of ZECMS Vehicles (with ITS applications). Phase - 2 will involve the buildup of ZECMS vehi-cles to match TEU volume capacity (year X1), utilizing the four demand scenarios volumes provided in the RFCS. This phase will continue until existing TEU capacity is accommodated with ZECMS vehicles. This flexible model allows for optimization at a given year where the vehicle, construction and operation cost increments can be built up until TEU vol-umes are accommodated. The benefit of

our system concept is that it builds the infrastructure and expands capital invest-ments, to match TEU volume projections. As long as TEU demand scenarios exceed the ZECMS capacity the system will con-tinue to be build out as shown on the cash flow diagram (Exhibit 1B).

Phase 3 - ITS/Expansion/Limited Infra-structure Improvement. ZECMS vehicles are increased to accommodate TEU volume increase, this phase will focus on travel time improvements and lim-ited infrastructure primarily at the intersections.

Phase 4 - Infrastructure Enhancement. Roadway networks have limited capac-ity and intersections level of service (LOS) operations rated at “D” or below will require modification. In this phase, incremental roadway mainline capacity enhancements begin to occur.

CONCLUSION: Our debt and equity assumptions are based on a phased financing model that will minimize mar-ket and technology risks.

Exhibit 1A. Our capital cost summary illustrates the bases of our phased financing assumptions.

Exhibit 1B. The cash flow diagram illustrates the reduced debt requirement over time. 53

3 TETRA TECH



2. What level of technological development and full-scale testing do your financiers require before committing to capi-talize the entire project, including initial funding or further proof of reliability/serviceability/durability under specified operating conditions?

RESPONSE: The level of technologi-cal development and full-scale testing required before committing to capitalize the entire project is the development of our Phase 1 - Pilot Study. We estimate the infrastructure and operating cost associated with this phase to be $2.5 million.

DISCUSSION: The Phase 1 – Pilot Study will be designed to test and accumulate proof of reliability, serviceability, and durability under a variety of operating conditions. This full-scale testing, proof of concept program will be used to fully define the long-term program require-ments with minimal capital investment.

The Phase 1 - Pilot Study will require the following components: Hybrid Trucks (10), Charging Station (1), Temporary Charging Station Site (exist-ing Tetra Tech yard, see Exhibit 7A), Intelligent Transportation Systems (ITS) infrastructure applications (lim-ited to signalized intersections), and use of existing roadway infrastructure to define pilot study alignment corridors. Evaluation of the market for tolls and model choice for determining toll pric-ing are also included in this phase. The level of technological development and full-scale testing for the two other key components of our proposed ZECMS - the hybrid trucks and recharge sta-tion are discussed in more detail in our responses to questions 3 and 4.

The evaluation of ZECMS vehicles as opposed to Conventional Trucking will be based on a number of factors including:

• Toll rate levels • Capital infrastructure cost, • Emission mandates• Travel distance• Predictability and reliability• Level of service, and • ILWU support

Travel demand model incorporating tolling algorithms will be used to esti-mate sensitivity of some of these factors.

Our Phase 1 – Pilot Study ITS improvements will include pre-emption devices at limited number of intersections for our Phase 1 system corridor (See Exhibit 7A for container movement routes for each terminal to the consolidated terminal station):

• Optical Preemption Detectors are detectors that sense the optical puls-es emitted by equipped ZECMS ve-hicles. The detectors will be mounted to observe the approaches of an inter-section. The detectors are used with Optical Signal Processors to inform the traffic control system of the presence of des-ignated ZECMS vehi-cles. Using the optical pre-emption detectors throughout the net-work system will reduce stops at red signals, allow vehicles to travel with greater safety, and ultimately improve ZECMS vehicle travel times.

• Optical Signal Processor (OSP) will be installed inside the traffic cabinet to receive signals from the optical pre-emption detectors. This processor will also log preemption and priority con-trol activity, communicate with traffic control devices, and optically isolate the preemption channels.

The default program responds on a first-come, first-served basis to optical signals from vehicles within two signal bands. Emergency band signals are typically emitted by emergency vehicles to effect a preemption of normal traffic control timing and are given the highest prior-ity to allow rapid emergency response. Transit band signals (ZECMS vehicles) effect a priority change for the vehicle’s

approach direction without nec-essarily interrupting traffic control timing.

CONCLUSION: The level of technological development and full-scale testing required before committing to capital-ize the entire project is the development of our Phase 1 -

Pilot Study which will require minimal capital investment.

c

Ctabid

P

54

4 TETRA TECH



3. Describe the actual status and level of development of your system, and how much more time and your own re-sources will be needed to start final design of the technology elements, not including the civil works elements (e.g., structures, utility system etc.)? For your system, do you recommend a limited-scale proof of concept first, and if so, who should pay for that?

RESPONSE: ArvinMeritor has developed several generations of their Hybrid Dual Mode technology for Class 8 trucks and has demonstrated their system in a Navistar truck in partnership with Wal-Mart. TIAX and ArvinMeritor have applied for $6 million grant from the California Energy Commission to develop the Dual Mode system for port drayage and local haul applications. We expect this work, which will take 2 years, to verify the truck component of our proposed ZECMS. A pilot program is needed to verify the charging infra-structure and its integration with the Dual Mode trucks as well as ITS road-way improvements. Technical readiness and costing will be determined in the pilot program. Additional funding will be needed for the pilot program and we would target state agency funding.

DISCUSSION: Our proposed ZECMS includes a dual mode Hybrid Electric Vehicle (HEV) system in Class 8 dray-age truck operating in all-electric mode with opportunity charging stations and right-of-way truck-only lanes. The first generation of the ArvinMeritor Hybrid Dual Mode technology has been developed and is being demonstrated in partnership with Wal-Mart on a Navistar truck fitted with a Cummins engine for on-highway over the road applications. Pre-development of the dual mode system with costs is complete. TIAX has submitted a grant application to the California Energy Commission’s Alternative and Renewable Fuel and vehicle Technology Program for a $6M project to demonstrate 4 Hybrid Dual Mode Class 8 LNG tractors. This project

will demonstrate application of the zero emission capable Dual Mode system in the Class 8 drayage applications.

HEV Charging Infrastructure to fully-realized demand of both the ICTF and SCIG facilities in 2035, we estimate that trucks will require four full charges a day in order to complete the estimated 8 round trips from the marine terminals to the near dock facilities, or more than 4,000 charging events each day for the full fleet of approximately 1050 trucks. Charging time will be a critical element in the operation of the ZECMS. Currently available Level 3 chargers for electric vehicles would require an estimated 20 minutes to fully charge the HEV batter-ies. These charges are estimated to cost $80,000 each. While this charging time is acceptable for limited-scale proof of concept of the truck’s cargo capability, it would be unacceptable for the ZECMS. For this, either inductive opportunity charging stations during truck queuing at the loading facilities or battery swap stations are needed. The costs of these alternatives are not currently known. Additional work is needed to determine the most cost effective approach and subsequent business model.

We plan to implement the vehicle, charging infrastructure, and roadway improvements in a Pilot Program (Phase 1). This limited-scale proof of concept of our ZEMCS will also provide the basis for the gradual build up of zero emission capable trucks, their fueling infrastruc-ture, and smart signaling. We believe this will serve as both an interim solu-tion to the Port for zero emission cargo

movement and a necessary element in the private funding and public partici-pation of the ZEMCS. As with other alternative fuel transportation solutions, private funding for infrastructure is only available once there is proof of current and future demand. Zero emission truck right-of-way will also be developed in stages as TEU demand is realized.

We propose a staged approach for the Pilot program and subsequent phases starting at 10 Hybrid Dual Mode trucks working an increasing number of turns, and then an increased number of shifts, to provide 155 zero emission container moves per day. One Level 3 charging location is sufficient for this part of the program. Finalizing the method of charging to either opportunity induc-tive charging or battery-swap will occur prior to implementing Phase 2. Additional changes in truck design may be required depending on our selection of charging infrastructure. In Phase 2, 3, and 4 vehicles and charging infra-structure will be scaled up and roadway improvements will also be implemented.

CONCLUSION: Our propose ZECMS is composed of 3 major components: HEV, charging infrastructure, and roadway improvements. We anticipate demonstrating the viability of the HEV in drayage applications in the next 2 years with a grant from the California Energy Commission. We will then develop a 10 vehicle pilot program with charg-ing infrastructure to provide technical and cost data sufficient for scale-up. We anticipate applying for funds from state agencies for this pilot program.

55

5 TETRA TECH



4. How do you intend to attain and maintain the somewhat optimistic projected market share of near-dock drayage, and to compete with trucking?

RESPONSE: We are confident that a ZECMS utilizing Hybrid Dual Mode trucks will ultimately have operational cost advantages over conven-tionally-fueled drayage trucks. However, a requirement for zero emissions con-tainer movement is needed to provide a reasonable return on investment for the upfront capital costs needed to serve the projected container volumes in 2035.

DISCUSSION: Our team plans to fully uti-lize a limited-scale proof of concept with a gradual build up of zero-emission capa-ble trucks, a fueling infrastructure, and the right-of way provisions to show the competiveness of a ZECMS utilizing the ArvinMeritor Hybrid Dual Mode tech-nology. As with any low-volume, clean energy technology solution, the incre-mental capital cost will be higher than conventional trucking until production volumes are equivalent and generational cost improvements are made on critical components. We believe there is prec-edent in providing vehicle incentivesto help offset the higher capital costs of clean trucks:

• The Gateway Cities Fleet Modernization program provided funds for the replacement of more than 600 high polluting trucks with cleaner models

• The Port of Los Angeles Clean Truck Program (CTP) along with California Air Resources Board’s (CARB) Prop 1B Goods Movement Emission Reduction Program have incentivized the pur-chase of 2,200 drayage trucks, includ-ing clean-burning LNG drayage trucks

• CARB’s Hybrid Vehicle Incentive Project currently provides up to $45,000 for a Class 8 hybrid trac-tor, plug-in and all electric trucks

will be incentivized at a higher rate in FY2010-2011

Charging stations that will efficiently provide charging, or battery swaps, at a competitive rate are a critical element of the ZECMS. California electric compa-nies have participated in zero emission demonstration projects that intend to replace internal combustion engines and reduce/eliminate the associated local air pollutants. This includes cold-ironing for large container ships at dock, truck stop electrification, and providing plug-in stations for light-duty passenger vehicles. A third-party company work-ing with the electric company and the fleet operators will provide a competi-tive charging infrastructure and be able to manage the growing demand of the ZECMS as well as provide support to other electric vehicles.

ITS and right-of-way provisions for container movement will be developed to prioritize movement of zero emis-sion vehicles over conventional vehicles. This priority would result in more turns and therefore more revenue for the zero emission vehicle operators. Road infra-structure investment must also have a reasonable projection of future demand in order to plan and implement capacity improvements and to reasonably recover investment.

The zero emission Hybrid Dual Mode trucks can have a com-petitive lifecycle cost advantage compared to conventionally fueled drayage trucks, given

production-level vehicle costs and an adequate charging infrastructure. However, the financial commitment to build a complete ZEMCS to serve the projected container volumes in 2035 will need a requirement/inventive for zero emissions. This could take the form of a zero emission mandate or a carbon tax on each container. Precedent in this area has again been set by the Ports and CARB. The CTP has banned more than 10,000 high polluting trucks from dray-age operation since 2008 resulting in an 80 percent emission reduction.

CONCLUSION: Given some preliminary clean vehicle incentives and a future commitment of zero-emission container movement, our proposed system will be cleaner, more efficient and have a lower lifecycle cost than conventionally-fueled trucking.

56

6 TETRA TECH



5. Which of the four RFCS volume scenarios presents your viability threshold and what is your “Plan B” if those volumes or your projected market share do not materialize?

RESPONSE: Since our approach does not require a large investment in fixed infra-structure (until Phase 4 – Infrastructure Enhancement) it will work with all four RFCS volume scenarios. Our “Plan B” is a decision point whether or not to invest in the Phase 4 – Infrastructure Enhancement. If the project demand of TEU volumes do not materialize the via-bility of the capital expenditure could not be supported by the return in revenue.

DISCUSSION: Our system provides a work-able solution based on today’s (2010) volumes and the four RFCS volume sce-narios. If the projected TEU volums do not materialize, future system growth may be limited to Phase 3. With our flex-ible approach, future system integration and additional roadway capacity will be expanded as the market share of TEU’s materializes.

Integrated With Existing Travel Demand Model

Estimating accurate TEU volume is a key factor in implementing our proposed system as well as in ensuring our system viability. In order to forecast reliable TEU volumes, a comprehensive review on existing port-area Travel Demand Model (TDM) will be conducted.

With the toll system integrated TDM, our goal is to present all potential cor-ridor routes that will include ZECMS for today and future years as well as to estimate optimal toll rate for system viability.

Trip Generation and Trip Distribution

In addition to conventional Trip Generation inputs, Tetra Tech will inte-grate major drayage generators, latest

land use pattern and activities, location of ZECMS charging station, proposed toll collection system, tolling locations into existing TDM Trip Generation module. With newly added input parameters, Trip Distribution mod-ule will be modified to reflect ZECMS desirable zones which in return will play major role in determining potential cor-ridor routes that would include ZECMS travel demand. This will allow projected market share to be zone specific rather than the entire port complex.

Route Choice and Trip Assignment

Route choice/Trip assignment involves building paths between origin-destination zones within the network. As part of route choice module, Tetra Tech will implement a ZECMS facility dedicated path while the remaining paths will be determined by existing route choice function – best alternative route choice. Different levels of toll charges, route travel times, and route distance will then be applied with the full build-out project into exiting TDM trip assignment function. Through this analysis, competitive conven-tional trucking system’s relative compliance rate to utilize ZECMS will be identified.

Sensitivity Analysis

Upon completion of TDM set-ting as indicated above, an extensive sensitivity analysis will be conducted to derive an optimal toll charge rate. The proportion of trips assigned to each of the paths is a function of the cost ratio between each path, including operating cost, perceived travel time costs and toll charges. If the total cost of

using the toll routings is significantly lower than the best alternative route, a substantial portion of the total trips will be assigned to the ZECMS. On the other hand, if toll charges increase the propor-tion of trips assigned to the ZECMS will After running a series of progressive toll rates, a toll sensitivity curve will be developed. This curve will present the relationship among estimated annual toll revenue potential and estimate aver-age daily (TEU) levels at the various toll rates.

CONCLUSION: Since our approach is demand-based. It will work with all four RFCS volume scenarios. Toll modeling during Phase 1 – Pilot Study will help assess the details of how the program will implement the demand projected for year 2035. With integration of our proposed tolling system into existing Port-area travel demand model, our team will be able to generate realistic travel demand of ZECMS.

EXHIBIT 5A

57

7 TETRA TECH



6. In light of the port’s stated position not to provide operating subsidies, how would you propose to address the mar-ket and financial risks that could lead to shortfalls in operating revenue during the project’s lifetime?

RESPONSE: Our proposed system addresses the market and financial risks that could lead to shortfalls in operat-ing revenue during the project’s lifetime by using a scalable and flexible sys-tem that will be responsive to market fluctuations.

DISCUSSION: Our approach is both scal-able and flexible.

First, our proposed ZECMS is based on a scalable approach to insure that system build-up (trucks/charging station/ROW) and capital investment goes hand-in-hand in an incremental mode based on the actual increase of TEUs, thereby minimizing the risk of over-building.

Second, the HEV Dual Mode system allows the flexibility of zero emission trucks to be used for both near berth (zero emission miles in the Port) and on-road, regional-haul operations. This flexibility reduces the sole dependence of

zero emission trucks to operate between the marine terminals and consolidated terminal stations, or within the Port, and opens additional revenue avenues if there is a shortfall of near dock demand.

We have also included a phase approach for roadway improvements. Investments here will also follow the increased TEU demand. In the initial phases, we will implement smart signaling to improve-ment container movement. This will be available to ZECMS trucks and will improve the number of containers that can be moved. This will also then create an incentive for using these vehicles in their zero emissions mode.

As the demand further increases, road-way improvement planning will be initiated including grade separations and added capacity lanes. The cost of this effort is small compared to actual construction. Although construction

lead times are fairly long, we anticipate that we will be able to justify start of construction based on existing traffic levels and short term future projections of demand. In this way we will mini-mize the build out of any unnecessary infrastructure. We also have planned to include toll or container charges as part of our early phases and some of this rev-enue will help offset roadway planning and implementation.

Finally, if necessary, consideration can be given to increase the fee charged for container or use of the toll roads to make up the difference due to container volume shortfalls.

CONCLUSION: Our proposed system will be scalable and flexible to avoid market and financial risks that could lead to shortfalls in operating revenue during the project’s lifetime. See Exhibit 6A.

EXHIBIT 6A

Exhibit 6A. Tetra Tech projects that long term revenue will significantly exceed debt.

58

8 TETRA TECH




EXHIBIT 7A - SITE/ROUTE MAP

RESPONSE: Our proposed system does provide for container movement from each of the POLA and POLB existing and proposed marine terminals to both the Intermodal Transfer Facility (ICTF) and the proposed Southern California Intermodal Gateway (SCIG) as shown on Exhibit 7A below.

DISCUSSION: Our proposed full-scale zero emission truck system, with dedi-cated toll lanes/roads, is designed to provide for the conversion to dual mode HEV trucks that will be fully

commercialized. The dual mode HEV trucks will operate in a mode similar to today’s diesel-engine trucks. The toll corridors will be designed to provide as many turns as possible for the zero emission trucks between the marine terminals and consolidated terminal stations. Additionally, the build-up or expansion of the ZECMS will be based on careful planning that will be adjusted using the information and experience gained from the proposed “Limited Scale Proof of Concept,” including the actual

container movement rate per truck, and the increase in near dock demand.

CONCLUSION: Our proposed system will provide container movement from each marine terminal and, therefore, will not cause the problem anticipated by this question. In the event that the actual number of containers increases at each terminal, or a specific marine terminal exceeds its capacity projection, we can readily deploy more zero emission trucks to meet additional demands.

59

60

Appendix D

64

Figure 1

This graphic illustrates the progressive steps necessary to mature technologies and integrate them into subsystems, systems, and programs

Evaluation of SubmissionsEvaluation of Submissions

Request for Concepts and Solutions (RFCS):Z E i i C t i M t S t

A st 2 2010

Zero-Emission Container Movement Systems

Richard G Little AICP

August 2, 2010

Richard G. Little, AICPUSC Keston Institute for Public Finance

and Infrastructure PolicyThe Keston Institutefor Public Finance andInfrastructure Policy

malvarado

Typewritten Text

malvarado

Typewritten Text

Attachment 2

The Goal

The Keston Institutefor Public Finance andInfrastructure Policy

The Projectj

“A public private partnership (P3) to design A public private partnership (P3) to design, build, finance, operate, and maintain/manage (DBFOM) a Zero Emission Container Mover ( )System (ZECMS), at no cost to the Ports or ACTA, linking the San Pedro Bay Ports and

d k i t d l f iliti ”near dock intermodal facilities.”


Request for Concepts and Solutions Request for Concepts and Solutions

a) determine the viability of available ZECMS ) m y f Etechnologies and the feasibility of employing that technology at the Ports

b) l h b l f h b) evaluate the capabilities of the management team to provide and present detailed design criteria and construction capabilitycriteria and construction capability

c) assess financial plans for funding the Project, including operating costs, at no net cost to the g p g ,Ports


The Respondentsp

American Maglev Technology of FloridaAmerican Maglev Technology of FloridaBombardierFlight Rail CorporationFlight Rail CorporationFreight Shuttle PartnersInnovative Transportation Systems CorporationInnovative Transportation Systems CorporationLEVX California Freight SystemsTetra TechTetra Tech


The Charge to the Panelg

Review each of the Submittals to determine the Review each of the Submittals to determine the responsiveness of each such Submittal to the specific terms, requirements, and criteria p qprescribed in the RFCS. Identify and discuss each aspect of each Submittal which fails to provide complete and thoroughly responsive Concept Documents and addenda addenda.


The Panel

Allan V Burman (Performance based Contracting)Allan V. Burman (Performance-based Contracting)George R. Fetty (Rail Operations)Petros Ioannou (Advanced Transportation Technologies)Petros Ioannou (Advanced Transportation Technologies)James M. Lents (Environmental Regulation)S h N P (Fi d E i )Sasha N. Page (Finance and Economics)Wade Watson (Port Planning and Operations)


The Evaluation ProcessFebruary 1-2, 2010 – panel met in Long Beach to

review discuss and evaluate responses to RFCS review, discuss, and evaluate responses to RFCS and make preliminary findings

May 9 2010 – supplemental questions provided to all May 9, 2010 – supplemental questions provided to all respondents to RFCS

May 20 2010 – written responses to supplemental May 20, 2010 written responses to supplemental questions provided to panel

May 24, 2010 – individual interviews held with all May 24, 2010 individual interviews held with all respondents at USC


Findingsga ZECMS appears to be technologically feasiblenone of the systems proposed are sufficiently mature to none of the systems proposed are sufficiently mature to commit to a full-scale operational deployment at this timenone of the submissions adequately address the risks of i ffi i k d dinsufficient market demandtechnology and financial risk cannot be fully evaluated until the robustness and reliability of the systems have been the robustness and reliability of the systems have been demonstrated

None of the respondents have shown that they can None of the respondents have shown that they can deliver a reliable and financially sustainable ZECMS at no cost to the Ports


Thank you!Richard G. Little, AICPDirector

y

DirectorThe Keston Institute for Public Finance

and Infrastructure PolicyyUniversity of Southern CaliforniaRGL 236L A l CA 90089 Los Angeles, CA 90089 phone: (213) 740-4120fax: (213) 821-1039fax: (213) 821-1039email: [email protected]: www.usc.edu/keston
