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Indiana pushes firms toward electric vehicles, but has few of its own

January 2, 2010

The state has put its money where its mouth is in offering incentives to companies that would make Indiana a leader in the hybrid electric vehicle industry.

For instance, in 2008, Gov. Mitch Daniels pledged $7 million in tax credits to Indianapolis-based EnerDel Inc. contingent on the battery maker’s hiring 850 people by 2013.

And last month, the state pledged $2.2 million to help Delphi Automotive Systems ramp up a line in Kokomo to make electronic controls for hybrids, with Daniels declaring, “Indiana can lead the electric car transition.”

But Indiana government hasn’t put much money toward becoming a leader among states integrating hybrids into their massive vehicle fleets.

Among the 5,571 passenger vehicles in a 10,279-vehicle fleet that also includes trucks, buses and motorcycles are just 15 hybrids, according to Indiana Department of Administration records.

That a green state such as California has 499 hybrids or that a lefty/progressive state such as Connecticut has 142 is no surprise. But Indiana trails even many Midwestern states.

Illinois, for example, has 66 hybrids in its state fleet, while ethanol-king Iowa has 61 hybrid-electrics, according to an Automotive Fleet ranking of hybrid use in the public sector.

Even the city of Indianapolis has more hybrids than the state—this year deploying 85 Toyota Camry hybrids in non-pursuit public safety roles.

But the Daniels administration says the higher initial purchase price of hybrids is hard to steer around for budget-constrained agencies that have been seeing their fleets shrink in recent years.

“The administration has worked for the past several years to reduce the state’s fleet and more efficiently utilize vehicles,” said Daniels’ press secretary, Jane Jankowski, noting 2,500 vehicles have been pared from the fleet since 2005.

Amid a lingering economic slowdown, state revenue continues to fall, budgets are being slashed deeper, and more state workers are being laid off. Recently, Daniels directed the Department of Administration to further reduce the number of state-owned vehicles as revenue continues to decline, Jankowski said.

As for hybrids, many vehicles in the state fleet are driven primarily on the highway rather than in stop-and-go city environments where hybrids tend to be cost-effective, the administration says.

“The state will buy hybrids when feasible, but cost and highway use are factors in IDOA purchasing decisions,” Jankowski said.

Few have hybrids

Only three state agencies have hybrids and all are Ford Escapes, according to the Department of Administration.

The Indiana Utility Regulatory Commission has one, the Indiana Department of Homeland Security has five, and the Department of Environmental Management has nine.

“We didn’t buy a lot of these, so it wasn’t a huge difference in expenses,” said John Erickson, spokesman for the state’s Department of Homeland Security, adding that hybrids amount to a “single digit” percentage of the department’s fleet.

He said the agency uses the vehicles both in the city and on the highway and plans to keep the vehicles long term, which helps offset the higher purchase price.

Hybrid leader IDEM has 195 vehicles. Its nine hybrids “were chosen for environmental reasons,” said agency spokeswoman Amy Hartsock, “and they were also similar in costs.”

Perhaps over the long term, but the IDOA is balking over the higher purchase price of hybrids.

Escape hybrids bid since 2006 averaged $8,400 more than gasoline-powered versions of the small sport utility, said IDOA spokeswoman Connie Smith.

“The argument could be made that you save this over the life of the vehicle due to reduced fuel usage, but a 42-percent increase in base cost to get a hybrid is a concern.”

Smith said most agencies buy their vehicles off of a budget fixed by the Legislature and “they want to buy as many vehicles as they can with that fixed budget.”

Typically, an agency’s vehicle purchase budget and fuel budget are appropriated separately. The agency doesn’t have the freedom to move fuel money into the vehicle purchase account to offset the hybrid premium, Smith said.

“Procurement and Fleet Services are now taking a closer look at the total cost of ownership and the residual value, instead of just the original purchase price,” she said.

Other considerations

If deployed in the right operating circumstances, a hybrid can save enough on fuel to more than offset the higher fixed cost, said Christopher Amos, president of the Princeton, N.J.-based NAFA Fleet Management Association.

He said savvy fleet managers make the financial analysis based on life-cycle cost—total cost of ownership—rather than just the incremental cost at purchase.

Then again, the economics could change significantly if most of the state’s fleet primarily racks up highway rather than city miles. A hybrid may achieve even worse highway mileage than a gasoline model, given the weight of its motor and battery packs.

Hybrids tend to save the most fuel when operating in stop-and-go urban traffic, Amos said.

“Here’s the rub, though … most vehicles that operate in this mode within a government [use] are relatively low-mileage. So while they save money for every mile they drive, they often don’t drive enough miles to save enough on fuel to offset the incremental fixed cost of the vehicle,” Amos said.

In the first year of use the city of Indianapolis’ 85 hybrids have racked up $127,500 in fuel savings, enough to offset the $3,770 per vehicle purchase premium in 2- to 3 years, said Karen Haley, director of the city’s Office of Sustainability.

Another factor that might limit a state from making more hybrid purchases, as opposed to a municipal government, is that states for years have been required under the federal Energy Policy Act to purchase so-called alternative fuel vehicles—such as those capable of burning E85, an 85-percent mix of ethyl alcohol and 15 percent gasoline.

Indiana has about 150 such vehicles in its fleet.

“Many of the applications where hybrids may have been suitable in a state may already be filled with alternative fuel vehicles, which are accomplishing the same societal goals,” Amos added.

In 2005, Daniels signed a bill that requires state vehicles to use ethanol and biodiesel whenever possible, which potentially helps the 17 biofuel plants in the state.

The value of alternative fuel vehicles is debatable, however.

The 67,007 gallons of E85 used in the state’s vehicle fleet over the last 12 months amounted to just 4 percent of the fuel used in the flex-fuel vehicles, according to IDOA.

Harder to quantify is the potential benefit of using hybrids in helping improve air quality.

“With central Indiana continuing to face ozone pollution problems, as reflected by many of our counties being in [federal] non-attainment, Indiana state government could, in a modest way, accelerate the effort to mainstream fuel-efficient cars in Indiana’s big car culture,” said Jesse Kharbanda, director of the Hoosier Environmental Council.

Amos said he was more surprised that the city was able to find 85 good applications for hybrids than that the state was able to find only 15.

“Given how stressed government budgets have been, they should both be commended for doing what they have in adopting this still-emerging technology for the promise that it holds.”•

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