Summary:
Connor Whaley, Head of Strategic Partnerships at FuSE, discussed the benefits of Clean Fuels programs, which offer significant revenue through, ie LCFS credit. Fuse helps companies enroll in these programs, which pay companies for operating electric equipment. Revenue can range from $700 to $20,000 annually per piece of equipment. Whaley highlighted the upcoming changes in California's LCFS amendments, including the expansion of the FCI program to include private chargers. He also addressed the Advanced Clean Fleets regulation, which mandates fleet electrification by 2045, currently held up in court.
Prem Patel (0:08)
Hey everyone, welcome to episode four of our podcast, Charging Into The Future with Synop. I'm your host, Prem Patel, and today we have Connor Whaley, Head of Strategic Partnerships at FuSE, an organization and platform that makes it easier for EV fleets to harness credit and clean fuel programs like LCFS. We're going to be discussing clean fuel programs, overall generating significant revenue from LCS credits and a topic on everyone's mind, Advanced Clean Fuels (ACF) regulation. We have an exciting episode. Let's get plugged in.
Hey, Connor, thanks for joining us today. How are you doing?
Conner Whaley (0:40)
Hey, it's going. Well, I always like talking to you.
Prem Patel (0:42)
Likewise, let's start off with your background. Can you share how you found yourself in this EV and energy ecosystem?
Conner Whaley (0:48)
Yeah, you know, I've been in the EV space since college. So I've really only been in the EV space since, you know, I started working. I in college, I had, you know, very typical. I had the thought when I was graduating, trying to figure out, you know, what do I want to do, where do I want to go? And my biggest thought was, what can I do that would make, like, the biggest impact? And I was thinking about it for six, seven months, and I came to the conclusion that actual power generation, renewable power, was what I wanted to do. And I was looking at wind and solar. At the time, the cost was starting to become more and more competitive. So like, you know, I think that would be very useful to get into, and I found it really satisfying. But actually fairly quickly, outside of college, I found myself in the EV space. So I actually cut my teeth in drive train development. So I was working on drive trains for classic vehicles, and doing development for new technologies. And it was a really exciting time we were working on, you know, technology that at the time EVs was something really new, and people were just starting to realize how high quality EV can be. The experience of driving an EV could really outperform its internal combustion counterparts in almost every meaningful metric. Even at the time range was starting to get better. It was very quiet, very fast. People were really coming to the conclusion that, hey, EVs are really an alternative that I should consider. So it was a really exciting time, and then going into the pandemic, you know, a lot of things in the industry started changing, and I actually found myself here at Fuse, and we kind of went from developing the technology to actually trying to implement the technology by helping finance it. And that was a really good transition for me, because those are really the two areas that I find the most interesting is, you know, making sure that we can build it, but really making sure that people can actually use it on the light duty and the heavy duty side, that's what I've been really excited about. So that's kind of how I got here.
Prem Patel (2:49)
Awesome background. Let's keep this going. And can you dig into your current company now, fuse,
Conner Whaley (2:54)
In a nutshell, fuse helps companies enroll into Clean Fuels programs. That's that's in a nutshell, what we do. And you know, kind of have to talk about Clean Fuels programs to kind of know the benefit. Clean Fuels programs are significantly different from traditional grants, rebates, incentive programs that most people are familiar with. These programs are state run programs here in the US, and they pay companies every 90 days as long as they operate their electric equipment. These programs are intended to offset the carbon emissions associated with the transportation sector. So these programs that started in California in 2011 they started moving to Oregon, to Washington. New Mexico was starting to open up a program. And these programs are intended to offset transportation emissions, so we help companies get access to these programs, because again, the enrollment process is a lot different. The way these programs are structured is that they're actually funded by oil companies, so they're not actually publicly funded. They're required by the government agencies. They're required by law for gas and diesel companies to participate if they want to sell gas and diesel in those states. And they participate by purchasing credits, these kinds of carbon credits that some people are familiar with, a portion to how much gas and diesel they sell. So the more gas and diesel they sell, the more credits they have to purchase in order to be compliant. And they purchase these credits directly from owners and operators of electric equipment. There's a biofuels program, or biofuels included in the programs as well, but we focus very specifically on the EV provisions. So anyone who operates a level two charge a DC fast charger. Forklifts, refrigerated transport, anything really that has a battery in wheels can generate credits every time you plug them in, and you sell those credits directly to Shell arco BP, these oil companies that are looking to purchase them. So you know, it's a very unique structure on how to actually invest into these. Fees. And you know, anyone can enroll. There's no approved vendor lists for the equipment. There's no eligibility requirements beyond just operating it for a commercial purpose. But you can get these chargers into the program and generate ongoing, long, lasting revenue, and we help manage that entire process, because the flip side of getting paid every 90 days is that you have to re-enroll every 90 days, and a lot of people don't really want to do that, and you have to figure out how to sell these credits. In some cases, you know, these companies, they're looking to buy, you know, 50,000 credits at a time, not 50 or 100 so liquidity becomes an issue. So we help handle that entire process. Soup to nuts for monitoring their energy consumption data. We handle their application. We actually bundle the credits across our portfolio. We can sell them in bulk to these regulated entities, and then we remit payment back to our customers, so we handle that entire process for them. How many
Prem Patel (5:53)
Which states or regions have these Clean Fuel programs today?
Conner Whaley (5:57)
There's three in the US and two in Canada. There's a new program coming out in New Mexico. They just passed their Clean Fuels regulation bill, and they're in the process of developing their regulation. We're actually involved in that, but we are waiting for New Mexico to launch theirs. There's a number of other states that are starting to pass bills or introduce bills to implement their own Clean Fuels programs, but at the moment, California, Oregon, Washington, all have almost identical programs. They're all almost identical in how they function. And Canada has two, one in British Columbia, and then there's a federal Canadian program that covers every province and territory
Prem Patel (6:34)
Got it. Can you give me an example of the amount of revenue that a fleet can make through these programs,
Conner Whaley (6:41)
The amount of revenue is significant. Companies generate credits at different rates depending on the type of equipment that they have, and that directly translates to how much revenue they have. You can for, say, a level two charger, if you used quite frequently, you could get seven, $800 potentially up to $1,000 for these highly utilized level two chargers. If you have a DC fast charger, you can get, you know, several $1,000 per year, depending on how much it's used. And if you have off road equipment or heavy duty equipment, you can generate between, you know, a few 100 bucks to several $1,000 per vehicle. And this is every single year. You get paid quarterly in the US programs. So you get paid every 90 days for as long as that, you know, equipment's operating, you're going to continue to get that revenue. So that compounds over the life of that piece of equipment, you know, pretty quickly. So if you're looking at, let's say, a piece of equipment in British Columbia, they have very high credit prices. So you could get, you know, $10,000, $15,000, $20,000 for a heavy duty truck every single year if you operate it in Canada. So it depends on where that piece of equipment is located and what those credit prices are in that state. But in most cases, when credit prices are decent. It can be very, very lucrative.
Prem Patel (8:02)
Can EV fleets consider this as a real way to lower their TCO, their total cost of ownership?
Conner Whaley (8:07)
Yep, it's kind of this best kept secret of the industry where you know not many people know that these programs are applicable to EVs, because typically, most people when they think about low carbon fuel standards or Clean Fuels programs. They typically think of biofuels. They think of renewable diesel, renewable natural gas. And these programs are just as applicable to EVs. And you know, when you start talking to folks, I talk to a lot of different fleets that have a lot of different equipment, and they go, Wow. Actually, I didn't know that this money was available. And you know, there's a number of unique advantages to the funding as well. So you can't absolutely reduce their TCO for that piece of equipment, but because it's privately funded, it's technically funded by oil companies, so there's no public dollars involved. It's really up to the customer on how they spend the money. So if they're operating charging equipment, they're operating EVs, it's really up to them on how they appropriate those funds for their electrification process. So you know, you can absolutely put it towards the TCO of the charger that, you know, generated the credits, you could offset your, you know, electricity costs. But you can also put that money towards new vehicle purchases. You can put that towards writing incentives for your clients. There's a lot of different ways that you can use this funding, outside of, you know, just the TCO so it gives them the flexibility on how they want to spend the money.
Prem Patel (9:32)
Yeah, thanks for that background. From what I understand of the credit market, the more credits that go into the market, the price of the credit goes down, and so as more fleets are electrified, more fleets participate in these clean fuel programs. Do you see being less lucrative over time? And what is carb and other entities doing to make sure they're incentivizing electric fleet owners to still participate in these clean fuel programs?
Conner Whaley (9:56)
This is an important question, because it goes towards how the. Mechanics of these programs. So all Clean Fuels programs have supply and demand forces involved. You know, it's not a set amount per credit guaranteed by the program. It's dependent on how many credits are being purchased and how many credits are being sold at any given time that will dictate the credit price. So you do get fluctuations in, you know how much a credit is worth. So California credits, you can't sell your California Credit into Oregon. So there's completely separate markets, and you'll get different credit prices. So Oregon credit prices right now are close to $30 California $65 you go to BC, the latest transactions are close to, like, $350. There's a very large range because of these programs, they have their own markets, they have their own ecosystem of demand and supply. So as companies generate more credits, and there's, you know, a dip in demand, you will get a decrease in credit prices for those you know, for that time period, and we saw that in California, California, you know, credit prices were at 200 $210 at some points. And what happened is the pandemic hit, and demand for credits decreased because no one was driving as much gas and diesel. Demand decreased, so they have to purchase to offset their gas and diesel sales. So if gas and diesel sales go down, they don't have to purchase as many credits. Now, at the same time, you have a lot of renewable diesel production going, coming online at the same exact time, so you have this huge increase in supply credits, a decrease in demand for credits. In California, prices went from that high of $200 down to, I think the lowest was like $400 or $40 so it's a huge, huge difference, and that happened in the span of 18 months. So that was a big change in, you know, how these markets operate. The same thing happened in Oregon. Prices were at, you know, $160 now they're at $30. So there's a lot of these fluctuations that can happen, but the long term position in these programs is that credit prices are expected to increase and stay at a relatively high level. And the reason why is there are mechanisms included in these programs to decrease or increase the strictness of the targets every single year, making it harder and harder to generate credits and increasing the amount of credits that have to be purchased. So the way these programs operate, really, over the long term, incentivize companies to, you know, decrease their carbon emissions and therefore generate more credits. But there's also an increasing demand for credits. Oil companies, over time, have to purchase more and more credits in order to stay compliant. Over time, credit prices aren't expected to be at where they are today. They're not expected to be at $40 or $50 or $60 expected to go up to, you know, $100, $110, $115 something that's actually going to make it significantly more lucrative for companies. And over time, certain fuels will not become eligible anymore. There's a target every single year on how clean or dirty your fuel should be. If you're above that target, you have to buy credits. If you're under that target, and you generate credits, that target decreases every single year, so it becomes harder and harder for these fuels to generate as many credits as they used to. So really, at the end of the day, credit prices are expected to increase, but really the fuels that are going to be left generating those credits are going to be hydrogen, electricity and ultra clean fuels.
Prem Patel (13:47)
Yeah,I'm sure fleets are very happy to hear that. Connor, thanks for sharing that. And so talk to me about the new legislation or amendment that came out with LCFS from what you said, is anything tied into that, or is that completely different?
Conner Whaley (13:59)
No, if that's actually tied in directly to, you know, what's happening in the market. So the amendment process that you're talking about is in California. California is the largest Clean Fuels program in North America. It is the, you know, 600 pound gorilla, and they saw that decrease in credit price over the pandemic. And because of the pandemic, they've pushed out the amendments that they typically do every few years to update the program, to fix any issues that may have come up, or introduce mechanisms to improve the program. And this most recent amendment has been going on since, you know, December 2023 it's been about a year, and it's going into effect in 2025 and the amendment is going to be making some big, sweeping changes in the EV provisions for these programs. The biggest one is starting next year, that declining standard that I was talking about that's going to drop 9% next year. 9% is huge. Huge, huge gap between where it started and, you know, this year and next year. So that decrease is going to happen one time in 2025 and that's going to significantly impact the amount of credits that are generated by certain fuels and the amount of credits that have to be purchased for that year. So it's really meant to be kind of a shock to the system to kind of boost credit prices back up to where they want it. There's also going to be a ratcheting mechanism included, where if certain credit prices dip below a certain amount or amount of credits generated out of piece demand, they can ratchet down that target again. So multiple stages, so to say, can happen, to monitor and manage that credit price, to again, make it lucrative enough for people to consider electrifying, they're going to be introducing a number of things. And the final kind of major implementation on the EV side is that they're expanding what's called the FCI program. It stands for the fast charging infrastructure program where certain DC fast chargers in California can generate guaranteed credits, and that's intended to incentivize companies to invest into DC fast charging, where, you know the payout may not make sense right now because people aren't using that charger, but if they make The investment, they can get guaranteed credits to reduce their risk. That program is being expanded and modified next year to allow private charging included as well. Up until now, only public DC Chargers were included, but they're expanding that to private charging so you can get, say, a private DC charger above 50 kilowatts somewhere in California, if you meet the requirements, you can get guaranteed crediting for a period of 10 years. And that's a huge, huge improvement over where it was, and it makes it significantly easier for people to invest into infrastructure that they wouldn't have done before because they didn't have that guarantee on you know how many kilowatt hours they're going to use, how many credits they're going to generate? It takes that variable out of the equation and reduces risk for them. So there's a number of major changes that are coming for that Pro for the California Program, and there's going to be knocked on effects into Oregon and Washington as well. Washington's adopting similar regulatory amendments in their process Oregon typically follow suit as well, so there's going to be a lot of changes. And from what I can see from the end side, it's nothing but positive.
Prem Patel (17:30)
That's great news. Now I want to leverage your knowledge of the space and Legislation in California, and you may know where I'm going next with this, but talk to me about ACF, advanced Clean Fuels regulation. What is it and what is happening right now?
Conner Whaley (17:43)
You know, outside of the LCFS, because that's our bread and butter, outside of LCFS questions, the advanced clean fleet regulation, we get more questions on that than pretty much any other topic, because it's a huge thing for California fleets. It is making sweeping changes, because the advanced clean fleet regulation is a regulation from the California Air Resources Board. For those outside of California that may not be familiar, the ACF rule, or advanced Clean Fleets, is a regulation that's going to require California fleets, both public and private, to transition their fleet to 100% renewable, or 100% zero emission by 2045 and it passed last year, and it was going into effect gen one this year, 2024 and effectively what it requires fleets to do is to transition their fleet to 100% zero emission using multiple different methods and different processes, but they have to start electrifying this year, according to the regulation, and it affects three different kinds of fleets. There's public fleets, so both state and federal agencies are all beholden to the rule of high priority fleets. So private fleets, if you have 50 vehicles or more, or $50 million in revenue or more, you are considered a high priority fleet, and the ACF rule affects you. And the last one is drayage fleets. So anyone operating outside of the ports, Port of Stockton, Port of LA, Port of Long Beach, you're operating a drainage fleet. This affects you as well. So it's a huge amount of vehicles that are kind of included under the umbrella of the advanced clean fleet regulation, and you have to start transitioning through a few different ways. One way is for the high priority fleets, is to essentially, I call it the cold turkey method, where you just stop buying any gas or diesel vehicles today, and then you start transitioning your fleet once those vehicles age out. So if your vehicle is 18 years or older, or it meets, I think it's 800,000 miles on the odometer, you have to scrap it, and you have to replace it with a zero emission vehicle, because it's considered end of life. And then you just. Continue that until 2045 until 100% of your vehicles are electrified. Or you can take the milestone option, where a certain percentage of the vehicle types that you have. So if you kind of break out your fleet into different buckets, you know, how many box trucks do you have? How many specialty vehicles? How many sleeper cabs, how many day cabs? You break out the types of vehicles that you have, and then you have to replace a certain portion of them every single year to meet certain requirements and certain milestones. So you know, by 2027 you have to have 10% of your box trucks. By 2030 you have to have 10% of your sleeper cabs electric. You have to meet these milestones, and then you just do that until 2045. That's really how you comply with the advanced clean fleet regulation. If you're a fleet in California and on the public side, they have it even harder, where 100% of their new vehicle purchases have to be 100% zero emission by 2027 so if you could buy EVs or hydrogen on the public side, you're going to have to start buying a lot of them, you know, relatively quickly. So that's the advanced clean fleet regulation. It affects drainage fleets as well. So you know, by 2035 if a drainage fleet is operating California, 100% of the vehicles have to be electric. You have to meet that milestone objective, or the cold turkey method. You have to electrify your vehicles. And after 2035 no internal combustion vehicles are going to be allowed on port property. So you know, when you're talking about these three groups of companies or three entities, that's a lot of compliance that they have to kind of meet in a relatively short amount of time. So that's the advanced clean fleet regulation. And some people, you know, everyone seems to have an opinion on the advanced clean fleet rule. That's why this is the regulation that everyone's starting to talk about,
Prem Patel (21:57)
And currently it's held up in court?
Conner Whaley (22:00)
Yes, yes, it is, yeah.
Prem Patel (22:02)
Do you have any idea of when this might be resolved, or when we'll get an answer from EPA and CARB?
Conner Whaley (22:09)
I would love to say that I have a crystal ball on that, but I don't think really anyone knows, other than the EPA talking about the lawsuits. You know, this is very controversial. This is, you know, a very sweeping, a very comprehensive rule. And the timelines are, you know, very fast to be able to comply with this. You have to start converting very quickly, and you have to start now if you are to meet those requirements. So there's a number of groups in California that are, you know, submitting lawsuits to prevent ACF from, you know, becoming law. It's already passed. It's just not enforced right now, because you're going through the process of going through these lawsuits. But in particular, they're waiting on a waiver from the EPA. The EPA has authority over, you know, the Environmental Equality standards for the US at a federal level, because of the Clean Air Act, states can enact different standards, stricter standards, than the federal rules. And California does that quite often because, you know, we had really bad air quality for a while. You know, California has a lot of incentive to enact stricter standards than the typical federal standard, but in order to do that, they have to get a waiver from the EPA to prove that you know, the air quality or the environmental quality is significantly worse in California, and that this rule is necessary. So they had to submit a waiver to the EPA or submit an application to the EPA to get that waiver in place. That happened earlier this year, and we just had the first public comment period for the EPA on the advanced clean fleet wave. And I think that it made waves is kind of an understatement. Last time I checked, there were 40,000 comments on the regulation just in that one public comment period. It lasted from like seven in the morning to 10. It was a really long process just to be able to get everyone's feedback on it. And there's a lot of different opinions of whether or not this should be granted or not. And that's where it is right now. The public comment period, you know, has to go through, and then EPA is going to deliberate. They may have another public comment period, but really it's up to the EPA now on whether or not they're going to allow the waiver or not, and everyone's just waiting with bated breath.
Prem Patel (24:35)
Yeah, I'm sure. Connor, you shared so much information that can be impactful for fleets in this space. How can they get in contact with you to learn more,
Conner Whaley (24:43)
If any company on this podcast or any public agency really is interested in learning more, go to our website. Our website is use fuse.com we have a lot of information on these Clean Fuels programs. On our website, feel free to reach out on our contact form. We'd be happy to, you know, have a conversation, because this money is there for companies to use for electrification, and we really want to make sure that, you know, that money is appropriated to the companies actually buying the equipment. So we're happy to have a conversation. We can give you a quote and walk you through all of the eligible equipment in your fleet. Again, use fuse.com We'd be happy to chat.
Prem Patel (25:26)
Awesome, yeah, some of the best people in the space Connor can thank you enough for coming on and sharing your thoughts. We'll have to get you back for part two when the courts make their decision on ACF, please reach out to fuse and Connor and stay tuned for our next episode. Thanks everyone.
