Getting electric school buses in the hands of school districts

How can electric school buses be made accessible and
cost-effective? In this episode, Highland Electric Fleets CEO
Duncan McIntyre makes the case for why school districts should
overcome the challenges to bus electrification, and the ways his
company’s subscription model helps them do so.


(PDF transcript)


(Active
transcript)


Text transcript:


David Roberts


One of my very favorite things in the world to talk about —
second perhaps only to electric postal vehicles — is electric
school buses. It's difficult to think of a more righteous cause
than reducing air and noise pollution in direct proximity to the
country's most sensitive lungs and ears.


Currently, however, electric school buses still cost two to three
times what their diesel competitors cost, which can be daunting
for school districts with tight budgets. Electric buses pay
themselves off over time through dramatically lower fuel and
maintenance costs, but the upfront costs of the transition are
steep enough to scare away many administrators.


My guest today runs a company called Highland Electric Fleets
that is attempting to overcome that challenge by offering a new
business model. Rather than purchase and maintain the buses
themselves, school districts pay Highland a subscription fee,
locked in for a 15-year contract, which covers the buses, a
depot, charging infrastructure, scheduling, training, and ongoing
maintenance and replacement of buses when required.


In addition to a saving most school districts money immediately,
the subscription contract derisks the transition to electric
buses. That is about the best thing I can think of that someone
could be doing these days, so I was eager to talk to Highland CEO
Duncan McIntyre about the advantages of electric buses, the
challenges school districts face, and the problems solved by the
subscription model.


Alright, with no further ado, Duncan McIntyre, welcome to Volts.
Thank you for coming.


Duncan McIntyre


David, thanks for having me.


David Roberts


This is awesome. Volts listeners are so interested in electric
school buses, so I just have a gazillion questions, so let's jump
right into it. Tell us, what are the advantages or benefits of an
electric school bus over the current line of school buses, which
as I understand it, are mostly diesel?


Duncan McIntyre


That's right, they're mostly diesel. A little over 80% today. But
your question is about the advantages of electric. I think the
list is long, but I would highlight a few of the big ones.
There's a clear benefit in emissions profile just in the health
of everyone who's operating or riding a bus. There's no tailpipe
at all, and as a result, they're very clean. Another big
advantage is they just operate much cheaper. The fuel is a lot
less expensive, there are very few moving parts compared to a
diesel bus, and as a result, there's no oil changes, there's no
exhaust filters. There's lots of things that just aren't on
electric buses, and so operating is much less expensive.


David Roberts


And I don't want to get caught up in the whole thing too early,
but I'm trying to sort of conceive of the sort of magnitude of
the pollution reductions here. Like, have there been measurements
or studies about the difference when an electric school bus
replaces a diesel bus? Or are we too early to know for sure about
that kind of stuff?


Duncan McIntyre


I think there have been plenty of studies about the health
impacts of a diesel bus. And the comparison is simply the health
impacts of not having a diesel bus since the electric format has
literally no tailpipe and no emissions profile at all. But the
health studies have been done by groups like American Lung
Association, groups like that, and there's quite a few data
points that look at reduction in NOx and particulate matter,
specifically on things like pediatric asthma. I would say that's
one of the main studies that has taken place, but also tying the
emissions associated with the diesel tailpipe to just other
general health key indicators.


David Roberts


Yeah, one thing I would toss out too, because people always
forget about this, but is noise pollution, which is the research
on noise pollution is wild. I don't think people appreciate the
effect that has. And all these kids are effectively sitting right
next to a jet engine, more or less. It's extremely loud. But the
first question that comes up for everybody is they cost more. So
what is the current cost differential between an electric school
bus and a diesel school bus?


Duncan McIntyre


The electric school bus ranges from $275,000 to $375,000, really,
depending on the state you're in. And your question is about the
differential. It's about $200,000 of differential on average. So
it's a $200,000 premium to buy an electric.


David Roberts


That's not small. That's two or three x the cost.


Duncan McIntyre


That's exactly right. It's not small.


David Roberts


Let's also talk about some of the other barriers other than cost
for a school district looking... if I'm in a school district, I
have this wild idea I want to replace all our diesel buses with
electric buses. The cost of the buses themselves is not the only
barrier or challenge I face. What are the other extra challenges
that have to be overcome?


Duncan McIntyre


There's a few other buckets. One would be charging
infrastructure. You need to establish your depot wherever you
operate your buses today as an electrified depot. And that
involves installing a whole bunch of new equipment, running an
interconnection to bring new power, new electrical service into
that depot. I'd say that's one big bucket of sort of a project
that's required to get up and running. There's another piece
that's all about training. Your workforce needs to be trained.
Mechanics need to figure out how to work on these vehicles. Your
drivers need to know how to operate them and how to not just
operate them, but how to be really comfortable with running them.


And then there's an operating cadence of charging them. The
fueling activity is a little bit different. And unlike diesel
fuel, with electricity, you really want to pick and choose when
you charge and how quickly you charge, as it can result in lower
or higher costs and more reliability if done right.


David Roberts


And so that'll get into logistics, right? Like routes and the
timing of routes and these kind of things?


Duncan McIntyre


Absolutely, that's right.


David Roberts


And so these are all fairly substantial challenges. So what is
the current market penetration here? What is the base we're
starting from? Are electric school buses anywhere, or is it still
an extremely marginal sort of market?


Duncan McIntyre


We're at an inflection point right now, David. If you'd asked me
the question a year ago, I might have said electric buses made up
2% of the new school buses purchased in 2022. But in 2023, our
perspective is it'll be closer to 10% of the new school buses
purchased, and in 2024 will be 20% to 40% of the new school buses
purchased. So it's changing very quickly right now.


David Roberts


You think we're on the upswing of that s-curve in adoption?


Duncan McIntyre


We are. There's lots of reasons behind that. The federal
government, as well as many states have launched programs that
are putting a lot of fresh grant capital as well as tax credits.


David Roberts


If I'm a school district now, what is the total kind of pool of
assistance available to me? I think there's some stuff in IRA. I
think there was some stuff in the infrastructure bill. I know
there's state stuff. What is the sort of menu of assistance I can
find?


Duncan McIntyre


Yeah, it's a tidal wave of assistance, David. It takes a
full-time person just to navigate it all. But I would put it into
a handful of big categories. One is the Clean School Bus Act,
which is part of the infrastructure bill, and that's $5 billion
that will roll out over five years.


David Roberts


And are those just grants to buy school buses?


Duncan McIntyre


Essentially just grants to assist in buying electric school
buses. I think the second big category is tax credits in the IRA.
And the tax credit is not as big on an individual vehicle basis,
but importantly, it can be bundled with other grants and so it
provides support. And then many states have their own programs.
California has had a program for years that's robust, really a
grant program. Colorado has a new grant program. There are
funding mechanisms everywhere from New York to Maryland to
Virginia. And in many states, the totality of bundling a state
program with a federal grant program and a tax credit actually
make an electric school bus much less expensive than buying a new
diesel, so there's a real cost advantage in some parts of the US
today.


David Roberts


Got it. So we're not just talking assistance. We're talking
sufficient assistance at this point.


Duncan McIntyre


More than sufficient assistance, we would argue.


David Roberts


Right. Okay, so we've got a school district that has a dream of
switching out fleets, but it is daunted by the individual cost
differential of the buses. It is daunted by this notion of
infrastructure and how to build it and where to build it and how
to run it. It's daunted by, basically, being busy and not
knowing... not having time to study how to switch sort of the
logistics of the fleet and the dispatching everything. So into
this environment comes Highland. What is your business model? How
are you trying to address those barriers?


Duncan McIntyre


You've laid out the barriers quite well. The Highland business
model is the finance engine behind driving the electric school
bus movement. What we found is that while capital, upfront
capital is a huge barrier, accessing the grants can help bridge
that gap. But it's complex. And on top of that, if you've got the
grant money, it's still very difficult to figure out how to
design the equipment, build it on time, build it reliably, and
then ensure that you can operate, reliably and within your
budget. And so, our business model is truly the finance engine.
We pay for everything that's not grant-funded from vehicles to
equipment, and then we commit to operate that equipment and
really support our customers—support the schools—by promising
their fleet of electric buses will be fully fueled every morning
for 15 years.


David Roberts


15 years. So just to make sure I have this right, the school
district pays basically a subscription fee to you, to Highland,
and Highland buys the buses, builds the chargers, builds the
depot and trains staff, and then maintains, but does everything
else, maintains the vehicles, repairs the vehicles if they needed
or replaces them. Everything else, Highland does. So the only
thing that the school district is on the hook for is a
subscription fee, is that right?


Duncan McIntyre


From a financial standpoint, that is exactly right. And from a
practical standpoint, you're spot on. The only nuance would be
vehicles are often maintained by the district's mechanics. So we
will train them and then we will pay for the maintenance. So the
staff that's on the ground today is typically very well-suited to
actually do the repair work, and they're eager to get the
training and be part of this new industry.


David Roberts


So financially, the school district can be confident that the
subscription payment is the totality. There's not other things
that they haven't thought of. They're going to come and post
costs on them.


Duncan McIntyre


That's exactly right, yeah. The school district knows it's
predictable and reliable that our subscription fee is on par or
less than what they spend to put a diesel fleet on the road.


David Roberts


I'd like to get into a little bit of detail about that. So it
seems like just financially, just comparing the cost is
complicated. So I assume you've done this math and you've worked
through this with some school districts. So what is the kind of
cost of a subscription? And how does that compare to... if I'm a
school district with a fleet of diesel school buses, the cost of
switching the buses, building the infrastructure, training,
maintenance, et cetera, et cetera, how does the total cost shake
out?


Duncan McIntyre


Yeah, that really is one of the key drivers behind this industry.


David Roberts


I'm sure it's everyone's first question when you approach them.


Duncan McIntyre


Totally. And in terms of your listeners, David, I would imagine
solar is a good analogy. The reasons why companies like Sunrun
have done so well is because the average homeowner doesn't
necessarily know that if they spend $25,000 on solar equipment,
they don't know what they're going to get in return. And so a
developer can take on the risks, place the capital, build the
equipment and promise that the equipment will work. And the
result is the homeowner pays ten cents a kilowatt hour and they
know that's cheaper than the utility. We sort of do the same
thing. We know what the capital costs are going to stack up to be
on any given project. And they differ depending on the state that
we're in. Illinois is different from Maryland.


David Roberts


Well, size of the school district, too. I mean, presumably these
bus fleets range quite widely in size and scope, like
geographical scope.


Duncan McIntyre


Absolutely, that's right. But we know what the cost is to build
and then we have our own perspective on what the ongoing
operating costs will be. Electricity to fill the buses every
night, the software we need to run it, all the costs. And then
the third big piece is we know what the grants look like and we
need to organize our deployments so that upfront costs and
downstream costs match up and that can result in a very
affordable rate that the school district can pay us under our
subscription. But embedded in that is the risk that the equipment
will perform and the risk of commodity prices.


David Roberts


Right.


Duncan McIntyre


And the risk of keeping the fleet maintained and running. And so
it lends itself very well to a business like Highland where we
have the scale to bring specialized teams to do all those things
really well and deliver it as a bundle.


David Roberts


Right. So presumably the total cost of owning and maintaining the
fleet for you is going to be somewhat lower than it would be for
the school district just because you have the procedures and the
staff and the expertise and the relationships with vendors, et
cetera, et cetera.


Duncan McIntyre


That's exactly right. There's economies of scale around every
corner, and we're the largest buyer of electric school buses in
the country today. We've got more of them on the road than anyone
else. And as a result, we have scale in our operations that
others don't have.


David Roberts


And so this subscription fee is locked in place for 15 years?


Duncan McIntyre


That's correct.


David Roberts


That's part of the guarantee. Like, you will pay X amount each
year for 15 years no matter what happens to the cost of
electricity or more supply chain problems or whatever else.


Duncan McIntyre


That's exactly right. And it's more like per mile, $2.50 a mile
might be a contract we would sign, and we know they're going to
be driving that bus about 10,000 miles a year, but it could be a
little more. It could be a little less.


David Roberts


Right. So a lot of risk you're taking on a lot of risk cost. So
can you guarantee—I'm sure you don't want to guarantee because
there are lots of different kinds of fleets and a lot of
different kinds of places. But, can you come close to
guaranteeing a given school district that the subscription fee
they would pay you is lower total cost than going electric on
their own? Is that something you can sort of set in stone?


Duncan McIntyre


Well, the school would have to go through the details and come to
the conclusion on their own. But in almost every case, we found
that we are cheaper than them doing this on their own. And I
would highlight a couple of reasons why. One is simply we're a
larger buyer than they are individually and that gives us access
to better pricing from all the equipment providers. A second
reason is we have invested in all of the technology needed. That
creates interoperability between the charging stations, the
vehicles, the utility, and the software management tools. And so
we can roll that out very inexpensively at scale.


And a third reason is there's a tax credit out there that has a
lot more value in it for a private tax-paying entity that's
structured in a way to monetize it. It's the same reason why most
solar is privately owned as opposed to publicly owned. It's
because there's tax credits that are tricky to monetize
otherwise. And so there's a chunk of cash that we take off the
top just for the tax credits that schools aren't aren't able to
sort out very easily.


David Roberts


So that's one financial question: is it cheaper than doing this
ourselves? But maybe the more difficult financial question is:
could you go to a school district and say over the course of the
15 years of the contract, this will be cheaper than continuing to
maintain your existing diesel fleet? Can you promise that?


Duncan McIntyre


I can't promise that because we don't know what diesel fuel
prices will be two years from now. But we can make a very strong
case that we will indeed be cheaper by quite a bit. It requires
everyone to agree on some assumptions around diesel fuel pricing.
But we have one other benefit, which is: not only are we
typically cheaper when you model it out, but we have no
fluctuating costs to the school.


David Roberts


Yes.


Duncan McIntyre


And so that's a benefit. It's a big benefit.


David Roberts


Yeah, this is such a big benefit of renewable energy that I feel
like manifests in a lot of different areas that gets overlooked a
lot of the time. Just risk of commodity price fluctuations is
such a huge factor in these financial transactions, such a huge
factor in national inflation risk. It's like a huge factor in
everything.


Duncan McIntyre


I totally agree. And the reality, David, is we can lock in
electricity prices for many years into the future by going into
the competitive electricity markets. And that's a lot more
difficult to do with diesel fuel, unless you want to pay a big
risk premium. And so not only is are the kilowatt hours much
cheaper, which just makes the totality of fueling costs lower,
but electricity has more management tools for companies like ours
to go into the markets and really lock in those prices. So we
aren't taking twelve years of completely naked risk either. We're
just bringing a set of strategies to bear to offer that to our
customers.


David Roberts


So you can make a strong case that it will be cheaper over the 15
years. What about though, like, next year? If I'm a school
district and I have sort of a set school bus budget, can I save
money on the first year? Because it's always these upfront—as I'm
sure you will know, it's always these upfront costs that are
daunting to people and keep people away from these things—is
there immediate savings or is it comparable immediately?


Duncan McIntyre


Yeah, there's immediate savings, especially in the environment we
live in today, where there are some grants available to support
project costs. And so year one, year two, year three, there's
immediate savings and there's also just a huge savings in the
first year because you avoid buying a new diesel bus. So you
might avoid spending $140,000 for a capital purchase. And you've
gone to a world where Highland gets paid $30,000 a year, which
includes a vehicle, it includes all the fuel, it includes repair
costs, it includes software and training. So there's cost savings
day one and there's a very strong case that there will always be
cost savings.


David Roberts


So this is a naive question, but you're coming to school
districts and saying, "Hey, a. you're going to save money on day
one, b. you're going to improve the health of your kids and your
drivers, c. you're going to improve general sort of satisfaction
and performance." Who says no to this? And why? Does anyone say
no to this?


Duncan McIntyre


I ask myself the same question occasionally. It's almost too good
to be true. We're at a moment in time where the technology is
ready for the task and there's a combination of available
services and capital and those are coming together in a really
nice way. But what we're doing, David, is still asking
municipalities to buy transportation in a different way. They're
accustomed to a capital budget to buy vehicles and an operating
budget to run them, and we're asking them to blend them into a
subscription. So there is a little bit of a new dynamic, a new
purchasing dynamic, and then I would say there's always concern
about new technology and we're still in the early innings of the
electric school bus movement.


And so there's, I think, a healthy element of skepticism around,
"Will they be reliable?" And so, those are some of the obstacles
that we run into. But I would say we very rarely get a flat out
no. It's more... we just get folks who need to come up to speed.
They're on their own educational journey and they need to kick
the tires. And so we host a school district almost daily at one
of our sites, whether it's Maryland or Colorado or Massachusetts,
we're hosting a lot of visitors expressing interest, and they're
in various places on their buying journey.


David Roberts


What about, god forbid, the risk that Highland goes out of
business at some point in the next 15 years? What happens then to
these contracts?


Duncan McIntyre


It's a good question. The vehicles are still there and the
vehicles will still be operated and the contracts stand
independently. We set every contract up in its own entity and we
fund each individual entity in a way that's appropriate to
capitalize the project. If you think about a project, the risk
that we go under is really only for the couple of months at the
very beginning when we're building and delivering. Once we've
installed all of our equipment at a customer site and we've
delivered all the vehicles, the project entity that we own, but
the project entity that serves the customer, is simply basically
producing profit that goes to pay back the investment. But if
Highland were to go under, that project entity will still stand
and serve the contract until the end of the contract.


David Roberts


Got it. So the the maintenance and operations side of things is
locked in for the 15-year contract, regardless of Highland's
fate.


Duncan McIntyre


That's a good way to think about it. That's exactly right. And so
there's a lot of details behind how that works, but every one of
our customers asks the same question you ask, and they get very
comfortable because of that dynamic.


David Roberts


Right. So as I'm envisioning the country's school districts, the
first thing that comes to mind is just wild variety of size, of
financial wherewithal, the number of buses, the geographical
scope of the buses, the weather conditions in which buses
operate. So how standardized can you get this? It seems like
there's this element that's bespoke to every school district
that's sort of unavoidable. How similar is what you do from
district to district and how much is it kind of customized?


Duncan McIntyre


There's a few things to unpack there. There's a component around
the environment that the project is asked to operate in. So
whether it be the average temperature by week per year, the
topography, are they going up steep hills and down, or is it
flat? How many stops? All that stuff gets, gets boiled down to
the sort of the operating plans and we build our charging
infrastructure and size the batteries. And every aspect of a
project design depends on those key assumptions. But we have done
this everywhere from scrubbing data from a project in Tok,
Alaska, which is arguably the coldest electric school bus in
operation.


David Roberts


Yeah, I was going to ask, I mean, everybody, as you can imagine,
everybody on Twitter everywhere else, one of their first
questions is, "What about cold weather? What about when it's
freezing? Blah, blah, blah. What about... don't EVs lose range?
How do you keep the buses heated when you pick up your first
kid?" All these questions about cold weather. So you've dealt
with those.


Duncan McIntyre


Yeah, the answer is, it's actually not that complicated. It's
just about planning. I'm sitting here in Beverly, Massachusetts,
at our headquarters. I'm looking out the window, and we're
getting dumped on by snow right now, and the buses are out
picking kids up. And it's fine. You do lose a little range. It's
better to precondition the batteries and the cabins of the
vehicles with some heat before you unplug them. So the vehicles
go out pre-warmed with a full tank of gas, so to speak. But
that's sort of a segment of your question.


The broader question is, can you standardize a product offering
here? And the answer is, absolutely. That's what we've been
working on for the better part of five years. Every project has
expertise needed in designing and building a depot. And so you've
got parameters that you need to solve for that include
topography, temperature, range. You've got people who need to be
trained. You have investments that need to be made, and you have
a utility that you have to interact with, and you have to put all
those things through a standardized process so that you deliver
reliable, affordable transportation at the end of the day.


David Roberts


You've not run across a school bus route that is too long or too
far to do with electric like...?


Duncan McIntyre


We have. We've run into a few, but they're very rare. We serve
both very rural and very urban customers. In Illinois, we have a
contract that's in a very rural part of the state, and the routes
are over 100 miles. That's entirely doable, as long as you plan
your charging equipment appropriately. But occasionally we see
150, 160, 170-mile day, and the driver doesn't have the time to
circle back. And so those are some of the routes that are less
appropriate for electric today, but it's less than 5% of the
routes.


David Roberts


What is the range of an electric school bus?


Duncan McIntyre


With the products that are available today, between 100 and 160
miles. Most of the buses we have on the road today have 140 miles
of range.


David Roberts


And should we assume that that's being steadily improved like
everything else? I was going to ask about this later, but let's
get into it now. Just about the sort of manufacturing of the
buses themselves. I'm presuming that among all the many other
things you're doing, you're not manufacturing school buses. Where
are you getting them and are you ordering? I mean, is there like
a standard offering that you're just buying in bulk from some
manufacturer, or is it possible to customize them? And if so, how
much? Like, in terms of the physical buses and how you procure
them, how does that work?


Duncan McIntyre


We do not manufacture buses. You are correct. We buy them from
the top tier manufacturers that have electric products available.
Thomas Built Buses. We buy from Bluebird, we buy from IC, all of
the major US-domestic manufacturers that have electric product
available. We essentially buy one of two or three formats.
There's a type C, there's a type D, which is a little bigger but
a shorter wheelbase, and a type A, which is a smaller bus. And
while there's lots of bells and whistles, you can add safety
features, those can all be specced by each individual school.


It is fundamentally the same foundational vehicle, just with more
cameras or seatbelts or whatever someone might add on. So we do
buy, in bulk, for a couple of those categories as part of our
procurement strategy. And so we end up working really closely
with the manufacturers, not only in terms of the features we need
to operate the vehicles efficiently, but also the feedback loop.
What are the things we found that are tricky for drivers? Little
quirks?


David Roberts


Yeah, I'm very curious about those people who have road tested
these things now and there's... driving school bus routes every
single day is a real stress test.


Duncan McIntyre


It really is.


David Roberts


What do they find in terms not just of like, drivetrain or
whatever, but sort of those bells and whistles? What do they and
do they not want in those terms?


Duncan McIntyre


Well, first, I would say the drivers, almost universally,
absolutely love them.


David Roberts


This is for the same reason that everyone loves it when they
switch to an EV, presumably?


Duncan McIntyre


It's a lot of the same reasons, right? The vehicles have better
torque. They're completely silent. The braking is a real
pleasure. You really just take your foot off the accelerator and
a regenerative braking system slows the vehicle down at an even
pace. It's a very calming experience, and it puts more power back
in the batteries while it does that. And so it takes a little bit
of training and a little bit of practice to get the hang of it.
But the drivers love it and it eliminates the wear and tear on
the brakes. But I would say, David, the biggest highlight I would
throw out there is because the vehicle is so quiet, no engine
rumbling, the kids in the back don't have to yell over the engine
rumbling to talk to each other, and so it's just a quieter drive
to school, the whole experience.


David Roberts


Yes. My memories of school buses in my youth definitely involve a
lot of noise, a lot of screaming.


Duncan McIntyre


Absolutely. And I would throw out one other just anecdote, which
is while the drivers absolutely love the vehicles, there's lots
of little quirks that we found, especially in the first couple of
years of operating— fewer and fewer today—but little software
quirks where if your bus is Idling for more than a minute, it
will shut off in the early iterations. So you have to flip the
switch and turn it back on. And since there's no engine rumbling,
you don't know that it's shut off. And so that was a little
inconvenience that had to be sorted out with the manufacturers.
But little things like that are pieces of feedback that were, I
would say, weekly, monthly for the first year and a half, and now
it's more like quarterly.


David Roberts


Also in terms of the physical buses... in the EV space, there's
this sort of division between sort of legacy manufacturers that
are trying to move to EVs. And the thought is among, some people
I think probably fewer people these days than before, but the
thought is among some people that a company like Tesla, which is
just starting on EVs from the beginning and designing an EV from
the ground up rather than trying to sort of adapt old existing
chassis and things like that, is going to produce, ultimately a
better vehicle that in the long term will be cheaper. Is there a
Tesla of school buses or of buses generally, or are these all
legacy manufacturers?


Duncan McIntyre


Lion Electric is a Canadian company that's the closest to what
you described in this sector, and they were the first
manufacturer to put an electric school bus on the road a number
of years ago. They've had a lot of success in California, and
they've got the lion's share of the market in Canada. And they're
focused on other areas too, other categories of medium and heavy
duty, municipal and other transportation, trucking and busing.
And they are very... Lion is a very formidable competitor for the
incumbent OEMs. I think one of the areas that is really unique to
school busing is there's a very tight relationships with the
regional dealers, not only on buying the vehicles, but just the
ongoing support that's needed to keep them on the road. And, I
think it's an area that is harder to break through that network
without your own. Whereas Tesla had the benefit of consumers not
having quite as tight of a relationship with their dealers.


David Roberts


Even loathing their dealers.


Duncan McIntyre


Yeah, that's right. In many cases, I think that's right.


David Roberts


Final hardware question: what kind of batteries do these buses
use? Are they all using LFP batteries?


Duncan McIntyre


There's a few technologies, but they're for the most part
lithium-ion batteries.


David Roberts


And this is not like do you not get parents or school
administrators worrying about battery fires? I mean, I know
they're rare, but obviously—in this setting—you wouldn't want to
take any chances.


Duncan McIntyre


I agree. That has not been a key area of concern for parents or
school administrators. We do get the question occasionally, but
it hasn't been a key area of concern. We own a lot of Thomas
Joulies, which is the Thomas-built electric school bus, and they
are powered by a powertrain built by Proterra. Proterra is a
domestic manufacturer. They make batteries specifically
engineered for the medium- and heavy-duty transportation sector.
And the safety requirements and standards in that category of
vehicle are such that Proterra had to do a tremendous amount of
safety work. And they are one provider. Cummins has a platform as
well.


There are others, but our opinion is the industry has done a
pretty good job of designing, you know, the right safety
precautions and designing their equipment in the right way just
to make them really safe.


David Roberts


Yeah. Okay, there's a whole set of questions I want to ask about
utilities and your interaction with them.


Duncan McIntyre


Sure.


David Roberts


Putting aside for now, fancy talking to the grid and all this
kind of stuff just in terms of going into a utility area and
installing what amounts to really substantial new load and not
only substantial new load, but load that when it's running full
out, is a really high level of power involved. I just am assuming
that you have to tell utilities, ask utilities, interact with
utilities in some way just if you're going to show up and do
this. Is that accurate?


Duncan McIntyre


Yes, that's accurate. David, I would say it's somewhere in
between ask and tell because the reality is the utilities,
distribution utilities have a mission which is to serve the
public with electrical service wherever needed. You don't build a
new hospital and the utility doesn't say, "Sorry, you can't do
it", right? It just comes down to timeline and cost. And so, we
do need a ton of power. We have five sites right around
Washington DC and Maryland. And each site has a five megawatt
interconnection foot charge, electric school buses, so do 25
megawatts in a very small geographic footprint.


David Roberts


I mean, so that that's like grids are going to have to plan
around that. I'm like, I'm curious if you've ever gone to an area
where the utility says, like, "We would love to help you with
this, but right now we just don't have the infrastructure, we
don't have the lines, we don't have the ability to accommodate
this much new power." Have you ever run into that?


Duncan McIntyre


We have. And a couple of quick thoughts. The first is: it's
always possible it just comes down to timeline and cost. And so
it's an exercise in doing our homework, right? So we do all the
work. I would advise anyone before you talk to your utility, you
do your homework. What does the distribution feeder have
available on it? Like what's the amount of power you can draw
today? This is available information that can be looked up. Then
it's about figuring out how difficult it would be to upgrade the
service if it truly needed to be upgraded, how many miles of
three phase have to be run from the nearest point of connection.


And then, it's looking at the landscape, and that is everything
from the existing rate tariffs to the Public Utility Commission
to the politicians. And there's more and more support in more
places for electrifying fleets, electrifying everything from
passenger cars to garbage trucks, right? And so the political
will is there to support investment, rate-baseable investment, in
EV infrastructure. And it's about threading the needle between
all those dynamics and coming up with a plan. There are places
where we want three megawatts of power, but we'll settle for 1.5,
because we can get 1.5 in a year, and we can work on the next 1.5
over the next four years, and plug the gap with some stationary
storage or some other form of a charging strategy.


And so, I would argue it's really about interacting with the
right people at the utility to come up with a plan that leverages
the utility's assets and capabilities with the needs of the
fleet, and it gets married up by the equipment that's available
to sit in the middle.


David Roberts


Yeah. Have you run into a situation yet where you had to wait?
Where you had like, people ready to sign contracts, but you had
to wait for years, two years, three years, four years, whatever,
to let the utility prepare?


Duncan McIntyre


We signed our contract with Montgomery County Public Schools in
February of 2021, and we promised to have the first depot up and
running in August that summer, which is lightning fast, but we
promised to have three more depots up and running 18 months later
because we knew they were going to be slower. And then we didn't
promise to have the fifth depot up and running until the summer
of 2024. So we knew that one would take three years and it will
take us three years. We're in the middle of it now. And that was
exactly a function of those local dynamics, how to get the power,
how to get it efficiently, how to get it affordably, and how to
work with the utility to do that.


David Roberts


Yeah, I don't know that I would want to be in a business where
I'm waiting on utilities to do anything as a general matter.


Duncan McIntyre


It's an inevitability here. But once you're up and running...
first of all, for the most part, utilities have been pretty darn
good partners. Everyone has this in their roadmap, and so more
often than not, they're kind of excited when someone comes and
says, "Hey, we've got a real project, let's work on it together."


David Roberts


Beyond just the basics. Once you have a fleet of electric school
buses, you have a distributed set of very large batteries which
are sitting unused most hours of the day. So I guess two
questions. One is about grid to vehicle communication, i.e. do
you time the charging of these vehicles in coordination with the
utility in some way?


Duncan McIntyre


So I heard two things there.


David Roberts


Well, the first is time-to-charging, which I think of as sort of
grid communicating with vehicles. And then the second is
vehicle-to-grid, which is vehicles occasionally discharging
electricity into the grid when the grid needs it. My sense from
talking to people in this space is that just timing you're
charging is relatively easy. First step in that vehicle to grid
communication is a little bit more complicated and is not all
utilities are ready for it but just sort of tell me like to what
extent are you getting into grid services?


Duncan McIntyre


We are absolutely doing both and you're correct that simply
timing your charging we view as table stakes. You sort of need to
be doing that to run an efficient operation. I would say that we
coordinate that with the utilities a little bit. But the
utilities don't get deeply involved in interacting with customers
on topics like that today. What they do is they push out
programs. They say, "We have a time-use rate tariff." You,
customer, choose if you want to change your charging schedule
based on the rate tariff and so we are doing that very actively.


The equipment that's available today it doesn't come fully ready
to allow customer choice around charging times. You really have
to do it in more of a manual way. We've had to build a software
stack with all these controls to do it in a reliable format but I
do think that's an area where the tech is getting better and
better and if you do it right you will save 75% on your power
costs.


David Roberts


No joke. That's a lot.


Duncan McIntyre


If you look in places like San Diego, if you charge at the wrong
times, you'll trip demand charges. And without getting into all
the details, your bill can skyrocket. And so charging is really
important to get right because it just comes down to dollars and
cents.


David Roberts


And so at this point, you have got software integrated into the
buses such that the driver can just plug in whenever without
worrying about it and the software does the timing?


Duncan McIntyre


That's exactly right. The software allows us to control our
charging times and our charging rates from our remote operating
center. And the software creates that connective tissue between
us and our equipment in the field and helps us to scale and helps
us to assess fault codes earlier vehicle health, look at trends,
collect data, but ultimately control charging in a very dynamic
way.


David Roberts


And you feel like that's... you've got that relatively down?


Duncan McIntyre


We've got that fully down. We do have a partner, it's a company
called Synop, software company, and we've done a deeply
integrated commercial partnership with them that's many, many,
many years long and then on top of them we have our own systems
and processes that effectively ensure that all the hardware
speaks and allows the software to do its job. So it's a full tech
stack of software and hardware and it's all got to be stitched
together in the right ways to work smoothly.


David Roberts


Interesting. And so what about then vehicle-to-grid? I am
assuming that that's rarer that there are only some utilities
that can accommodate that. Are there any yet? Is that a real
thing yet or is that still like a gleam in people's eye?


Duncan McIntyre


It's a real thing but today it is binary in that either the
utility has something you can do or it doesn't. And we have
vehicle-to-grid up and running on about a third of our projects
today. And in most of those cases, the vehicle-to-grid activity
is in its simplest form, we're charging the buses full during the
overnight hours in the summer, July and August, and we charge
overnight because there's lots of power available. It's very
inexpensive, and the grid has it available. And then late in the
afternoons, the next day, from 3:00 to 6:00, 4:00 to 7:00, we
will actually export all the power in the batteries from the
buses back to the grid. And it's because the grid needs the power
and they're willing to pay for it. And it's very lucrative and so
helps drive down our cost to serve school districts.


David Roberts


Yeah, when you say lucrative, I mean, compared to saving 75% on
your charging costs, is it that lucrative? Like, where is it
relative to just sort of timed-charging? Are you, are you making
comparable money offering these grid services?


Duncan McIntyre


It's more lucrative than simply saving. Just to put, you know,
some round numbers around it, if you charge at the wrong time in
San Diego, you could get a $5,000 utility bill for the month for
one bus. If you charge in a smart way, that might be $1,000,
right? A lot less expensive. Our vehicle-to-grid income on a per
bus basis in parts of New England is $12,000 a year.


David Roberts


No s**t.


Duncan McIntyre


Yes.


David Roberts


That's a lot!


Duncan McIntyre


Now, you have some equipment that you have to invest in to do it.
So it's not all profit, but what it does is we pass dollar for
dollar, we pass that money on to the school district, we
underwrite to it as we invest in equipment to serve them, and
then we operate the vehicle-to-grid program so that we can make
it more affordable for schools. And I'm convinced that we're in
the very early days, but in five years this will be happening in
more places than it's not and will be a meaningful contributor to
eating away at that $200,000 vehicle premium I described in your
opening questions.


David Roberts


Well, also presumably, do you use that to lower I mean, is your
subscription fee standard everywhere, or is it lower in some
places than others based on grid circumstances?


Duncan McIntyre


Yeah, our subscription fee is different for every opportunity.
Each customer account might have different costs and different
expenses, but we use that income to lower the subscription fee to
the customer. And there are cases where the customer is saving
20-25% compared to their diesel fleet operation and the
vehicle-to-grid is that extra savings.


David Roberts


Interesting. Vehicles-to-grid is one thing. There's also, of
course, if you have this huge set of batteries, what about using
them during blackouts for backup power for schools or community
centers or things like that? Is that on your radar?


Duncan McIntyre


Absolutely. As more and more electric school buses come online,
they are increasingly becoming a source of resiliency for local
communities. We call this vehicle-to-community. Very much
describes the activity taking place. The buses have very
energy-dense batteries, and they happen to be energy-dense
batteries sitting on wheels. If you've got a community that has
lost power, you may need to keep cold storage going at a local
high school. You may need to give people the ability to charge
cell phones. You may need to set up air conditioners...


David Roberts


Hospitals


Duncan McIntyre


Absolutely. Hospitals. Absolutely. These vehicles can be anywhere
in a community in a short amount of time, and they can deliver
power into buildings if they've been set up with the right
equipment.


We're building out these capabilities for a number of our
customers, and I actually think it's maybe one of the most
exciting, most promising dynamics that is very much an untold
story to date, but it's just really exciting to make an
electrified fleet that much more of an asset to its community.


David Roberts


Yeah, huge resiliency advantage there. Because people say that
the new Ford F-150. People will tell you that can power a
medium-sized suburban house fully for like three days on that
battery. I don't think people appreciate how big these batteries
are. And that's just one truck. I assume the battery on a bus is
much bigger. So, this is not a small amount of dispatchable power
you've got in your hands in the case of a blackout.


Duncan McIntyre


That's exactly right. Our electrified site in Bethesda, Maryland,
when it's fully operational, which is a couple more years,
there'll be more vehicles arriving. But that site will be able to
deliver five megawatts of power in a resiliency format for a
period of a little more than 3 hours, or it can deliver half a
megawatt for many, many days. That's a large hospital right
there.


David Roberts


Yeah. Wild. One other thing about utilities, before I forget, I
was reading there was a battle in Virginia, I think, recently. I
think it was Dominion. The utility wanted to get into owning
electric school buses. Owning and operating. I think maybe more
or less along the lines of what you guys are trying to do. Does
that make any sense to you?


Duncan McIntyre


It does. That's well-described and it's pretty accurate. Dominion
launched a program a couple of years ago where they proposed
owning electric school buses and the charging equipment and
basically providing them to schools, public schools in Virginia.
And they proposed rate-basing all of those investments so paid
for on your electricity bill if you're a resident in the state of
Virginia. And the case they made was that this is part of the
electricity ecosystem, and with the batteries and the buses, we
can deliver reliability services. There are varying formats of
that being proposed at utilities all across the country.


David Roberts


Interesting.


Duncan McIntyre


But in very, very few cases does the utility propose to actually
rate base the bus. And so Dominion was challenged by policymakers
in Virginia, and the policymakers ended up saying, "You cannot do
this in any sort of longer term programmatic format." It may be
that they're going to try again.


David Roberts


Was it just sort of like generalized hostility towards utilities?
Or was there some specific reason why they thought it couldn't
work?


Duncan McIntyre


I don't think so. I think the case was made that the vehicle
itself is not something that the average electricity purchaser,
the average homeowner should be paying for. That's not a fair
expense to pass on to the ratepayer. It's something that should
be passed on to the schools. Now, if the batteries have value and
you can isolate the value to help balancing the system, then
maybe that's an acceptable investment. But, I think Dominion was
early on in this movement and I would expect comeback with a
modified version of their plan that probably has a higher
likelihood of success.


David Roberts


And that would be competition to you, would it not? Some of the
same services?


Duncan McIntyre


It is and it isn't. They would be providing equipment and
agreeing to pay for some of that equipment, but that's not much
different than a grant which just pays for some of the equipment.
Dominion does not come with a suite of services to basically
ensure the fleet gets built on time and operates reliably.


David Roberts


Right. They're not going to build a depot or repair school buses.


Duncan McIntyre


That's right. And if your charging station doesn't work, are you
going to call Dominion? You're not going to call Dominion. So I
think businesses like ours have a natural ability to partner with
utilities in any format that the utility shows up in. We can plug
the gap with additional capital and with services that ultimately
benefit reliability and cost certainty to schools.


David Roberts


Okay, so then let's wrap up maybe with a final kind of question
or set of questions. So we've got the business model here
available. It's advantageous for most school districts just on a
pure cost basis, to say nothing of not pumping diesel fumes
directly into kids lungs and deafening them with jet engines as
they get to and from school. And I'm a parent in a school
district and I am taken by this and want to advocate for it.
Where do I go? To whom do I direct my strongly-worded email?
What's the best way for people to try to organize and advocate
for those?


Duncan McIntyre


I would send your email to three recipients and put them all on
the same email. The first recipient is a board member, a member
of the school board who is an advocate for this type of activity.
The second individual would be a Chief Business Officer or an
Assistant Superintendent, someone who's typically tasked with the
operating side of the house and ultimately responsible for
finance and contracts. And then the third would be the
Transportation Director, whoever's running the current fleet. And
what you do there is you get everyone on the same page. They all
hear your message. A board member can be an advocate and push
that message down, which often creates more willingness to take a
deeper look faster. A business officer can get comfortable with
the risk and the cost, and a transportation director can ground
it all in the reality of: Will this work to pick kids up and drop
them off back at home? And so that would be my advice, David.


David Roberts


This seems like a great and very obvious step for school
districts to take. Like, everybody, we needed to decarbonize,
regardless. Kids' health is particularly important. This model
overcomes the upfront cost barrier. But what if you receive
pushback along the lines of the following: we're still early days
in both electric school buses and in models like this, business
models like this. And it's very likely that a few years of
experience are going to scale a lot of things up, bring a lot of
costs down, and that the subscription fee will likely be lower in
three to five years than it is today. Why shouldn't we just wait
until the market is more fully-baked?


Duncan McIntyre


There's a decision that has to happen every single year to buy
vehicles, to replace the oldest vehicles that effectively need to
go to the scrapyard. If a school district has to buy ten new
vehicles, they have an inflection point that is immediate.


David Roberts


Right.


Duncan McIntyre


They can buy diesels or they can go electric, either on their own
or with a model like Highland's model. And so it's less about
"will the cost come down." Sure, the cost might come down for the
ten we need to buy next year and the ten we need to buy the year
after that and the year after that. But that doesn't change the
fact that we have to buy ten vehicles right now.


David Roberts


Right.


Duncan McIntyre


And if it's cheaper, arguably cheaper, with a very, very strong
argument to be made that it will always be cheaper, and it's
definitively cheaper for the next five to seven years, then that
tends to win the day with a business officer. And you really just
have to get comfortable that the technology is ready to meet the
routes and the reliability standards of your district. And
there's enough projects out there at scale that we think prove
that in a very strong way. But the last thing I would say is
that's why Highland exists, because you don't own the vehicles.
You, as the school district, are in a performance-based contract.
And so Highland only gets paid if the vehicle operates by the
mile. If the vehicle stops operating, there's an inconvenience,
but the school is not out any capital or any additional money.
And so we are truly incentivized as their partner to keep the
fleet operating smoothly, fully fueled every day for a pretty
long time.


David Roberts


Right. And it's in your financial interest to maximize
performance with the lowest possible budget.


Duncan McIntyre


That's right.


David Roberts


All that sort of constant effort of looking for economies and
looking for improvements and everything else, that's such a
mental time load that is being offloaded.


Duncan McIntyre


We agree. And David, it's not that the model is new to schools.
It's new for school buses. But, schools have been buying energy
efficiency equipment under energy savings contracts for decades.
They're very accustomed to that business model within the
operations of their plant, their facilities, and this is no
different.


David Roberts


One thing I always say about this model of subscription, rather
than buying, and this is true across product categories is if
you're just subscribing to your equipment. If a new, cooler,
better school bus comes into the world, it's to Highland's
advantage to buy it and switch it out. Unlike if you buy a diesel
bus, you're just sort of stuck with the diesel bus for whatever
it is, 10, 20, 30 years. You can see continuous improvements when
you're on a subscription model. You don't have to buy every new
model of bus. Someone else is going to do that for you. So you
will likely see improvements in hardware and service over the
course of the subscription.


Duncan McIntyre


That's exactly right. And I would also say that our customers, if
you speak with any of our customers, they would say that this
whole experience is an upgrade. We give them better insights into
their fleet. We provide a technology platform that is
state-of-the-art and robust. They have better information than
they've ever had on where the buses are located, state of charge,
the health of the vehicle, lots of analytics and other tools. And
when something goes wrong, we have people there and we're on the
phone, and we're opening up power cabinets and solving problems
very quickly. And the whole experience is, as you described, an
upgrade.


David Roberts


Well, this is awesome. Volts listeners know that I have enormous
enthusiasm for electrified postal vehicles and electrified school
buses. Those are my two favorite things in the entire world to
talk about. So I'm so thrilled, a. that you're out there doing
what you're doing, and b. that you came on and took all this time
with us. So thanks very much.


Duncan McIntyre


Yeah, David, I love your podcast. I love what you're doing, and I
was very glad that you're interested in hearing more from
Highland about our experiences and what we're seeing in the
market. So really appreciate you having us on and look forward to
hearing it live. Thanks.


David Roberts


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