In February, Montgomery County Public Schools (MCPS) announced its commitment to replace 326 of its diesel school buses with electric school buses over the next four years. School BUSRide spoke with Todd Watkins, the MCPS director of transportation, about this exciting development and the thought processes behind it.
How did all of this come together? What were the mitigating circumstances, the impetus, and how did Highland approach you?
Highland is one of many companies that has approached me over the last few years about electric school buses. This particular introduction was through one of our state delegates, David Fraser-Hidalgo, who is very into sustainability and environmental issues. He is the one that first asked for a meeting and brought us together with Highland.
Right from the beginning, they were a class act in my mind. They actually reached out in advance and shared their story and their agenda. I so appreciated that.
We then went to this meeting, and they shared their plan, and everyone started to question if it was possible with the existing funding, because prior to this, nobody thought it was. Everybody thought you had to get a grant or come up with a pot of money to make this work.
So we started looking into it a little bit further. We wanted to make sure that as we were investigating this, we did it in a way that fit with public school procurement, and so fairly quickly we put out an RFI, so that anyone who might have similar ideas could feed us information, that way we weren’t just dealing with one vendor.
We included in the RFI that we were interested in a budget-neutral plan, we wanted to electrify, and we did not know anything about electric buses, so we wanted the expertise to be part of that.
We got maybe four or five responses and Highland was one of them. At that point we started combing through the information and really learning about it, learning about what this electric bus world entailed and what would it take to make it budget-neutral, or at least close to budget-neutral.
We talked to some people who had experience with electric buses, and we started talking to bus vendors. In fact, they started reaching out to us, we did not really have to reach out to them. During this period we were formulating our RFP, to make sure it said what we wanted it to say, and even then, even with all that prep, there were some pieces we didn’t figure out.
We wanted a bus that was like the buses we were already getting, in terms of safety features and everything else. We buy a pretty nice bus in Montgomery County, and we believe that’s actually part of our safety and driver retention program, in that if people are in a comfortable environment for the hours they spend behind the wheel, we believe that that makes people want to be in that environment for driver retention. I think a comfortable driver is a safer driver, so we put bells and whistles on related to driver comfort for those two reasons.
We knew we wanted all the things we were currently getting, and so we used a spec that had been from our last bus bid, and we did not even pay close enough attention to update it with a couple features we have added since. And I was not thinking at the time of the RFP how much every detail mattered, because that was going to be the basis for an eventual contract. We learned that along the way, and we figured out ways to get what we needed, but it would have been much better had we thought of all those things in advance and put them all in the vehicle specs in the RFP.
We got four responses to our RFP, and they varied considerably in what they offered and how much they offered. Highland was the most complete. They had clearly put thought into how this would roll out over the years, the details of providing everything, because we asked for the whole ball of wax.
Prior to that, we bought our diesels and financed them over six years, but we didn’t want to go into big debt and take on the cost of electric vehicles right away, so we asked for a lease, we asked for budget-neutral, we asked for design and install, and management of all of the charging pieces. We asked for them to include the electric in the price, and we asked for them to maintain the buses. We actually maintain all of our diesel buses in our five depots, and we have five full automotive shops that run five days a week, and we didn’t want to lose those people.
We asked that they be responsible for the cost of maintenance, but we wanted a contract for us to provide the maintenance service, and that was a way to control the total cost without getting rid of our maintenance tradition. Highland responded and provided all of that.
There was a variety of responses, and as we went through them, Highland was clearly the best one in our review team’s judgement. We pre-awarded to Highland, which is a step in our procurement process where we announce a pre-award, giving other people a chance to inquire further. During the time between pre-award and final award, we tried to hammer out a contract, and we spent from early December until just last week finishing up all of the pieces of this comprehensive contract.
And at the same time, we were spending a lot of time scrubbing the contract and worked with an outside counsel group and our own Office of General Counsel. As we were getting close to the end of that project, I felt that we had spent so much time working on the legal aspects, but I didn’t feel that we had done enough analysis of the financial pieces. Someone from our budget office really helped us with that, and there was a very complex financial model that Highland created which we reviewed extensively.
One slip of a formula somewhere could have made millions of dollars of difference over the 16 years of replacing the fleet. I wanted to go to my board with a high degree of confidence and demonstrating that we are going to spend close to the same amount that we spent on diesel buses for the first six years, and then we actually start saving money as compared to using diesel buses.
That is without any grant money. It is not grant-dependent from the school system’s perspective, which is what was important to us in inking this deal.
Highland took on all the risk of that piece. They are hoping for and expecting to get some grants in this proposal that they will be applying for on behalf of them and us, and we have a sharing mechanism for the grants when they come in. They anticipate those grants enabling them to offer continually-better pricing as we move through the entire fleet, which is important. We save directly from a grant, which will accelerate our savings. Enough grants coming in could move the saving point up to year four instead of year seven, for example.
The more grant support on Highland’s end, the more they are able to offer competitive pricing along the way. It is not grant-dependent, but that doesn’t mean we aren’t seeking grants.
What is the cost and source of financing for infrastructure?
We asked for a bundled price in the lease of the bus, which includes the use of the bus, the charging infrastructure, charge management services, the electric to run them, and maintenance.
This means we know exactly what everything is going to cost us. According to data that we collected, compared to an equivalent diesel, electric vehicles take about half of the maintenance. So that was our assumption in the financial model.
If you think about a full maintenance operation, we do everything from engine replacements and repairs to oil changes. We do the whole deal with a full parts unit, office support, and supervisors. If you take half the maintenance, you cannot just cut your maintenance budget in half. You must figure out how that evolves over the replacement of your fleet, because some of those are fixed costs that are not going to go away. Some of them are variable costs that will go away bus for bus, and then some of them are in-between. That is where the analysis really had to come into play. We needed to figure out what we are spending on diesels now, that we will not be spending on diesels going forward, that will be available to spend on electrics? That is where all the heavy financial analysis came in.
How have your mechanics reacted to the project?
This year we are leasing 25 electrics and buying 113 diesels. Next year, we are leasing 61 electrics, and the rest of our purchase will be diesel. We think it will be around 60. Then from year three on, we are doing nothing but electric, no more diesels, in terms of purchasing. We are going to let each diesel live out its useful life that we have already invested in, while replacing our fleet.
That third year will be the first year of 12 where we replace the entire fleet. Then years 13 and 14 will come back and pick up the diesels that we bought this year and next year. It is over 14 years that we replace all 1,422, and we believe that we can, as the need for maintenance comes down, save maintenance costs in two ways. One is that for each electric bus, we will save half of what we spent on diesel maintenance, and the second, is that we are going to get reimbursed by Highland for continuing our own maintenance.
Over time, we will be able to trim our maintenance staff down, so the variable part of this is the floor technician. That is the one major variable. We do not anticipate any active reductions in staffing, assuming we will be able to shrink by attrition. We have enough people that are nearing the end of their career, ready to retire in the next 14 years, that we are not anticipating anyone losing their job, which was important to us. That is why continuing our own maintenance was a non-negotiable in our RFP.
We worked out schedules on the financial end and in the contract, that detail as much of that as could be detailed in advance. We know how many state inspections we do every year, we know how often we replace tires. We know many of these things, and we have built that right into the cost. Those are things we have already estimated and put into an annual maintenance cost. We wanted to make this financial model as predictable as we could, and Highland wanted that also. Since the bus we will lease is the Jouley by Thomas, we relied on expertise from Thomas Built Buses, and American Bus Sales, our local dealer.
We looked up the statistics for every possible job, everything we know is going to happen on the electric bus, and we priced it out. We started with a price that covers a little bit of our overhead, that is similar to our current customer provided warranty rate with Thomas, and we worked it up to the point where our rate will eventually, by the time our whole fleet is done, will include all of our fleet maintenance overhead.
All of that had to be part of this analysis as you figure out how many diesels and electrics you have each given year, and how does it step up to the point where maintenance, all together, is completely reimbursed by Highland. Our contract with Highland is for four deployments. It is for 25 this year, 61 next year, 120 in year three, and 120 in year four, and we only contracted out four years because we know electric vehicle prices are going to come down.
We already see this downward trend in the pricing, and then we have built the rest of our model on assumptions about what that pricing would do down the road. We tried to be conservative so that we would not have surprises in the wrong direction. If we get surprises in the savings direction, wonderful. We escalated the price of a diesel bus at 2.5 percent, which is in keeping with our track record in our district through more than a decade of periodic increases of emissions control regulations. .
As the electrification network expands, it is leading to lower prices as all the factories switch to electric. We do not know exactly what the trade-off will be between the lower demand for diesels, and the loss of the economies of scale, and new emissions controls.
That is the escalator we used for our price-of-vehicle comparison, but then we wanted to be really conservative. In case we were too high there, we only escalated fuel at 1%, and we did not escalate maintenance at all over the 25 years we modeled out.
What gave you the confidence to pursue a project of this magnitude?
A year and a half ago, I was part of the logjam. I was content to sit back and watch somebody else go first and see how it went. But as I saw this plan unfold, I thought, “you know, maybe there’s a way to do this.” Through conferences like NAPT’s, I started to see that the whole industry is moving in this direction. So when this opportunity came along, I really lucked into it.
The reality is that I was not confident until we worked out all the details and really analyzed the financial model, formula by formula, and assumption by assumption.
What has been the reaction of neighboring counties?
I have received some emails. In Maryland, we have a tight-knit group. We are county-based, so there’s only 24 jurisdictions in the state, and we have spent several days together each year. I was on a state call with all of them recently, not about this topic, but this topic came up, and my friend from a neighboring district jokingly said, “Well, I just want to start off by thanking my buddy, Todd, over at Montgomery for giving me something new to do now.” People are definitely feeling the excitement level.
You are a very large and influential county for school bus transportation. How do you see this model, this way of doing things, as affecting the trend of EV adoption throughout the industry?
I am very blessed to be a part of this big, influential county. Sometimes I say I lucked into it or it fell in my lap. But, the reality, that I see looking back, and not often as well looking forward, is that God orchestrated my steps and blessed me with a wonderful place to build a career to support my family and work with amazing people. I started driving a bus in college for Shuttle UM at University of Maryland and worked my way up through that student-led model. I had this transportation background, so I applied for an ad in the Washington Post, and Montgomery County was hiring two depot managers because they were really strict about the degree requirement, and they didn’t have any internal candidates that had degrees at the time, and so I am very thankful that God led me here and prepared me for such a career, long before I became a Christian in 1991, and started acknowledging His work in my life.
I just applied and I got one of these jobs, and it happened to be in Montgomery County, and I can’t tell you how happy I am, because it makes a difference that people want to know your opinions. They don’t want to know my opinion because I’m Todd Watkins. They want to know my opinion because I work for Montgomery County, and it’s this big nationally-known county, and one of the biggest across the country. I imagine my colleagues in other large school systems across the country have similar experiences.
I think that this happening in a county that’s kind of known around, not necessarily for school buses, but known around the educational circles across the country, makes a difference and will help get the word out. And what I really hope ends up happening, is people will say, “Well, hey, if they can do it over there, why can’t I do it over here?”
I think that might help lead to this wave that is going to come over the school bus industry. I think it might bring the wave on a little faster and higher if people see that it can work here. Because if we can do it, there is no reason anybody else cannot do it. I have known for a while now that we’d be moving to electric buses, and I knew that at some point they would become affordable as prices dropped, but what this deal has done, and the ingenuity of Highland has done, is make that time now.
I think that is what the magic and the big story of this is. It is not that we are getting electric buses. We are certainly far from the first to do that, but we are getting electric buses with the same money we were spending on diesels.
How has COVID-19 impacted the project?
It shocked me how much work there is, and how many meetings there are, when we are not transporting any kids. I thought there could not possibly be more meetings I could participate in than what I did before COVID, and it is now three times as many. It has been a juggling act to juggle all of that, and this electric bus thing has been a close-to-full-time effort certainly since December because I was about to go to my board and tell them, “Hey, I think we should do this, and it’s not going to cost us any money” and those are pretty big statements.
The reality is that this deal took tons of analysis, which a handful of us did in depth. The board and other system leaders are relying on our analysis of it and my recommendation, and it is a bit of a precarious position, and certainly I did not go to them until I was confident with the analysis.
My boss has a great quote that she has used along the way as we are figuring all this COVID stuff out. She says, “The only way we’re not allowed to do it, is the way we know how to do it,” and I think that is so profound.
If “Joe” down the road has figured out how to conquer one of these problems, why should I figure it out again, right? So maybe I am Joe on this one, and maybe between me, Montgomery County Public Schools, and Highland we have figured out how to conquer this electric bus thing, and maybe people will take our ideas and do them the same way or take them and improve upon it. Maybe the next great idea on this will springboard from this and make it better.
I so enjoy that aspect of my career in this industry. It has been a great career for me. I have got about five years left until I am eligible to retire, and it’s just been fantastic for me. I could not have imagined a better career.