Governor Arnold Schwarzenegger?s ?hydrogen highway network? panel is poised to back premium-priced electricity rates for hydrogen production facilities to lower construction and operating costs while also asking hydrogen fuel consumers to pay a premium. Top state officials plan to broach preferential rates with the state?s investor-owned utilities next week when California Environmental Protection Agency secretary Terry Tamminen and California Public Utilities Commission president Mike Peevey meet with company executives in a bid to enlist their support for the governor?s hydrogen program, according to Shannon Baxter-Clemmons, hydrogen and alternative energy adviser to Tamminen. Under the concept?outlined by Walter Schroeder, cochair of the state?s hydrogen highway network implementation advisory panel?s economy team, which met in Diamond Bar on September 14?the CPUC would set an electric rate for operators of electrolysis units used to make hydrogen based on the average price of electricity from wind power facilities. Schroeder said such a rate would help promote using renewable energy, rather than fossil fuel, to produce hydrogen. Currently, most hydrogen is broken down from natural gas, but it can also be created from water by using large amounts of electricity. Schroeder advocated a new, premium ?uninterruptible rate? for utility customers who agree to buy power produced by hydrogen through a direct interconnection. Using the hydrogen to produce power would dramatically increase revenue for gas station operators and help convince companies to invest in the vehicle fueling network, he said. With direct purchases, state regulators could encourage a paradigm shift toward distributed generation, explained Woody Clark, a senior fellow with the Milken Institute who is active on the state?s hydrogen economy team. The team envisions gas stations installing water-to-hydrogen converters, called electrolysers. The output would be used for a stationary fuel cell to create electricity. In turn, that fuel cell could be net-metered back to utilities. In this way, the stations would use excess hydrogen for the fuel cell while providing the rest for vehicle consumption. If utility-provided electrolysers are used to create hydrogen on a massive scale, utilities stand to increase power sales. The devices typically use 40-50 kWh of electricity to produce a kilogram of hydrogen, according to the U.S. Department of Energy. By 2010, the panel wants a network of 242 hydrogen fueling stations along California?s interstate highways to fuel a fleet of 5,000 vehicles powered by both hydrogen-fueled internal combustion engines and fuel cells. Schwarzenegger promised such a network in his gubernatorial campaign. For the first several years, vehicles will need only about 10 percent of the hydrogen produced by the facilities included in the network, according to Jonathan Weinert, station cost team leader for the hydrogen panel. The team is considering other options to ?incentivize? construction of the hydrogen production and vehicle fueling stations, which it estimates will cost $244 million in capital expenses and $52 million a year to amortize and operate over a period of 15 years. To initially fund the network, Schroeder said, the state could issue bonds secured by either a carbon tax of 0.1 cent per gallon of gasoline equivalent on fossil-fuel-based energy or a 0.25 cent\/gallon tax on gasoline. Each would raise some $45 million a year, he said. Without monetary incentives, Schroeder said, the state could simply mandate that gasoline station operators?possibly including operators of natural gas vehicle stations?either pay into a fund for construction of hydrogen production and fueling stations or build such facilities themselves at some 3 percent of the state?s 10,000 vehicle gasoline stations. The panel is set to have a draft of its recommendation out as early as next month, with the final version due in December.