Millions of dollars in "hydrogen highway" grants by a state commission are drawing cries of favoritism and collusion as they seem to guarantee that most refueling stations for the hydrogen fuel cell vehicles due to hit the road by 2017 will be owned by two large companies closely aligned with auto manufacturers.

Very quietly, the California Energy Commission is letting carmakers — seven of the eight companies involved are foreign-owned — decide which proposals for building hydrogen stations get the grants, authorized by a law passed in 2007.

So far, virtually all grants have gone to two corporations that deal in industrial chemicals, including liquefied and compressed natural gas, among other products — Linde Group, based in Germany, and Pennsylvania-based Air Products and Chemicals Inc. Recent grants to build the stations range from $1.4
million to $2 million each.

"It's unprecedented for these companies to decide how state money is spent," says Jamie Court, president of the Consumer Watchdog public advocacy group. "It amounts to turning the keys of the state treasury over to large corporations."

Meanwhile, at almost the same moment the Energy Commission gave preliminary approval to its most recent $23 million in grants to Linde and Air Products, the state Public Utilities Commission agreed to a lawsuit settlement with NRG Energy Inc. Since 2010, NRG has owned most assets of Dynegy Inc., one of the major electric generators that bilked California consumers out of about $10 billion during the energy crunch of 2000 and 2001.

The settlement has NRG building $100 million worth of electric car recharging stations it will own, thus assuring it will be the biggest owner of such stations for years to come. Given that leg up for NRG, it will be difficult for smaller companies to compete, a problem also set up by the Energy Commission policy.

Both Linde and Air Products are members of the California Fuel Cell Partnership, which promotes development of hydrogen cars. Others among the 32 partners include the Energy Commission and the eight carmakers — Toyota, Daimler Benz, GM, Nissan, Hyundai, Chrysler, Honda and Volkswagen. That means the commission and the automakers have steered virtually all grants to their own partners. The partnership says all members pay the same dues, but won't give an amount. The Energy Commission reports it paid $87,000 to belong in 2012.

"The grant process appears totally rigged," says Court, noting there is at least the appearance of collusion between the partner companies.

Another who believes there is illegal collusion is Paul Staples, president of Eureka-based HyGen Industries, which convinced 15 service station owners in prime locations across California to permit HyGen hydrogen pumps at their sites. These would look somewhat like today's diesel fuel pumps.

But HyGen has had only one site approved by a carmaker, a station in West Hollywood. So Staples didn't apply for one of the recent grants, explaining that one station would not allow sufficient economies of scale in making hydrogen fuel from water. Linde and Air Products locations, meanwhile, won approval from
their partner carmakers for the gas-tax-funded grants.

"The collusion is as obvious as the nose on your face," said Staples. "It would be funny if it weren't so serious. Even the yearly dues are so high, small companies need not apply."

The Energy Commission says it lets carmakers OK or veto refueling grant sites because they "possess confidential market data on potential early adopter fuel cell vehicle purchasers (like most hybrids, the first fuel cell cars will cost more than ordinary ones). On the basis of this confidential business information, (automakers) can identify … stations with the highest potential for high volume use."

It's hard to see how any carmaker would rationally believe one approved site at the same address as an Air Products plant in industrial Wilmington, near the Los Angeles-Long Beach Harbor, would draw many car owners or why it's worthy of $2 million in tax money. But that's one grant approved by a car manufacturer and tentatively rubber-stamped in April by the Energy Commission.

Both carmakers and the commission ignored proposed HyGen sites in places like San Francisco, Pacific Palisades, Sacramento and Newport Beach, locales where swarms of hybrids were bought soon after they first became available. Asked why the Wilmington site is better suited for state money, the commission said only that it never got applications for any of the others. But applications for them were not feasible since no carmaker would approve them. Catch 22.

And yet, the commission insists "there is no evidence to support the allegation of (collusion)" between carmakers and their chosen grant recipients.

The bottom line: Nothing will now undo the decision on electric car refueling stations. But there's still time for the Energy Commission to wake up and stop letting carmakers decide who gets its taxpayer-funded grants.

Thomas D. Elias is a syndicated columnist who writes about state issues. Email him [email protected] .