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Home My WebLink About03.a. Review draft Position Paper to authorize the General Manager to execute a five-year Landfill Gas Sales Agreement with Bulldog Gas & Power, LLC, commencing October 1, 2018, with the option to renew annually Page 1 of 8 Item 3.a. ,,e)kCENTRAL SAN CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER CENTRAL CONTRA COSTA SANITARY DISTRICT DRAFT MEETING DATE: SEPTEMBER 17, 2018 SUBJECT: REVIEW DRAFT POSITION PAPER TO AUTHORIZE THE GENERAL MANAGER TO EXECUTE AFIVE-YEAR LANDFILL GAS SALES AGREEMENT WITH BULLDOG GAS & POWER, LLC, COMMENCING OCTOBER 1, 2018, WITH THE OPTION TO RENEW ANNUALLY SUBMITTED BY: INITIATING DEPARTMENT: CLINT SHIMA, SENIOR ENGINEER OPERATIONS-RELIABILITY ENGINEERING REVIEWED BY: NEIL MEYER, PLANT MAINTENANCE DIVISION MANGER ANN SASAKI, DEPUTY GENERAL MANAGER ISSUE Board authorization is requested for the General Manger to execute a Landfill Gas Sales Agreement with Bulldog Gas & Power, LLC. BACKGROUND Landfill gas (LFG) has been used at the Treatment Plant since 1983. Although LFG has a lower energy density and does not bum as cleanly as natural gas (NG), it does provide a cost savings to Central San and ensures the Treatment Plant's annual anthropogenic greenhouse gas emissions remain below the Cap and Trade Program's inclusion threshold of 25,000 metric tons of carbon dioxide. Central San uses approximately 30,000 to 35,000 decatherms (Dth) of NG per month or 420,000 Dth per year, primarily for producing electrical power in the cogeneration system. I n addition, Central San uses approximately 8,000 Dth of LFG per month or 96,000 Dth per year in the sludge incinerators and auxiliary steam boilers. The existing Landfill Gas Sales Agreement expired on April 30, 2013. The agreement contained a provision to extend the contract term automatically in one-year increments, which Central San has been doing annually, subject to the existing terms and conditions. This agreement allows Central San to purchase LFG at a discount rate that is 25 percent less than Central San's burner tip cost of NG. Mr. Nicholas J. Farros, President of Bulldog Gas & Power, LLC, has requested an increase in the rate for LFG due to higher production costs and considerable declines in natural gas prices, as well as system upgrades over the past few years. Natural gas prices are expected to remain low for the next two to three years. Central San staff negotiated with Bulldog Gas & Power for several months on a new agreement. September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 4 of 42 Page 2 of 8 The agreement contains the following provisions: 1. The proposed term of the agreement will be from October 1, 2018 through September 30, 2023. The new price structure will become effective on October 1, 2018. 2. The LFG discount will be 10 percent less than Central San's cost of NG until October 1, 2019 and 5 percent less than Central San's cost of NG afterwards with a floor of$3.00 and a ceiling of $6.00. Central San must also pull 400 standard cubic feet per minute averaged per month to realize the discounted rate. 3. Central San will maintain processed gas measuring devices for flow and gas quality. 4. All other terms and conditions of the existing agreement shall remain the same. Although Bulldog Gas & Power, LLC, has requested an increase in the rate for LFG, it is still economically beneficial to continue this relationship with Bulldog Gas & Power, LLC. Carbon dioxide emissions from LFG combustion are considered biogenic greenhouse gas emissions, which help maintain Central San's anthropogenic greenhouse gas emissions below the Cap and Trade Program's inclusion threshold of 25,000 metric tons of carbon dioxide. Avoiding the Cap and Trade Program can have a substantial savings per year in allowance costs for Central San. ALT ERNAT IVES/CONSIDERATIONS Alternatives to executing the agreement would be to discontinue use of LFG and purchase additional NG, which would require Central San to enter the Cap and Trade Program and purchase allowances for anthropogenic greenhouse gas emissions; import additional electrical power from Pacific Gas and Electric Company and incur more electrical import costs to avoid entering into the Cap and Trade Program; or continue negotiations. FINANCIAL IMPACTS The new Landfill Gas Sales Agreement will provide energy cost savings when compared to the use of NG. Central San is currently purchasing NG at an average price of$4.83 per Dth, which consists of$3.21 per Dth for the NG from Shell Energy North America and $1.63 per Dth for transmission for Pacific Gas and Electric. Central San purchases approximately 17 percent of its NG at daily spot market rates, which can be volatile. The LFG price is based on an aggregate of the pre-purchase price, transportation costs, and the spot market price. Assuming the price of NG remains at the current spot market pricing until 2020, the calculated cost of LFG (based on the terms of the new agreement with a discount rate of 10 percent until October 2019 and 5 percent afterwards)will be approximately$4.23 per Dth, which aligns historically with LFG prices. At an estimated LFG usage of 96,000 Dth per year, Central San will save approximately$50,000 through 2019 with additional energy savings thereafter, along with the benefit of reduced anthropogenic greenhouse emissions and avoidance of the compliance obligations under the Cap and Trade Program. COMMITTEE RECOMMENDATION The Engineering and Operations Committee reviewed this Position Paper on September 17, 2018 and recommended XXXXX. RECOMMENDED BOARD ACTION Authorize the General Manager to execute a Landfill Gas Sales Agreement with Bulldog Gas & Power, LLC, to supply LFG for the period commencing October 1, 2018 and ending on September 30, 2023 with the option to renew annually. September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 5 of 42 Page 3of8 Strategic Plan Tie-In GOAL THREE:Be a Fiscally Sound and Effective Water Sector Utility Strategy 2- Manage costs GOAL SIX:Embrace Technology, Innovation and Environmental Sustainability Strategy 4- Reduce Reliance on Non-Renewable Energy ATTACHMENTS: 1. Presentation September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 6 of 42 Page 4 of 8 k�. CENTRAL SAN'S LANDFILL GAS USAGE Engineering and Operations Committee September 17, 2018 Clint Shima, P.E. � Senior Engineer - --� Plant Maintenance Division OVERVIEW Central San's Landfill Gas Usage f Landfill Gas Agreement Annual Landfill Gas Usage • Greenhouse Gas Otions i - p f Landfill Gas Supply is Depleted 1 September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 7 of 42 Page 5of8 CENTRAL SAN'S LANDFILLGASUSAGE Began using landfill gas in 1983 Supplied by Bulldog Gas & Power, LLC Used in multiple hearth furnaces and auxiliary boilers LANDFILLGAS AGREEMENT Terms October 1, 2018 to September 30, 2023 Pricing Previous Agreement— 25 percent discount New Agreement— 5 percent discount (10 percent until October 2019) with a minimum flow Aligns historically with LFG prices Central San to maintain gas measuring devices Other terms and conditions remain the same as existing agreement 4 2 September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 8 of 42 Page 6 of 8 PRICEOF LANDFILLGAS Landfill Gas Price per decatherm; 49 J,63 d�a 4.24 z ? 4.1 3.94 3 15 3.37 344 3,47 3,21 M I =3W 2W1 Rma �D, ID04 7WS 2.4M ;M? ZDCd ;MM 21310MI 49P RQUI 2114 21319 2016 Mal 2D1B 2019 7132D 5 ANNUAL LANDFILL GAS USAGE Landfill Gas Usage 2014-2018 Yearly Comparison 12000 10000 8000 E L U --0--2014 U 0 6000 2015 Ln —0—2016 Z) C7 --0--2017 J 4000 2018 2000 0 Nov Jan Mar Apr Jun Aug Sep Nov Dec Feb Month AIE4 w6 3 September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 9 of 42 Page 7 of 8 GREENHOUSE GAS Landfill gas usage ensures that the Treatment Plant's anthropogenic greenhouse gas emissions remain below the Cap and Trade Program's inclusion threshold of 25,000 metric tons of carbon dioxide Landfill gas supply has been stable and Bulldog Gas & Power, LLC, expects it to remain stable for next ten to fifteen years OPTIONS IF LANDFILL GAS SUPPLY IS DEPLETED ➢ Option 1 —Participate in the Cap and Trade Program Purchase Cap and Trade Program allowances for anthropogenic greenhouse gas emissions Utilize as much natural gas as possible Substantial cost to purchase credit allowances ➢ Option 2—Import Electricity to Avoid the Cap and Trade Program Minimize natural gas usage and maintain anthropogenic greenhouse gas emissions below the Cap and Trade Program's inclusion threshold of 25,000 metric tons of carbon dioxide May require approximately seven months of electrical import from Pacific Gas and Electric No purchase of allowances by avoiding the Cap and Trade Program, but higher Pacific Gas and Electric costs � 8 4 September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 10 of 42 Page 8of8 QUESTIONS 'h 4Xn, 5 September 17, 2018 EOPS Regular Committee Meeting Agenda Packet- Page 11 of 42