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Home My WebLink About12. Authorize five-year Landfill Sales Agreement with Bulldog Gas & Power with option to extend Page 1 of 9 Item 12. CENTRAL SAN CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER MEETING DATE: OCTOBER 4, 2018 SUBJECT: AUTHORIZE THE GENERAL MANAGER TO EXECUTE A FIVE-YEAR LANDFILL SALES AGREEMENT WITH BULLDOG GAS & POWER, LLC, TO SUPPLY LANDFILL GAS FOR THE PERIOD COMMENCING OCTOBER 2018 AND ENDING ON SEPTEMBER 30, 2023, WITH THE OPTION TO EXTEND ANNUALLY THEREAFTER SUBMITTED BY: INITIATING DEPARTMENT: CLI NTSHIMA, SENIOR ENGINEER OPERATIONS-RELIABILITYENG INEERING REVIEWED BY: NEIL MEYER, PLANT MAINTENANCE DIVISION MANAGER ANN SASAKI, DEPUTY GENERAL MANAGER 9 9 .a�.�.- Roger S. Bailey General Manager ISSUE Board authorization is requested for the General Manger to execute a Landfill Gas Sales Agreement with Bulldog Gas & Power, LLC, with the option to extend annually thereafter. BACKGROUND Landfill gas (LFG) has been used at the Treatment Plant since 1983. Although LFG has a lower energy density and does not burn 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 October 4, 2018 Regular Board Meeting Agenda Packet- Page 135 of 265 Page 2 of 9 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 NG prices, as well as system upgrades over the past few years. NG prices are expected to remain low for the next two to three years. Central San staff negotiated with Bulldog Gas & Power, LLC, for several months on a new agreement. The agreement contains the following provisions: 1. The proposed term of the agreement will be from October 2018 through September 30, 2023. The new price structure will be effective starting on October 1, 2018. As with the existing agreement, at the end of the contract there is a provision to extend the contract automatically in one-year increments. 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 day averaged per month to realize the discounted rate; and if 500 standard cubic feet per day is averaged for the month, then a 10 percent discount will be applied. 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 including optional termination. 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. ALTERNATIVES/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; accelerate renewable energy capital projects such as solar or wind; 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 October 4, 2018 Regular Board Meeting Agenda Packet- Page 136 of 265 Page 3 of 9 until October 2019 and 5 percent afterwards)will be approximately$4.23 per Dth. Although this cost aligns historically of what the District has paid for LFG, it still represents an increase from the cost under the previous contract due to the reduction of the discount. At an estimated LFG usage of 96,000 Dth per year, Central San will save approximately$50,000 when compared to the cost of NG through 2019 with additional savings thereafter. I n addition, Central San will continue to benefit from 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 that the item be brought before the full Board for consideration with recommended clarifications regarding the agreement included in the Position Paper. 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 2018 and ending on September 30, 2023 with the option to extend the agreement annually. Strategic Plan Tie-In GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility Strategy 1 - Conduct long-range financial planning, Strategy 2- Manage costs GOAL SIX: Embrace Technology, Innovation and Environmental Sustainability Strategy 2- Reduce reliance on non-renewable energy ATTACHMENTS: 1. Presentation October 4, 2018 Regular Board Meeting Agenda Packet- Page 137 of 265 Page 4 of 9 Aw, ., CENTRAL SAN'S LANDFILL GAS USAGE Board of Directors Meeting x � October 4, 2018 Clint Shima, P.E. Senior Engineer Plant Maintenance Division OVERVIF Central San's Landfill Gas Usage Proposed Landfill Gas Agreement Annual Landfill Gas Usage Chart Greenhouse Gas L Options if Landfill Gas Supply is Depleted i 1 October 4, 2018 Regular Board Meeting Agenda Packet- Page 138 of 265 Page 5 of 9 CENTRAL SAN'S LANDFILL GAS USAGE • Began using landfill gas in 1983 • Supplied by Bulldog Gas & Power, LLC • Historically, it was mainly used in multiple hearth furnaces, and at times for auxiliary boilers ' 3 PLANT GAS USAGE KA G'� i Cogen: 1000 Million British ti Thermal Units per day of Natural Gas(MMBTU/day NG) Furnace:275 Million British Thermal Units per day of Landfill Gas(MMBTU/day LFG) Aux Boilers:225 MMBTU/day NG Approx.400-500 thousand cubic feet per day(kcfd) 4 2 October 4, 2018 Regular Board Meeting Agenda Packet- Page 139 of 265 Page 6 of 9 RENEWABLE ENERGY (AS OF JULY 201 H) Anthropogenic Greenhouse Gas(GHG)Emissions Renewable Energy Landfill Gas Metric Ton Carbon Dioxide Equivalent(MT CO2e)* Profile 7,907 MMBTU ls% x0000 Recovered Waste Heat 20000 6,038 MMBTU 12% 15000 13,558 Solar p 116 MMBTU equivalent u t0000 Total Non-Renewable 0.22% r � 38,583 Million British 5000 Thermal Units (MMBTU) 73% MCE Renewables a 27 MMBTU equivalent 0.05% *(Calculated on a calendar basis Jan.1 to Dec.31) I5 fo PROPOSED LANDFILL GAS AGREEMENT • Terms: Five years o October 2018 to September 30, 2023 • Pricing: o Previous agreement • 25 percent discount versus natural gas(NG)pricing o New agreement pricing structure • Landfill Gas(LFG) Price: Minimum$3 and Maximum of$6 per decatherm • 10 percent discount until October 2019 (first year) • 5 percent discount with at least 400 thousand cubic feet per day(kcfd) • 10 percent discount if at least 500 kcfd • Central San to maintain onsite LFG measuring devices • Other terms and conditions remain the same as existing agreement ly 3 October 4, 2018 Regular Board Meeting Agenda Packet- Page 140 of 265 Page 7 of 9 PRICE OF LANDFILL GAS Landfill Gas Price per decatherm $e ao •LFprices Old) $5.11 ■LG prices knew) $5.00 $480 $ $4.63 $4,60 $4.59 4 49 $424 $420 azo $a.10 $4.00 $ $3.94 $3.84 3.55 $3.63 $3-71 $3.75 $3 37 $3.44 $3.4] $3' $3. $3. $3,21 $3.00 $2 69 52.00 51.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 I � ANNUAL LANDFILL GAS USAGE Landfill Gas Usage 2014-2018 Yearly Comparison 12000 10000 8000 • E X2014 0 6000 12015 t 2016 p -2017 J X2018 4000 2000 0 Nov Jan Mar Apr Jun Aug 5ep Nov Dec Feb Month I $ 4 October 4, 2018 Regular Board Meeting Agenda Packet- Page 141 of 265 Page 8 of 9 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 LS. x. :i DSII` .K.! - .._ N STAFF RECOMMENDATION Authorize the General Manager to sign a five-year agreement with Bulldog Gas & Power, LLC to purchase landfill gas ' .t 10 5 October 4, 2018 Regular Board Meeting Agenda Packet- Page 142 of 265 Page 9 of 9 QUESTIONS 6 October 4, 2018 Regular Board Meeting Agenda Packet- Page 143 of 265