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Home My WebLink About03.a. Authorize General Manager to Execute a Five Year Landfill Gas Sales Agreement wit Bulldog Gas & Power, LLC to Supply Landfill Gas for the Period Retroactilvey Commencing October 1, 2023 to September 30, 2028 with the Option to Extend AnnuallyPage 1 of 10 Item 3.a. DCENTRALSAN MEETING DATE: OCTOBER 10, 2023 BOARD OF DIRECTORS POSITION PAPER DRAFT SUBJECT: REVIEW UPDATED DRAFT POSITION PAPER TO AUTHORIZE THE GENERAL MANAGER TO EXECUTE A FIVE-YEAR LANDFILL GAS SALES AGREEMENT WITH BULLDOG GAS & POWER, LLC TO SUPPLY LANDFILL GAS FOR THE PERIOD RETROACTIVELY COMMENCING OCTOBER 1, 2023 AND ENDING ON SEPTEMBER 30, 2028 WITH THE OPTION TO EXTEND ANNUALLY SUBMITTED BY: INITIATING DEPARTMENT: CLINTSHIMA, SENIOR ENGINEER OPERATIONS-RELIABILITYENGINEERING REVIEWED BY: NEIL MEYER, PLANT MAINTENANCE DIVISION MANAGER GREG NORBY, DEPUTY GENERAL MANAGER - OPERATIONS PHILIP LEIBER, DEPUTYGENERAL MANAGER -ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER ISSUE Board of Directors authorization is requested for the General Manager to execute a Landfill Gas Sales Agreement with Bulldog Gas & Power, LLC (Bulldog) with the option to extend annually. 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 (GHG) emissions remain below the Cap -and -Trade (CAT) program's inclusion threshold of 25,000 metric tons of carbon dioxide (CO2). The LFG is priced on a consistent energy basis as NG (per dekatherm), so the lower energy content for a particular volume of LFG is recognized and normalized as it is priced based on energy content, not volume. Central San uses approximately 430,000 dekatherms (Dth) of NG per year, primarily for producing electrical power in the cogeneration system. In addition, Central San uses approximately 85,000 Dth of LFG per year in the sludge incinerators and auxiliary steam boilers. The existing Landfill Gas Sales Agreement expires on September 30, 2023, but contains a provision to October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 3 of 12 Page 2 of 10 extend the contract term annually. This new agreement allows Central San to purchase LFG at Central San's burner tip cost of NG. There is a floor price of $3.00 per Dth and a ceiling price of $9.00 per Dth. Mr. Nicholas J. Farros, President of Bulldog has requested an increase in the rate for LFG due to higher production costs and inflation, as well as system upgrades over the past few years. NG prices have risen dramatically over the last few years but are expected to stabilize in the short-term. Bulldog believes they can continue to supply LFG reliably to Central San for the next ten years. Central San staff negotiated with Bulldog for several months on a new agreement. The agreement contains the following provisions: 1. The proposed term of the agreement will be from October 1, 2023 through September 30, 2028. The new price structure will be effective starting on October 1, 2023. As with the existing agreement, there is a provision to extend the contract in one-year increments. 2. The LFG cost will match Central San's cost of NG with a minimum of $3.00 per Dth and a maximum of $9.00 per Dth. Central San must also pull 400 thousand standard cubic feet per day averaged per month; and if 550 thousand standard cubic feet per day is averaged for the month then a five 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 has requested an increase in the rate for LFG, it is still economically beneficial to continue this relationship with Bulldog. CO2 emissions from LFG combustion are considered biogenic GHG emissions, which help maintain Central San's anthropogenic GHG emissions below the CAT Program's inclusion threshold of 25,000 metric tons of CO2. Avoiding the CAT 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 CAT Program and purchase allowance for anthropogenic GHG emissions; import additional electrical power from Pacific Gas and Electric Corporation (PG&E) and incur more electrical import costs to avoid entering into the CAT 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 substituting its use with NG. Central San is currently purchasing NG at an average price of approximately $8.88 per Dth, which is the price for the NG from Shell Energy North America and for transmission for PG&E. Central San purchases approximately 17 percent of its NG at daily spot market rates, which can be volatile. Assuming the price of NG remains at the current spot market pricing for the next year, the calculated cost of LFG, based on the terms of the new agreement will be approximately $750,000. This cost aligns historically with what Central San has paid for LFG, it represents a marginal increase from the cost under the previous contract due to the reduced discount and higher ceiling. The proposed agreement will help provide five years of energy cost and planning certainty, operational stability, reduced GHG emissions, avoid CAT program credit costs, and continue to provide backup power reliability at a marginal increase in annual energy cost. October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 4 of 12 Page 3 of 10 COMMITTEE RECOMMENDATION The Engineering & Operations Committee reviewed this matter at its September 11, 2023 and October 10, 2023 meetings and recommended RECOMMENDED BOARD ACTION Authorize the General Manager to execute a five-year Landfill Gas Sales Agreement with Bulldog Gas & Power, LLC to supply landfill gas for the period retroactively commencing October 1, 2023 and ending on September 30, 2028 with the option to extend the agreement annually. Strategic Plan re -In GOAL TWO: Environmental Stewardship Strategy 4 - Identify and advance sustainability initiatives, including reducing energy usage and emissions GOAL FOUR: Governance and Fiscal Responsibility Strategy 3 - Maintain financial stability and sustainability ATTACHMENTS: 1. Presentation October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 5 of 12 Page 4 of 10 October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 6 of 12 Page 5 of 10 Central San's Landfill Gas Usage Began using landfill gas (LFG) in 1983 Supplied by Bulldog Gas & Power, LLC Primarily used in multiple hearth furnaces and at times for auxiliary boilers Gas is purchased per Metric Million British Thermal Unit (MMBtu) LFG supply has been stable and Bulldog Gas & Power, LLC, expects it to reliably supply LFG for the next ten years Fiscal Year 2023-24 Budget $780,000 Landfill Gas Uses Generate Electricity Keller Canyon Landfill Vasco Road Landfill Redwood Landfill Potrero Hills Landfill Guadalupe Landfill — permit under review Direct Use of LFG Central San Renewable Natural Gas Requires processing October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 7 of 12 2 Page 6 of 10 Central San's Electrical Reliability 1 Cogeneration (Cogen) is primary electrical supply 2. PG&E is backup (reservation charges) 3. Standby power (diesel generators) This arrangement has served Central San well in the past Plant Gas Annual Usage UTU (NG) Cogeneration: 345,000 MMBtu NG Auxiliary Boilers:80,000 MMBtu NG Furnace: 8 1,000 MMBtu LFG October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 8 of 12 3 Page 7 of 10 Greenhouse Gas LFG usage ensures that the Treatment Plant's anthropogenic greenhouse gas (GHG) emissions remain below the Cap -and - Trade Program's inclusion threshold of 25,000 metric tons of carbon dioxide Strategic Plan Goal 2 — Environmental Stewardship, Strategy 4 / Key Success Measure: Maximize LFG usage in daily operations and by capital improvements cam; Energy Sources and Carbon Emissions (June 2023) Anthropogenic Greenhouse Renewable Energy Gas Emissions (YTD) Profile (June 2023) MT COze Landfill Gas 7,443 MMB u 25000 20000 Recovered Waste Heat 4,866 MMBtu 10% 15000 11,901 Solar u 117 MMBtu eq. l0000 Total Non -Renewable 0.24% 34,804 MMato 72% 5000 MCE Renewables 816 MMBtu eq. 1.70% 0 11 Metric Tons (MT) Carbon Dioxide Equivalent (CO2e) Equivalent (eq.) Marin Clean Energy (MCE) October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 9 of 12 4 Page 8 of 10 Landfill Gas Agreement Comparison New Agreement October 1, 2023 to September 30, 2028 Pricing 0% discount NG burner tip price ($/MMBtu) 5% discount if >550 thousand cubic feet per day (KCFD) averaged monthly Min = $3.00/MMBtu Max = $9.00/MMBtu Current Agreement October 2018 to Present Pricing 0% discount NG burner tip price ($/MMBtu) 10% discount until October 2019 5% discount if >400 KCFD averaged monthly 10% discount if >500 KCFD averaged monthly Min = $3.00/MMBtu Max = $6.00/MMBtu Central San maintains onsite gas measuring devices r ':& Price of Landfill Gas ($/MMBtu) 2022-23 LFG Cost per MMBtu (2022-2023) $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 .yh ,y1 ", "' ,y1 .y1 ,y", ,y1 1y1 ,y'L �1 ,y1Y ll -r I -1 ;Y�' .y'�, ,y'� 1'c Fe 1`' It"' �� \'c �' P'�O SQ O� �' O� 1'' F¢ �i l �'� le •Savings ❑ Proposed Agreement E Current Agreement Wrice Floor ;245,000/year October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 10 of 12 5 Page 9 of 10 Annual Landfill Gas Usage LFG Use MMBtu 50000 45000 40000 35000 00 30000 v 25000 D (� 20000 J I5000 10000 5000 ' 0 2018 2019 2020 2021 2022 Year ■ 1 st Half ■ 2nd half Pros /Cons LFG Agreement Alternative I (Cap -and -Trade) Alternative 2 (Restrict Cogen) Alternative 3 (Electric Blower) Pros • No operational changes • Stay within GHG threshold • No operational changes • Stay within GHG threshold • Stay within GHG threshold n Cons • Marginal additional cost of agreement • Significant cost entering Cap -and - Trade Program • Significant electrical import costs • Cogen off for 5 months • Additional Cogen maintenance • Significant electrical import costs • Cogen off for 3 months • Additional Cogen maintenance October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 11 of 12 6 Page 10 of 10 Staff Recommendation Extending a new LFG agreement makes sense when compared against the alternatives: Operational stability Electrical reliability GHG Cap -and -Trade and carbon footprint (16% of Central San's renewable energy) Budget stability in an unstable environment Cost effective Questions 1 October 10, 2023 Special EOPS Committee Meeting Agenda Packet - Page 12 of 12 7