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HomeMy WebLinkAbout07. 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 of October 1, 2023 through September 30, 2028 with the option to extend annuallyDCENTRALSAN BOARD OF DIRECTORS POSITION PAPER Page 1 of 3 Item 7. MEETING DATE: OCTOBER 19, 2023 SUBJECT: 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 OF OCTOBER 1, 2023 THROUGH SEPTEMBER 30, 2028 WITH THE OPTION TO EXTEND ANNUALLY SUBMITTED BY: INITIATING DEPARTMENT: CLI NTSHIMA, SENIOR ENGINEER OPERATIONS-RELIABILITYENG INEERING REVIEWED BY: NEIL MEYER, PLANT MAINTENANCE DIVISION MANAGER GREG NORBY, DEPUTY GENERAL MANAGER - OPERATIONS Roger S. Bailey Leah Castella General Manager District Counsel 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. October 19, 2023 Regular Board Meeting Agenda Packet - Page 41 of 127 Page 2 of 3 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 expired on September 30, 2023, but contains a provision to 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: The proposed term of the agreement will be from October 1, 2023 through September 30, 2028. The new price structure will in effect as of 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 October 19, 2023 Regular Board Meeting Agenda Packet - Page 42 of 127 Page 3 of 3 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. COMMITTEE RECOMMENDATION The Engineering & Operations Committee reviewed this matter at its September 11, 2023 and October 10, 2023 meetings and recommended approval. 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 of October 1, 2023 through 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 October 19, 2023 Regular Board Meeting Agenda Packet - Page 43 of 127