Pipeline Biomethane Market Development

1. Pipeline Biomethane Market Development County of Los Angeles Sanitation Agency October 9, 2009

2. Discussion Outline • Pipeline biogas market evolution roadmap • Our knowledge base on economic feasibility • Market assessment and high-level economics • Wastewater Treatment Facilities (WWTFs) • Potential proposals for WWTFs • Landfill Gas Concerns

3. Renewable Natural Gas Mixed Waste Renewable, green natural gas to pipeline Gas Clean-up & Conditioning Raw Biogas Anaerobic Digestion Syngas to Methane Phase #1 Green Waste Gasification Phase #2 Phase #3 3

4. Biogas Clean-up & ConditioningPSA Example • Commercially proven equipment for oil field applications and a few biogas installations • Modular • Need reference installations in California Product Compression (if required) Pressure Swing Adsorption (PSA) Unit Feed Compression Tail Gas To Flare

5. Our Knowledge Base18 months of Engineering Analysis

6. Our Knowledge Base18 months of Engineering Analysis

7. Market Gap Analysis and Potential Utility Role

8. Key Findings Across Pipeline Biogas Applications • Rigorous gas quality testing, monitoring and control protocols are important to ensure that gas quality standards are met at all interconnection points: at transmission or distribution levels. • SoCalGas/SDG&E provided specific guidance to biogas producers on interconnection requirements and monitoring protocols (excluding landfill gas). • Pipeline injection reduces local air emissions, allows renewable biogas assignment to highest value use. • Economies of scale are critical – driven mostly by the gas conditioning stage of the process. • WWTFs provide best vehicle for early deployment of conditioning systems for pipeline injection and critical live-project experience for other applications such as dairies and ultimately landfills. • Small biogas producers (dairies and WWTF) not generally interested in being primary participants in energy markets or technologies. Looking for partners. • Credit and technology risk issues also pose challenges. • Joint action and streamlined processes needed to move pipeline biomethane markets forward.

9. Estimated Gas Conditioning Cost $14 Small $12 MPR Range $10 $8 Conventional gas producer scale $/MMBtu Largest Large $6 $4 $2 $0 0 2000 4000 6000 8000 10000 Flowrate scfm WWTF Gas Conditioning Preliminary Data 9/14/2009 Waste Water Treatment Facility (WWTF) Demographics - SoCalGas / SDG&E Territory Size -- scfm raw Count Avg. MMsfd* Total MMscfd* MMBTU/yr 1500 - 4000 4 1.7 6.9 2,497,651 650 - 1499 0 N/A 0.0 0 300 - 649 10 0.4 4.1 1,482,980 150-299 19 0.2 3.7 1,334,682 50 - 149 46 0.1 4.0 1,436,149 5 - 49 99 0.02 2.1 772,711 Total 178 2.4 20.8 7,524,174

10. Recommendations for WWTF Biogas Development • Approve utility participation in no less than 2 WWTF commercial pilot project contracts • To refine protocols and expand knowledge base on gas monitoring and control • To validate feasibility study results on technical, economic and commercial issues • To demonstrate commercial viability and improve financeability of later projects • To provide a knowledge base that can feed into dairy and digester projects & inform long-term state biogas policy • Potential Projects of Interest (preliminary and subject to utility due diligence) Point Loma WWTF - largest in the San Diego area • Biogas to fuel 8 MW of fuel cells at UCSD and City’s South Bay Power Plant – contracts in place • Original bottle truck gas transport to UCSD/South Bay opposed by community leaders • SDG&E evaluating technical/economic feasibility of pipeline biogas delivery. Strong City/UCSD interest. • UCSD fuel cell received largest SGIP grant in history – must be in service by 4/2011. Expeditious Commission approval would be an issue should SDG&E propose to provide pipeline biogas conditioning. Escondido WWTF Demonstration Project -1/5 the size of Point Loma WWTF • Originally ERRP proposal: scope revisions/alternative funding (SoCalGas RD&D) allowed design stage • City of Escondido interested in conversion to commercial operation at end of demonstration Orange County Sanitation Agency (Plant 1 and Plant 2) County of Los Angeles Sanitation Agency (JWPCP) City of Los Angeles (Hyperion)

11. Key Contract Elements • Utility contracts with the host (or developer) to provide gas conditioning service under contract similar to a lease arrangement – effectively a capacity contract • Contract revenue provides full revenue requirement for the conditioning facility capital and operating costs • Contract contains fee component to cover utility services (i.e. contracting, billing). No cross subsidy. • Utility takes no commodity risk but may assist with gas sales transaction and/or gas management. • Commercial risk is born by shareholders, not by ratepayers. • Credit risk is minimized through specific security provisions that may include credit rating of the counter party, claim on gas sales revenue, step-in rights, letters of credit, parent guarantees • Technical and operating risk mitigated through supplier warranties and operating agreements • Contracts submitted to CPUC for approval*

12. Biomethane Capture From Landfills • Landfill gas contains the widest spectrum of contaminants to be removed in order to meet stringent gas quality specifications for interconnection to So Cal Gas, and use of such gas is not included in this effort at this time. • Declining biogas production in older landfills • Siloxane concerns with some landfills • Volatile Organic Compounds • Hazardous Air Pollutants • Benzene • Vinyl Chloride • Methyl Ethyl Ketone • Persistant Bioaccumulative Toxics • Mercury