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Agenda 07/27/2010 Item #16C 5Agenda Item No. 16C5 July 27, 2010 Page 1 of 14 EXECUTIVE SUMMARY Update the Board of County Commissioners on the status and progress of the Landfill Gas - to- Energy Facility that will beneficially use landfill gas from the Collier County Landfill to generate electricity and, in turn, generate new revenue for the County's Solid Waste Fund. OBJECTIVE: Update the Board of County Commissioners on the development of the Landfill Gas -to- Energy Facility (Facility) that will beneficially use landfill gas (LFG) from the Collier County Landfill (Landfill) to generate electricity and, in turn, generate new revenue for the County's Solid Waste Fund. CONSIDERATIONS: The Collier County Landfill produces a substantial volume of LFG that can be used as an energy source. The LFG is currently burned off through a flare and is not used in any beneficial manner. This project proposes to use that same LFG to serve as fuel to power reciprocating engines that will generate electricity that would be sold to Florida Power and Light Company. On December 16, 2008, the Board of County Commissioners (BCC) approved the Landfill Gas Sales Agreement and Ground Lease (Agreement) that requires WMIF to design, permit, construct, operate, and maintain a Facility at the Landfill. Under the Agreement, WMIF is required to: (a) accept responsibility for all aspects of the LFG project; (b) pay all of the costs associated with the construction of the Facility and be responsible for the financial risks and liabilities related to the Facility; (c) pay the County for the LFG used by the Facility; (d) pay the County a portion of the revenue WMIF receives from the sale of electricity; and (e) pay the County under certain circumstances for the sale or use of future tax credits and - emissions credits (e.g., carbon credits). The Agreement also provides that WMIF must comply with all local, state, and federal laws that are applicable to the Facility, including, but not limited to, all regulations governing the environmental impacts of the Facility. Under the Agreement, WMIF will: (a) pay the county for LFG at a rate of $1.25 per one million British Thermal Units (MMBTU); and (b) share one -half of the revenue WMIF receives from the sale of electricity above the revenue sharing threshold when the electricity is sold for an average price greater than the revenue - sharing threshold. The revenue sharing threshold is expected to be $72.96 per megawatt-hour (MWH), based on an expected construction cost of approximately $8,850,000. This represents an increase of over 1.8 million dollars. WMIF has submitted documentation to substantiate the increase in cost (please reference the attached documents). The cost increase is due to additional design, engineering, equipment and construction cost that arose during the design and permitting process such as: Increased equipment and electrical cost to meet the air permit and FPL requirements and increased site work and construction cost to meet foundation requirements Although the cost for the facility has increased, the facility now has the capability to be expanded from 4 MW to a build out capacity of 9.6 MW. This gives the County an opportunity to generate more revenue in the future. These changes in construction costs are allowed within the provisions of the Agreement which provides for building the facility in a manner that accommodates future expansion. WMIF used a competitive bid process to secure contractors including utilizing a list of local contractors obtained from the Collier County Purchasing Department. The final pricing represents the lowest qualified bids for each phase of work which includes several local contractors and vendors. Agenda Item No. 16C5 July 27, 2010 Page 2 of 14 The schedule for the project is outlined below: • All applicable permits have been obtained by June 4, 2010, including; o US Army Corp of Engineers 404 permit, o Florida Department of Environmental Protection air permit, o Florida Department of Environmental Protection Environmental Resource permit, • Collier County Site Development Plan Amendment, and • Collier County Building pennit. • Notice to Proceed issued on July 1, 2010 • Construction will begin on August 1, 2010 • Estimated completion date is March 2010 The Facility is expected to use approximately 386,000 MMBTUs annually, which is expected to provide the County with approximately $400,000 from the sale of LFG for the first year of operation. The unit rate paid by WMIF for LEG ($1.25 per MMBTU) will be adjusted annually by a price adjustment factor that is based on the change in rates received by WMIF for electrical power sold. However, the unit rate for LEG will not fall below the initial unit rate of $1.25 per MMBTU. FISCAL IMPACT: It is estimated that the Collier County Solid Waste Fund will receive approximately $400,000 in the first year of the Facility's operation and $9.9 million over the 20 year term of the Agreement. The proceeds from the project will be placed in the air space recovery fund. GROWTH MANAGEMENT IMPACT: The development of the Facility is consistent with the County's Growth Management Plan, specifically Solid Waste Sub - Element Objective 2, Policies 2.2, 2.3 and 3.2. Additionally, in December 2006, the Board approved the Integrated Solid Waste Management Strategy, which provides Board direction for the development of a gas to energy facility at the Collier County Landfill. The project is essential to the county's goal of environmental stewardship, growth management compliance, airspace preservation, operational excellence and best value service. LEGAL CONSIDERATIONS: This item is legally sufficient for Board consideration. - JBW RECOMMENDATION: Update the Board of County Commissioners on the status and progress of the Landfill Gas -to- Energy Facility that will beneficially use landfill gas from the Collier County Landfill to generate electricity and, in turn, generate new revenue for the County's Solid Waste Fund. PREPARED BY: Dayne Atkinson, Project Manager, Public Utilities Planning and Project Management Department Agenda Item No. 16C5 July 27, 2010 Page 3 of 14 COLLIER COUNTY BOARD OF COUNTY COMMISSIONERS Item Number: 16C5 Item Summary: Update the Board of County Commissioners on the status and progress of the Landfill Gas - to- Energy Facility that will beneficially use landfill gas from the Collier County Landfill to generate electricity and, in turn., generate new revenue for the Countys Solid Waste Fund. Meeting Date: 7127/2010 9:00:00 AM Prepared By Dayne Atkinson Project Manager Date Public Utilities Division Public Utilities Engineering 7/1/2010 3:04:53 PM Approved By Phil E. Gramatges, P.E. Project Manager, Principal Date Public Utilities Division Public Utilities Engineering 7/2/2010 9:15 AM Approved By Jennifer White Assistant County Attorney Date County Attorney County Attorney 7/612010 8:51 AM Approved By Linda Best Compliance Manager Date Public Utilities Division Solid Waste Management Department 7/61201011:28 AM Approved By Dianna Perryman Contracts Specialist Date Administrative Services Division Purchasing & General Services 7/6/2010 12:29 PM Approved By Daniel R. Rodriguez Director - Solid Waste Date Public Utilities Division Solid Waste 71612010 12:42 PM Approved By Thomas Wides Director - Operations Support - PUD Date Public Utilities Division Utilities Finance Operations 7/6/2010 1:64 PM Approved By Margie Hapke Operations Analyst Date Public Utilities Division Public Utilities Division 718/201010:53 AM Approved By James W. DeLony Public Utilities Division Administrator Date Public Utilities Division Public Utilities Division 719/2010 9:37 AM Agenda Item No. 16C5 July 27, 2010 Page 4 of 14 Approved By OMB Coordinator Date County Manager's Office Office of Management S Budget 7!912010 9:57 AM Approved By Randy Greenwald Management /Budget Analyst Date Office of Management & Budget Office of Management & Budget 7/912010 12:08 PM Approved By Mark Isackson Management /Budget Analyst, Senior Date Office of Management & Budget Office of Management & Budget 7110/2010 3:46 PM Agenda Item No. 16C5 July 27, 2010 Page 5 of 14 Cor County June 30, 2010 Mr. Tim Hawkins Vice President Waste Management Inc. of Florida 2700 NW 48 Street Pompano Beach, FL 33073 RE: NOTICE -TO- PROCEED Landfill Gas to Energy Project Landfill Gas Sales Agreement and Ground Lease Collier County Project No. 59004 Dear Mr. Hawkins; This letter serves as Collier County's official NOTICE TO PROCEED (NTP) to Waste Management Inc. of Florida to commence construction of the Landfill Gas to Energy Facility at the Collier County Landfill. This NTP is issued pursuant to the Landfill Gas Sales Agreement and Ground Lease contract awarded by the Board of County Commissioners on December 16, 2008. This NTP is limited to the scope of work for: Construction and operation of the Landfill Gas to Energy Facility, project number 59004. Commencement date for the services associated herewith shall be considered to be July 1, 2010. Please execute the acknowledgment of this notice by signing the below. Retain a copy for your records and return the original to this office. cc: Diana Perryman, Contract Specialist Evelyn Colon, Fiscal Technician Agenda Item No. 16C5 July 27, 2010 Page 6 of 14 ACCEPTANCE OF NOTICE Receipt of the Notice to Proceed is hereby acknowledged by Contractor /Consultant Name: Signature Title: Address: This day of 2010 * * ** 7650 Corporate Center Drive Smite 401 Miami, FL 33126 -1220 305 884 89M Tel 305 884 2665 Fax Dayne Atkinson Project Manager, Public Utilities Division Collier County Government 3301 E Tamiami Trail, Building H Naples, FL 34112 Subject: Collier County LFGE Facility Mr. Atkinson, Agenda Item No. 16C5 July 27, 2010 Page 7 of 14 i 1 0 - J 1k; I Corporation Per your direction, URS has reviewed information regarding the LFGE facility, specifically the plant capacity and associated construction value as given by WMI. In previous correspondence, my June 4, 2010 email to you and my June 23, 2010 email to you, URS reviewed specific input from WMI to assist the County in its deliberations regarding the facility. Our efforts focused on the differential in cost between the stated 4.OMW facility budget established by WMI versus the WMI construction bid of a 9.6MW facility. As stated in my June 23, 2010 email to you, our review of the most recent WMI documents, including the WMI letter to Dan Rodriguez dated June 21, 2010, finds the cost information provided in that letter to be reasonable; that is, the cost of the $1.8M differential between the original budget and the construction bid is reasonable once one accepts that the plant facility was rated 9.6MW in both cases. The differential is comprised of costs related to the site, upgrading the facility structure, contingency, permitting and the upgrade of the exterior electrical service to the facility from 4.OMW to 7.2M W. Please contact me directly if you should have any questions or require further information. PPF Direct: 305 -514 -2462 Mobile: 305- 608 -9720 W„ cc: Michael Nardone URS Nestor Fernandez URS Agenda Item No. 16C5 July 27, 2010 Page 8 of 14 LANDFILL GAS TO ENERGY Pre - Construction Submittals By WMIF In accordance with section 4.1 of the Landfill Gas Sales Agreement and Ground Lease, at least ten (10) days before the Commencement of Construction, WMIF shall provide the Project Manager with: Document Date Submitted 1 Certificates of insurance April 16, 2010 2 C2py of all permits obtained June 28, 2010 3 Site Superintendent emergency contact information TBD 4 Information of all personnel performing work on this project TBD including each employee of WMIF, WMRE, any subcontractors, and other working on the site, pursuant to Section 4.13.6 of the Landfill Gas Sales Agreement and Ground Lease 5 Payment bond April 16, 2010 6 _ Any other documents required to be submitted before the June 28, 2010 Commencement of Construction pursuant to this Agreement. • Cost escalation justification • Revised pro -forma Agenda Item No, 16C5 July 27, 2010 Page 9 of 14 WM ReMwieNo Energy LLC. 1001 Fannin, Suite 4000 Houston, TX 77002 713.512 -6200 June 25, 2010 To: Mr. Dayne Atkinson Project Manager, Public Utilities Division Collier County Government 3301 E. Tamiami Trail, Building H Naples, FL 34112 Re: WMRE Original Estimate Basis Collier County Landfill Gas to Energy Plant Naples, Florida Dear Mr. Atkinson: The following is provided in response to your request for a summary of the $7 million original estimate of the Naples landfill gas to energy plant and the situations that have caused the estimate to increase to $8.85 million. The original estimate was developed in the 2006 - 2008 time frame. We met with the County in 2006 to discuss the concept of WMRE constructing the plant and purchasing the landfill gas from the County, and made our first written proposal on January 26, 2007. We submitted additional detail on June 15, 2007, which included a cost estimate of $6,640,000 for a 5- engine facility, with a placeholder of $400,000 for the utility interconnect Further information from FP &L later in 2007 indicated an interconnect cost of about $800,000, so we increased the estimate to $7,040,000. This estimate was included in our December 14, 2007, email comparing gas payment alternatives. During the negotiation of the gas purchase contract, it was mutually agreed by the County and WM to index the revenue sharing threshold to the final construction cost The estimate was rounded to $7 million and used in the contract as the reference point for indexing the revenue sharing threshold. The $7 million estimate was a total cost estimate based on similar projects we had completed or were constructing during 2006 - 2008. The line item breakout for Naples was based on typical ratios in the previous projects. A high end unit cost for construction during this period was about $1,7501KW, as shown below, which is the unit cost we used for our estimate: Completed Engine bays/Enaines Installed Initial MW Cost/KW I/C Cost 2006 8/6 4.8 1,235 0 2006 8/6 4.8 1,582 602,000 2006 6/6 4.8 1,192 80,000 2007 816 4.8 1,727 630,000 2008 8/6 4.8 1,776 540,000 2008 4/4 3.2 1,516 132,000 After execution of the contract, WM proceeded with finalizing the plant location, preparing the various permits for the project, and developing a conceptual design. Also during this period, the WM landfill personnel continued to make well field improvements and expansions to increase the gas flow and improve the gas quality. During 2009, it appeared that the gas flow had increased sufficiently to support 8 engines instead of the contracted 5 engines. Maximizing the plant size to the available gas flow would be beneficial to both WM and the County. However, upon continued work on the field, the flow stabilized to an amount in the 5 to 7 engine range. It was considered conservative to proceed Agenda Item No. 16C5 July 27. 2010 with an initial installation of 5 engines (4.0 MW), with an extra engine bay to allow for future Page 10 of 14 expansion. In the past few years, Caterpillar released a new engine for landfill gas applications, the 1.6-MW Cat 3520. This engine has twice the output of the 0.8 -MW Cat 3516 engine that we are using at Naples. We have a number of projects where we have installed the 3520s. Our experience to date is that the availability time has been lower and the maintenance costs have been higher for the 3520s than the 3516s. Each 3520 engine uses twice as much gas as a 3516, so It is more difficult to match the plant capacity to the gas flow, especially with a flat flow curve. The 3520 also appears to be less accommodating to low gas quality. For these reasons, the 3516s continue to be a better fn for the Naples project The 3520s do represent an option for increasing the capacity of the plant, especially as we continue to gain experience in their operation and maximize their output In the past couple of years, WM has developed a design to allow for the installation of 3516s, with provisions for swapping the 3516s with 3520s to increase capacity without increasing building size or modifying the switchgear, piping, foundations, radiators, or exhausts. We applied this design to the Naples project The ability to convert from 3516s to 3520s provides for additional expansion If the gas flow estimate is low, or if the waste stream to the landfill increases in the future, or if the County installs an organic waste diversion project that could deliver additional methane to the project. For a relatively small investment in the conversion ability, this facility is certain to accommodate a variety of situations which could increase the plant capacity without additional investment in building and infrastructure. There have been questions as to the consistency of the plant design compared to the maximum capacities of the utility interconnect and air permit. We presently have an Interconnection Agreement with FP &L for 7.2 MW of generation at a cost of about $800,000. The 7.2 MW capacity corresponds to three 3516s and three 3520s. A full build -out of the plant would be six 3520s, or 9.6 MW. If we request more generation (above 7.2 MW), FP &L will require us to go through the Interconnection Study Process again and will require a more extensive Impact Study. The more extensive process will use computer modeling to look at items such as the impact to power lines and customers and the effects of our plant abruptly shutting down or causing faults in the system. This study can uncover unforeseen problems which will need to be addressed at our cost. One item that FPL may require at their Golden Gate Substation is a high side grounding transformer to stabilize line conditions. This might cost in excess of one million dollars, but we will not know the total cost until we initiate the study. It is not urgent or prudent for us to expend funds for this study at this time, because we have not approached the gas flow to support 7.2 MW. If the landfill gas flow and quality eventually improve to support more than is needed for a 7.2 MW facility, we would evaluate the incremental cost of the interconnect and the energy pricing going forward at that time, and determine whether it is in the best interests of both WM and the County to invest in a higher interconnect capacity. As discussed above, there is a relatively small investment now to accommodate this potential situation in the future. The current air permit is for up to eight 3516s. This permit application was prepared and submitted when it appeared the gas flow would support eight 3516s, and it is again advisable to request an air permit to cover the potential size of the plant. We have 17 months from the completion of construction of the initial plant to install the sixth genset, although it is possible we could get an extension. Converting any of the engines from 3516s to 3520s would be a PSD change to the permit since the whole project would be looked at as a new project by the FDEP. The cost of an air permit to change out three gensets at one time would be around $100k and could take 18 -24 months to get. Additionally, PM -2.5 & NO2 modeling would have to be done and with the PSD project, we will have to do a BACT analysis for SO2. Similar to the interconnect, the effort and expense to permit a larger plant should be implemented at the time the gas flow can support the expansion, but the investment in conversion to 3520s gives us the capability to do this with less future capital. The current gas purchase agreement and pro forma provide for five 800 -KW engines, or 4.0 MW total. If the gas increases to a sustainable flow that is sufficient to support an expansion of 800 KW (one engine) or more. WM will submit a plan for expansion to the County, outlining the basis for the 2 Agenda Item No. 16C5 July 27, 2010 gas flow projection, the expected construction costs, the interconnect and air permitting costs al*e 11 of 14 strategy, and potential benefit to both parties. In accordance with our gas purchase agreement, the expansion shalt be subject to terms and conditions that are mutually acceptable to both parties, and shall be negotiated before any such expansion is initiated, and recorded as an amendment to the gas purchase agreement As we proceeded with detailed site location and design, a number of site- specific conditions, as well as continued cost increases since 2008, resulted in a unit cost higher than those used as the basis for the original estimate. It is WM's standard practice to obtain competitive bids for each of the work items in the project, and this procedure was also followed for the Naples project WM also obtained a list of current contract holders from the purchasing department to aid in the selection of bidders. The final pricing represents the lowest qualified bid for each phase of work, and includes several local contractors and vendors. The incremental increases in the final cost compared to the original total cost estimate are described below: Equipment: Modified the gas flow system to meet air permitting requirements, $492,853 added oil mist eliminators to collect oil mist from the engine and dispose in the used oil piping system, upgraded outdoor switchgear /metering as noted in the interconnect agreement and discussions with FP &L. We are working to reduce the FP &L outdoor gear request as we have integrated a protective relay cabinet into the control room and tied it to the controls of the switchgear. We should have this finalized shortly as we are working closely with the FP &L engineers on the interconnect and the controls/transfer trip and relaying scheme they are requiring us to install. Construction: Site Work — Additional costs to prepare the 1.7 acres of wetlands $661,706 for the construction of the facility. Includes tree and brush removal, demucking the site several feet to remove the very loose silty soils, and filling the site with suitable soil to be installed in a controlled manor according to the specifications we provided. Please note that we are not removing all the unsuitable soils to bedrock as this would be an expensive process, thus the need for a deep foundation system. Concrete — Due to the site soil conditions, we are in need of installing a deep foundation system consisting of auger cast piles and a 10" structural slab to support the facility and its equipment per the recommendation of the geotechnical engineer and structural engineer. Original budget included a 6" slab for a standard facility. Electrical — Additional scope of work to install the utility interconnect from the FP &L point of interconnect, which is at the SW corner of the landfill entrance, to the facility. We have reviewed the current utilities installed and discussed the current operations with the landfill and determined that the connection from the FP &L interconnect point to the facility should be installed underground. When a damaging weather event occurs, the FP &L corrective work starts with the transmission lines, then to the distribution lines, then to individual feed lines, so our interconnect would be the low priority for repair. By installing an underground connection, our plant will be ready to deliver service as soon as the distribution line is back on line, providing for a quicker turn around and lower cost to be back on line. Additional increase in cost is construction cost inflation since the estimate was first prepared . Expandability from 3516* to 3520s: Increase compressor capacity from 2000 $88,914 SCFM unit to a 2500 SUM unit; increase the T1 Transformer from 5500 kVA to 7500 kVA; increase the MCC 250 HP gas compressor to a 400 HP; increase interconnect conductors from 2/0 to 4/0; . increase generator conduit size from 3.5" to 4 ". Radiator and silencers are now standard for both engine sizes. No cost differential for the T2 transformer, switch ear, reactor or reicoser. Engineering: The engineering budget in the original proforma was to cover the $325,000 cost to duplicate a plant at that time of the proforma submission. Our project engineering required the additional services for the development of the facility as we needed to get other consultants involved to work through the following permit Agenda Item No. 16C5 li v 97 010 Pa e 12 f 14 processes: Air permit, ERP permit, Army Corp of Engineers, Fish and Wildlife, site g development and building permits. Several of these processes went well beyond the anticipated durations and required additional documentation for the reviewing authorities. Construction Management: The CM budget increased based on tasks we place $178,000 on our construction manager. This includes full time site supervision for the construction of the facility and the support of a project manager and assistants to properly coordinate the project from the bid process, contractor scope reviews, construction coordination, submittals, closeout and commissioning. The CM is also tasked with the additional documentation for the LEED certification process, which was requested by Collier County. Balance of additional costs: Remaining costs are associated with the County $103,527 impact fees, electrical interconnection, electrical testing and contingency. As with any of the project capital costs, the actual costs of any impact fees will be used in the final tabulation of the project cost and the calculation of the revenue sharing threshold. Funding balances remaining in these categories will be reduced from the pro forma upon completion of the construction. Original proforrna to the updated proforrna cost difference (if we keep the $1,850,000 expandable Items in the equipment and construction): In summary, at the time we executed the gas purchase contract in December 2008, we were still confident that $7 million was a representative cost of a 5- engine facility, again based on recent construction experience and no extraordinary site specific costs. Due to the variable nature of predicting gas flow curves, and the uncertainty of future waste streams and organic waste alternatives, we believe that the built -in expandability of this plant is a prudent approach for the amount of additional investment. We are providing this expandability to all of our plants on WM landfills for the same reasons. Site specific conditions and regulations at Naples have added to the cost of construction, as has price inflation during this time. Unfortunately, the increase in capital coincided with a dramatic decrease in energy pricing. These two factors have diminished the financial returns not only for the County, but also for WM. We have committed to the County to perform our obligations under the contract and proceed with this project. We stand ready to proceed with notice from the County. We look forward to moving on to this next phase of development. Please call me if you have any questions. WM Renewable Energy, LLC Paul Pabor Vice President � IT.II n�ee'� ga g � 2 g S IC S Agenda Item No. 16C5 July 27, 2010 Page 13 of 14 s I� ��m S v 501 W I'.d rL 0 All $? 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