June 27, 2011 (Updated February 20, 2012)

Study Alternatives Alternative 1: In-City Options at Landfill Site Food ScrapsYard TrimmingsBiosolids Case 1aDry AD Dry AD (Separate Cell) Case 1bDry AD Wet AD at Landfill Case 1cDry AD Wet AD at RWQCP Case 1dDry AD Continue Incineration at RWQCP Alternative 2: Export Case 2 Proposed San Jose AD (Zanker) Gilroy Compost (ZBEST) Continue Incineration at RWQCP Case 2a Proposed San Jose AD (Zanker) Gilroy Compost (ZBEST) Wet AD at RWQCP Alternative 3: Export Case 3 Gilroy Compost (ZBEST) Continue Incineration at RWQCP Case 3aGilroy Compost (ZBEST) Wet AD at RWQCP 2

Study Scenarios Input Assumption Scenario 1Scenario 2Scenario 3 OwnershipPublicPrivate FinancingPublicPrivate Financing RateBelow MarketMarket Rate Grants15% 0% Site Rent (Annual)$1$108,000$908,000 Carbon Adder Cost Yes No Contingency on Export Options 15% 0% 3

Projections of Food Scraps, Yard Trimmings and Biosolids Quantities (Tons/Year) Food Scraps Yard Trimmings BiosolidsTotal First year: ,00021,00027,00062,000 Last Year: ,00021,00034,00074,000 4

GHG Model Results (with Electricity Production) Alternative 1: In-City Options at Landfill SiteMT CO 2-e /Year Case 1a (All Dry AD – Food Scraps, Yard Trimmings, Biosolids)13,831 Case 1b (Dry AD – Food Scraps, Yard Trimmings; Wet AD Biosolids at Landfill)14,234 Case 1c (Dry AD – Food Scraps, Yard Trimmings; Wet AD Biosolids at RWQCP)14,207 Case 1d (Dry AD – Food Scraps, Yard Trimmings; Continue Incinerate Biosolids)21,106 Alternative 2: ExportMT CO 2-e /Year Alternative 2 (Export Food Scraps to San Jose, Yard Trimmings to Gilroy ; Continue Incinerate Biosolids) 23,329 Alternative 2a (Export Food Scraps to San Jose, Yard Trimmings to Gilroy; Wet AD Biosolids at RWQCP) 16,430 Alternative 3: ExportMT CO 2-e /Year Alternative 3 (Export Food Scraps and Yard Trimmings to Gilroy; Continue Incinerate Biosolids) 22,716 Alternative 3a (Export Food Scraps and Yard Trimmings to Gilroy; Wet AD Biosolids at RWQCP) 15,818 5

Summary of Economic Analyses: Lower Cost AD Technology Scenario 1Scenario 2Scenario 3 NPV Total Costs over 20 Years Case 1a: Food Scraps, Yard Trimmings & Biosolids Dry AD in separate Palo Alto Landfill (PALF) Uncertainty remains regarding Case 1a costs, limited data $59,861,995$73,349,155$96,226,397 Case 1b: Food Scraps, Yard Trimmings, Dry AD, Biosolids Wet AD – PALF $112,541,470$133,646,188$170,950,938 Case 1c: Food Scraps, Yard Trimmings, Dry PALF, Biosolids Wet RWQCP $111,359,855$132,185,841$169,007,164 Case 1d: Food Scraps, Yard Trimmings, Dry PALF, Biosolids RWQCP/New Fluidized Bed Incinerator on line in 2031 $132,601,325 $142,514,693$154,505,010 Alternatives 2 & 3 (Export/Incineration) NPV Total Costs over 20 Years Case 2: Food Scraps to San Jose AD Facility, Yard Trimmings to Gilroy Composting Facility (via SMaRT), Biosolids Incinerated at RWQCP/New Fluidized Bed Incinerator in 2031 $135,032,640 $116,714,351 Case 3: Food Scraps to San Jose Transfer, Yard Trimmings to SMaRT – then both to Gilroy Composting Facility, Biosolids incinerated at RWQCP/New Fluidized Bed Incinerator in 2031 $129,854,514 $112,511,650 Alternatives 2a & 3a (Export/Wet AD) NPV Total Costs over 20 Years Case 2a: Food Scraps to San Jose AD Facility, Yard Trimmings to Gilroy Composting Facility (via SMaRT), Biosolids processed via Wet RWQCP $115,598,644$117,464,701$103,029,446 Case 3a: Food Scraps to San Jose Transfer, Yard Trimmings to SMaRT – then both to Gilroy Composting Facility, Biosolids processed via Wet RWQCP $110,731,093$112,597,150$98,826,745 6

Summary of Economic Analyses: Higher Cost AD Technology Scenario 1Scenario 2Scenario 3 NPV Total Costs over 20 Years Case 1a: Food Scraps, Yard Trimmings & Biosolids Dry AD in separate PALF $202,489,030$236,505,592$294,370,715 Case 1b: Food Scraps, Yard Trimmings, Dry AD, Biosolids Wet AD – PALF $179,744,473$211,656,529$268,294,477 Case 1c: Food Scraps, Yard Trimmings, Dry PALF, Biosolids Wet RWQCP $178,943,797$210,683,346$267,027,894 Case 1d: Food Scraps, Yard Trimmings, Dry PALF, Biosolids RWQCP/New Fluidized Bed Incinerator on line in 2031 $194,566,502$217,076,078$249,502,488 Alternatives 2 & 3 (Export/Incineration) NPV Total Costs over 20 Years Case 2: Food Scraps to San Jose AD Facility, Yard Trimmings to Gilroy Composting Facility (via SMaRT), Biosolids Incinerated at RWQCP/New Fluidized Bed Incinerator in 2031 $135,032,640 $116,714,351 Case 3: Food Scraps to San Jose Transfer, Yard Trimmings to SMaRT – then both to Gilroy Composting Facility, Biosolids incinerated at RWQCP/New Fluidized Bed Incinerator in 2031 $129,854,514 $112,511,650 Alternatives 2a & 3a (Export/Wet AD) NPV Total Costs over 20 Years Case 2a: Food Scraps to San Jose AD Facility, Yard Trimmings to Gilroy Composting Facility (via SMaRT), Biosolids processed via Wet RWQCP $115,598,644$117,464,701$103,029,446 Case 3a: Food Scraps to San Jose Transfer, Yard Trimmings to SMaRT – then both to Gilroy Composting Facility, Biosolids processed via Wet RWQCP $110,731,093$112,597,150$98,826,745 7

Summary Findings Economic Analyses Scenario 1: Case 1a Lower Cost AD Technology is less costly than export options, Cases 1b and 1c are less costly than export with incineration, and comparable in cost to export options with Wet AD Scenario 2: Case 1a Lower Cost AD Technology is less costly than export options, Cases 1b and 1c are approximately same cost as export with incineration, more costly than export with Wet AD, but competitive in cost with export with Wet AD Scenario 3: Case 1a Lower Cost AD Technology is comparable in cost to export with Wet AD of biosolids, but less costly than export with incineration For all Scenarios, Higher Cost AD Technology is more costly than export cases. For Scenarios 1 and 2, Continued Incineration of Biosolids with existing incineration, then replacing it with a fluid bed incinerator in 2030, is more costly than Lower Cost Dry AD technology or Wet AD of biosolids. For Scenario 3, incineration of biosolids is more costly than Lower Cost DryAD or export, but less costly than Wet AD for biosolids with in-City dry AD for food scraps and yard trimmings (as a result of eliminating the “carbon adder” ). 8

Project Delivery Options DBOO(T) – Private ownership and financing; private design, construction, operation DBO – Public ownership and financing; private design, construction, operation DBB – Public ownership and financing; City responsible for design, construction, operation 9

Next Steps Should Site become available (note an affirmative vote was cast in November 2011) and City decide to further consider AD, other technologies: Complete CEQA checklist Obtain Firm Technical and Price Proposals for City and Export Options (performance-based RFP process; does not commit City) Review Proposals, Compare Options, Determine Course of Action 10